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Letter to the editor

Shame on boards for failing to groom backups

Merrill Lynch and Citigroup oust their CEOs. Then reality hits like a freight train: Neither company has a successor ready.

Shame on their boards for failing their basic responsibility of leadership development. These Wall Street titans aren't small-time, unknown companies that can afford to wait while an executive search takes place.

Posting those "Help Wanted" ads today is laughable. Talk about a tough sell: Come work for us, even though we are piling on losses by the week and no one knows for sure when the chaos crippling our companies will end.

It's hard to believe companies of this size could be in such a predicament. They have the manpower and the talent to build their bench of executives candidates.

Boards are supposed to insist on such processes taking place. A recent survey by the National Association of Corporate Directors found that 62 percent of 750 directors thought CEO succession was critical to effective board governance. Yet only 16.4 percent said they were highly effective in handling that issue.

That says a lot about where boards are in 2007 - maybe not much improved from earlier this decade when a rash of scandals rocked corporate America.

Citigroup announced this month that CEO Chuck Prince would depart from the company. The nation's largest bank estimated it would take additional losses of $8-billion to $11-billion in asset markdowns and other credit-related losses. That was on top of $6.5-billion in writedowns it took in the third quarter.

The news came less than a week after Merrill Lynch said its CEO, Stan O'Neal, had "retired," after the investment banking firm's disclosure that its losses related to the credit turmoil would be $7.9-billion, up from estimates of $4.5-billion that it had given in early October.

Citigroup's executive search is under way, but in the meantime, it turned to former Treasury Secretary Robert Rubin to be chairman of the beleaguered bank. Once the co-chairman of Goldman, Sachs & Co., Rubin has been chairman of the executive committee at Citigroup and member of the board. Sir Win Bischoff, chairman of Citi Europe and a member of the Citi management and operating committees, will serve as interim CEO.

At Merrill Lynch, Alberto Cribiore, a director since 2003 and managing principal at private-equity firm Brera Capital Partners, was named interim nonexecutive chairman. Giving him that kind of ambiguous title sends the message that no one is really running the company until a replacement is found.

That neither company was grooming a successor is symptomatic of today's business world, where executives often feel threatened by an heir apparent. Boards feed those egos by not insisting on succession talks.

On Wall Street, there is a resistance to what is known as "management bloat" - too many high-earning executives clogging the upper ranks, said Jeffrey Sonnenfeld, a professor at the Yale School of Management. He says that way of thinking may be fine - until crisis strikes.

Of course, not every home-grown CEO is a guaranteed success, but at least that person has a sense of how the operations work and doesn't need to waste time on learning the business and culture all at once.

The limp succession planning at Merrill Lynch and Citigroup couldn't come at a worse time.

[Last modified November 14, 2007, 01:09:20]