The X-factor

The succession of Anne Mulcahy at Xerox has been described as a model case in succession planning – so what have the multi-billion dollar document management giant done to ensure a smooth handover? Rebecca Goozee investigates.

“With that combination of excellent mentorship capability and a deep, fundamental care for the future of the organization she has led so well up to this point, it is hardly surprising that her succession has been so well planned”
-Beverly Behan, Board Advisor

On 1 July 2009, Ursula Burns takes the reins from Anne Mulcahy as the CEO of Xerox. As Mulcahy’s handpicked successor, Burns will face many challenges in the current climate, not least of all remaining ahead of the pack in the document management sector. However, the succession itself appears to be an extremely smooth transition of power to an heir that has been apparent for some time, which well may be one of the secrets of the succession’s success.

Angèle Boyd, responsible for IDC’s worldwide research in the areas of imaging and output, has been following the company for many years. She believes that it became overt over the past two to three years that Burns was being groomed for this position. “However, it’s only now that it has become apparent that Ursula was groomed for much longer than we thought – in other words, she’s always been viewed as a promising individual within the organization,” says Boyd, who goes on to explain that Mulcahy had to figure out a few years ago who would take her place and what those candidates could bring to the Xerox boardroom.

When Burns was made President in April 2007, it was then that Mulcahy sought advice to define each of their respective roles and responsibilities. “While Anne was CEO, Ursula was one notch behind as President. It was a very open and honest discussion, and what they concluded is that Anne would focus on the customer and Wall Street side of things, whereas the focus for Ursula would be more on operations and product development,” says Boyd. “They carved out their individual roles that made sense for them and that’s why there’s been such an open dialogue. The other thing is that during the whole turnaround process, Anne depended on Ursula quite a bit, no doubt because of Ursula’s background, strength and understanding of the product portfolio, particularly around what needed to be done and where there were holes.” 

And while Mulcahy leaned on Burns, it seems the same is true the other way round. According to Boyd, Burns clearly saw how Mulcahy brought the team together and kept the entire company – not only her management team, but the employees – motivated and focused, like a true leader. “Whether she had those talents or not, Ursula had firsthand experience, which was par none in terms of relevance for going forward as the new CEO.”

Successful succession
The transition of Mulcahy to Burns is a stark contrast from when Mulcahy took up the position herself. In 2000, then-CEO G. Richard Thoman resigned after only a year due to the pressure of attempting to execute a turnaround. Mulcahy succeeded him, as she was President at the time, before then-Chairman Paul Allaire stepped back as CEO until 2001 when Mulcahy officially became CEO. With this in mind, Mulcahy wanted to ensure that her succession was a completely different affair: being well planned and with as little disruption to the organization as possible.

Beverly Behan, the founder of Board Advisor, worked with Mulcahy back in 2001, when she first became Chairman and CEO of Xerox. “She struck me as someone who would be a superb mentor. Moreover, she cared deeply about the organization that she was leading. One thing that I always thought made Anne an outstanding CEO is that, as a leader, she always put Xerox first. It was never about Anne, the person, it was always about Xerox – and you certainly can’t say that about every CEO,” says Behan. “With that combination of excellent mentorship capability and a deep, fundamental care for the future of the organization she has led so well up to this point, it is hardly surprising that her succession has been so well planned.”

Behan believes that there are two things in particular worth noting about this particular succession. As Mulcahy identified Burns fairly early on in her own tenure as having the potential to be her successor, it gave Burns the opportunity to function in a role that provided a corporate-wide perspective. “It’s well known that executives who are ‘silo’d’ in one business unit or role often don’t begin to operate from that corporate level until far too close to the point of succession itself,” explains Behan. “Moreover, Anne gave Ursula challenging assignments to prove herself, both to the board and her Xerox peers, including downsizing the workforce by nearly 40 percent and filling gaps in product offerings that enabled Xerox to be more competitive in selling to small and midsized businesses.”

Secondly, Behan believes that one of the things that Mulcahy found valuable prior to assuming the CEO role at Xerox was having the experience of sitting as a board member on other public company boards. Behan herself believes that this is an extremely valuable experience for any new CEO to have as it provides a perspective from “the other side of the board table” that can be beneficial in working with your own board as CEO. Mulcahy herself had served as a member of boards for Target, Citigroup, the Washington Post and Fannie Mae. She ensured that Burns also sat on some outside public boards as part of her own development, including American Express and Boston Scientific, although Burns resigned from the latter upon being named CEO of Xerox.

“Ursula had firsthand experience, which was par none in terms of relevance for going forward as the new CEO”
-Angèle Boyd, IDC

Importance of selection
There is no doubt that the selection of a CEO is arguably one of the single most important decisions any board makes in terms of its impact on an organization and its value to shareholders. Ensuring that there is an internal executive talent pool that has the capability to be effective in providing leadership to the company is essential. In the past, when boards were less focused on good succession planning and found themselves caught with no internal candidates, they were forced to go outside for a new CEO. There are several downsides of this: often a new CEO could be a mis-match to the company in terms of both corporate culture and other factors – Robert Nardelli at Home Depot is a classic example of this.

