Episode Transcript
[00:00:00] Speaker A: Hi everyone. Ani Huang here from HR Policy association in a new episode of Lessons from the Field where we talk to executives and experts that have decades in the profession and learn their lessons, hopefully in less time than it took them to learn. So today I have with me Rich Flourish. Many of you know him. He has been on the HR policy leadership team for a long time. He was CHRO at McDonald's and before that held senior HR roles at Kraft Foods and Philip Morris. And along with Charlie Tharp, he co founded the center on executive compensation almost 15 years ago. So, Rich, thank you so much for being with me today.
[00:00:40] Speaker B: That's great. Thanks Ani. Good to be here.
[00:00:43] Speaker A: So, Rich, through no fault of your own, you've become known as a guru on CEO succession. So how did this happen? Let's start with that. What brought you to your deep thinking on this issue?
[00:00:55] Speaker B: Well, you hit on it, right? I mean, no thanks to. If you take a look at the experience that I had when I became a head of HR at McDonald's, I'll just say to start off my first year, I worked for three CEOs during that time period. So four months into my tenure, the CEO who hired me unfortunately suffered a fatal heart attack in his hotel room just a few hours before he was going to kick off the biennial worldwide convention for McDonald's. So here we are, bored at the facility, which was great to be able to have them there and to be able to get asked to come to a conference room at 5 o' clock in the morning and talk about our emergency succession plan. So I think to start off with, I learned very quickly how important emergency succession plan was. And then the individual who was elected CEO by the board, 43 year old executive who's our president from Australia.
Two weeks into his tenure, he got diagnosed with stage four colon cancer and unfortunately put up a brave fight. But nine months later he passed away. And once we knew it was terminal, the board CEO myself started talking about potential candidates and then put in a very, you know, strong set of, you know, two candidates for the board to consider.
And they made the right choice.
We went with an internal candidate and that individual had a nine year run. A fantastic performance for McDonald. In fact, his last year he was CEO of the Year, which was a great legacy for him.
But it just got me to think we were in the midst of a turnaround. If we didn't have executives ready and we had to go to the outside, I don't know how our turnaround would have worked out because somebody would have probably Wanted to put their own stamp on this.
So we were able to continue with the turnaround and have this fabulous nine year run.
So you know, I just saw the importance of having executives ready and a robust talent management process. I also worked for two more CEOs during my 12 years, so worked on some other succession. So I guess I just gained a lot of experience working on CEO succession. The other thing I would say is I had a very engaged non executive chair on this topic and he brought the board along, you know, with a lot of engagement, which I think helped us. So I learned a lot from him and the partnership that we were able to develop over time.
You know, I wish there was a course I could have taken, you know, when I first started. The good news is we now have a course at HRPA called CEO Succession. You know, that you and I both co lead. And the great thing, and I'm really proud of this is, you know, the 10 years that we've run it. Now we've got over 300 heads of HR that have attended our program. So you know what I get out of it every time that we do this program, I learn something new every time. So I think, you know, between the experience and, and being part of this great course that we offer, I continue to learn.
[00:04:23] Speaker A: Yeah, absolutely. And between our course and the work that our partners at the center for Executive Succession do on CEO succession, I think we've really drawn a lot of light to the role of the Chro specifically in CEO succession. So I'll be releasing some research at the end of this month that we're doing in partnership with the center for Executive Succession that found that actually the role of the Chro is much more important than I think a lot of folks would have thought, even more important than the role of the outgoing CEO in the minds of a lot of directors. So let's talk about that. How would you characterize the role of the Chro in CEO succession now maybe versus, you know, 15 years ago?
[00:05:06] Speaker B: Critically important. Absolutely critically important. I think boards have recognized that and I think heads of HR have upped their game over time in terms of, you know, kind of how the, how, how they can more effectively manage the process around it. I'll just give you some insights along the way.
The Chro can be viewed as the most objective party in this process.
And I want to underscore that you could be the objective partner in this process and hopefully you can have some expertise in things like talent development as well as assessments of individuals, whether it's yourself or the team that you have working in the talent function.
So that all becomes part of becoming what I consider to be a trusted advisor to both the CEO as well as to the board owns the selection.
That should be very clear and the CEO and Chro should own the process.