So what are the key steps to ensure that leadership in an organization is transferred correctly? Behan believes that the first step is for every member of the Board of Directors to become engaged early on, at least three to five years in advance of an anticipated CEO transition. “In thinking about what the real requirements will be for the organization in terms of the next CEO, identifying a pool of potential inside candidate, assessing how each of these ‘stacks up’ against the future CEO requirements and ensuring that steps are taken to close the gaps between an executive’s current state of readiness and the real requirements of a CEO job,” explains Behan.

Looking at Xerox this typically involves giving the executive work assignments that force him or her to develop professionally and broaden their capabilities to the point that they can be successful in a CEO role. “It can’t be done in a couple of months,” advises Behan. “For example, if the next CEO really needs to have international experience and your top two candidates have only had domestic assignments, sending someone to Brussels for six months won’t give them the depth you need; you are looking at a two year assignment. And after that, a potential promotion to Chief Operating Officer or President for another 18-24 months before you can make that person CEO. If you don’t get started at least three to five years out, you become very limited in terms of the grooming you can do for your high potential executives – and that can often compromise your internal candidates and force the board to have to go outside of the organization.”

By ensuring that the board is involved in the decision-making process earlier it means that all parties are aware of the issues and gets engaged on the issue, allowing all kinds of criteria to be accounted for that perhaps wouldn’t have been otherwise. “Whenever I work with a board on CEO succession planning, I begin by interviewing every member of the board, the current CEO and all the key players on the executive team about the criteria for the next CEO and the potential candidates to fill that role. This ensures everyone is involved in the process and brings multiple lenses to the situation, which are extremely valuable, particularly at the outset of a succession planning process,” says Behan.

Boards often see internal CEO candidates through a very narrow window at board meetings, off-sites and informal board dinners, and many board members are asked to make judgments about their potential to become a CEO based on this. However, increasingly these processes are changing and boards are demanding multiple perspectives on candidates to better inform their own judgment, including formal third party executive assessments, feedback from the board and the CEO comparing the candidate to the actual criteria they have developed. “In the case of Xerox this involved Anne giving Ursula challenging assignments, as a means of not only broadening his/her development but as a proving ground,” believes Behan.

Moving forward
Boyd is convinced that Burns’ move into the CEO position will not result in any major changes for the company, at least not straight away. With a strong strategy in place, it doesn’t make sense that Burns would feel she needed to make her mark by making drastic changes, adds Boyd. “The strategy has been unfolding ever since Anne took over and brought the company back from the brink, and it’s a very good strategy that is currently in place – they’re a very visionary company, and they’re bold. They tend to lead the industry as opposed to follow it, and while they’re sometimes a little early with a technology or product, they eventually pave the way and other vendors follow them because they create the market opportunity. So I don’t expect any immediate change in that.”

What everyone will be looking at, however, knowing their respective strengths and backgrounds, is how or if the services side will change going forward, because Burns’ strengths are much more on the hardware part of the business. “I’m going to be very interested to see what will happen with the services strategy going forward – whether her attitude will be to continue letting the people run that side of the business run with it as opposed to giving hardware a higher priority, because the businesses has changed and services have become incredibly important. I’m curious to see what will happen to their services strategy in general, and whether she’ll give them as much clout in the strategy going forward. It is assumed that Ursula will continue to focus on the importance of services because she knows the importance of it and she’s seen how it has become a core part of Xerox’s strategy.”

Top of Burns’ to do list is ensuring that she continues to take Xerox in a visionary direction, as this is what the company is known for, but also to execute this flawlessly and continue to take market share. Exactly what Burns will do and how she will go about it remains to be seen, however, if her future at Xerox is as well planned as her succession she will be a textbook CEO.

A shock departure?
Robert Nardelli’s sudden departure from Home Depot in 2006, was a sharp disruption to the Fortune 500 giant. When Nardelli came to Home Depot as CEO in December of 2000, much was expected of him. While he was well trained in finance during his long career at General Electric, increased Home Depot’s return on capital impressively, to almost 20 percent, and stock was right where it was when he got the job six years earlier, the company market value had actually fallen by 40 percent. The bottom line was that although Nardelli had increased both revenues and profits enormously, investors didn’t believe he could invest increasing amounts at an attractive return in the future and his blunt, critical and autocratic management style turned off employees and the public.

By bringing someone in to run the company, Home Depot was ignoring some of the key points of succession planning – that the individual needs some experience of the company culture, and the company needs to know exactly where the strengths of the candidate are. In this case, Nardelli’s poor public relations led to his downfall.

The key steps to a smooth transition
Yaarit Silverstone, Managing Director of the Accenture Talent & Organization Performance practice believes that there are a number of critical steps to ensure that leadership in an organization is transferred correctly:

• Critical positions (e.g. CEO, CFO, CTO) requiring succession candidates are identified and the list updated on a regular basis
• High-potnetial individuals are nominated as succession/leadership candidates by senior executives and managers
• Mentors are assigned to each succession candidate to guide and assist with their development
• The list of succession candidates is reviewed and updated regularly, based on the performance of the candidates
• Candidates are removed from the succession list when they repeatedly fail to progress on their development plans, or their performance is lower than expected for an extended period of time
• Open leadership positions are filled from the list based on the candidate best suited for the job
• Candidates are given rotational assignments and job experiences that will help them develop the skills required for a leadership role
• The succession planning process is regularly monitored and updated as required