And you know, the other thing is driving a strong talent management program because at the end of the day you want to have candidates that are ready to be considered internally for this role.
And that requires a lot of work to get people, you know, developed, multiple candidates developed as possible CEO successors.
I think Chros need to be agile during this process. There's going to be twists and turns. This is probably a five to seven year process that you want to follow and there's going to be twists and turns during it. So you need to be agile and maybe even anticipate some of the changes that could occur over time. And then the last piece, I would say is really be a student of the strategic direction of the company so that you can really evaluate the potential candidates for the future.
There's a tendency, particularly with companies that are doing well to say, hey, want to get another person just like the current CEO?
Chances are they're going to be facing new strategic challenges in the future that the current CEO didn't. So factoring that in to your development plans is really important.
[00:07:32] Speaker A: Great. You know, one of the most common questions that we get from Chros on this, especially, you know, newer Chros is, you know, what do I do if the CEO has essentially said there's no need to worry about succession, I'm not retiring. So, you know, this is just like early days. We don't even have to worry about this as a Chro. Can. Can the Chro help sort of negotiate that between the board and the CEO?
[00:07:56] Speaker B: It's a tricky balance.
You know, what you do want to do though is particularly on getting somebody thinking about retirement, you do really want to have them beginning to put together a plan for the future when they're not CEO. What are they going to do?
Life after corporate and helping that CEO have a plan that, I mean, hopefully they get excited about because, you know, if they don't have a plan, they may want to stick around because there are serious trade offs that, you know, go along with the status of a CEO that they lost when they're no longer a CEO and you know, they had such a challenging job that kind of look to the future and say, where am I going to get all the challenges?
So I think you can play a really important role to get that CEO ready. For retirement versus sit there and say, hey, listen, I just want to stick around a little bit longer. We're having a good run. And it'd be much better for the board, the CEO, and you to have some idea as to when that person will want to retire so that you can begin planning against that.
[00:09:09] Speaker A: And sometimes, I mean, the average tenure of the Fortune 500 CEO is not that long. It's about five to six years.
We featured some research in our last session called the Life Cycle of a CEO by Claudia S. Hildebrand and Robert Stark that had some very interesting conclusions about how long is too long, how long is not enough. I mean, any takeaways from that for the Chro vis a vis kind of what the appropriate life cycle of the CEO is?
[00:09:39] Speaker B: Yeah, yeah. I love that research. And, you know, they. They did a great job with rigor, too, around the research. It wasn't just anecdotal kind of insights, but, I mean, they've got predictable kind of phases of a CEO's life cycle. The first one is the honeymoon period, which is, you know, tends to be the first 18 to 24 months of their tenure.
Then you get into something called, and these are my words now, sophomore slump.
You know, you're past that honeymoon. You're now you're into that sophomore slump.
Then they've got something called, you know, you got to kind of get out of that slump, and you got to kind of do a strategy reset.
And then as things continue to move on, you know, maybe six, seven years out, as you said, ani, which is a typical tenure, you could now get into this point where there could be a complacency trap.
Right. You know, start. You've got so much ownership in the current set of strategies because you put them in place.
You know that you're thinking more incrementally than you are that the company needs to move in a different strategic direction. And then the final phase is legacy. So as a Chro, how can you add value? Honeymoon period. Make sure you set the CEO up for success, do a fabulous job with your peers on the executive team in developing a really strong onboarding program for that new CEO sophomore slump.
Hey, Chro, do we have the right leadership team in place?
Are we getting enough new ideas as a leadership team that could be a great role for the Chro strategy reset.
Are we driving a high performance leadership team? Are there some things that you as CEO, need to be thinking about differently regarding how you're leading the team? Right. Complacencies trap is, you know, pushed, you Know, are, are we doing enough strategic redirection versus as I mentioned earlier, just kind of tweaking, you know, the programs. Things are moving at a lot different speed these days and sometimes you need to think differently about your strategy. And then finally on the legacy, get the person excited about life after the CEO.
And if you can get that, I think you've done a pretty good job of adding value to the life cycle.
[00:12:04] Speaker A: That's great, Rich. I love that. We should have an addendum added to Claudius and Robert's research. How the chro can help, how the CFO can help, because everyone is involved and should be involved, dedicated to making the CEO successful.
So where have you seen Chros lose their footing during this process? I mean, where are the watch outs that, you know, kind of the pitfalls, I guess you could say that we want to avoid?
[00:12:31] Speaker B: Yeah, yeah, there, there, there could be some stumbles and there's some challenges that if you don't overcome, you know, you might end up being impacted by these things. First one, building a relationship with the board in addition to the CEO. If you are only getting information from the CEO about the discussions regarding CEO succession, you're being hamstrung. You're not getting the full picture. So I would encourage anybody you already have an opportunity to develop relationship with the comp committee chair.
Look for opportunities to develop a relationship with the chair, the non exec chair or the lead director, whomever it is, because they're going to be the ones that are going to be kind of leading the orchestra with the board and you need to get insights from that individual in addition to the CEO.
Second, think ahead, be proactive, be aggressive with development plans. If the board feels like you're kind of moving at a slow pace and developing candidates, then they're going to be concerned about the process.
So, you know, make sure that you are aggressive in the way that you're developing your talent.
Next, don't rely on second or third hand knowledge about your, you know, your candidates. Get to know them really well so that you can provide firsthand insights to the board and get to know them, travel with them, you know, great way to see how they lead a team. Great way to get to know them more personally.
Next, be very clear that when you've got a former CEO and a new CEO, what's going to be the role clarity between those two?
You know, you want to set that new CEO up for success. Chances are the former CEO may stay on the board and how do you make sure that you don't have A CEO that is constantly looking over their shoulder based on what the board is hearing from the former CEO.
And then I would just say 50, 50 rule on CEO succession.
If you feel like you need to do an exhale after the announcement of the CEO succession and that you're almost done, I think 50% is now setting up the new CEO for success. So that's where I would jump in and say, hey, listen, let's bring the cfo, the general counsel, the head of communications, the investor relations group. Let's get together and put together a really great onboarding plan for this individual and make sure that the board is aligned with the plan.
You don't want to have disconnects between what the CEO thinks about their first six months versus the board saying, well, why is that person doing that? So that's how I would say you could stumble along the way, but there are some good things you can do to make sure you minimize that.
[00:15:27] Speaker A: Great advice. Absolutely Fantastic. All right, last question, which I'm asking everybody in this series, which is about the future.
So I feel like the past five years, maybe over Covid and post Covid, we. We saw a considerable expansion in the role of the chro, taking on a lot of responsibilities, new responsibilities or acting sort of, as you mentioned, orchestrating the cooperation in the C suite. Do you anticipate that continuing any area, especially where it comes to board relations and helping to make the CEO successful, that you think the Chro role might expand?
[00:16:05] Speaker B: You know, I don't know if it's necessarily going to expand the role, because I do think you need to, you know, be the one who wakes up in the middle of the night worrying about the process, because if the process is really strong, then I think, you know, the board, chances are they're going to end up making the right decision. But, you know, I think some of the things that you can do is, you know, taking a look to see if the CEO is getting enough, you know, idea generation from outside the organization. I think you can help encourage that. Along with the board. I think you could be particularly provocative and things like where we might have some skill deficits.
You know, at McDonald's, we were behind the curve on the digital side, so shame on us. But as you think about AI, you think about cybersecurity, there's great opportunities for a chro, you know, to really push, or do we have the right talent? Are we organized properly for success?
I've also seen that the CEO can, you know, stay close, should stay close to the board, particularly when they're going through a tough time. I've seen sometimes CEOs recoil and try and go inward when in fact, when they have tough times, they should really be actually looking to get insights from their board members in terms of how they might be able to get through stuff. So, you know, to answer your question, I don't know if the role necessarily would expand, but hopefully as we continue to elevate, you know, the impact of the Chro in this area, you know, we'll see even greater, you know, results on CEO succession and the board continuing to look for chros to play an instrumental role.
[00:17:54] Speaker A: Fantastic. Thank you so much, Rich, incredibly thoughtful and thought provoking as always. And thank you to our viewers and our listeners. Our next episode is going to be with Shelly Carlin, former Chro of Motorola Solutions, on what comes after retirement for the Chro. So don't miss it. Thanks. Bye.
