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No plan ever survives contact with the enemy. Citigroup is discovering that the old general’s aphorism is as true of succession plans as military ones. In this case the enemies are troublesome executives and impatient shareholders. With one senior manager sacked this week and others shuffled around, senior executives now admit that there is a lack of internal candidates to succeed Chuck Prince, the chief executive.
The trigger for Citigroup’s succession anxiety is the dismissal of Todd Thomson last weekend, coupled with the news this week that Sallie Krawcheck, chief financial officer, will take Mr Thomson’s job as head of the Smith Barney wealth management unit. It is a job she held until 2004, and her time as CFO is not regarded as a happy one.
Mr Thomson’s behaviour must have been embarrassing to Citigroup. At a time when Mr Prince has been struggling to demonstrate that he can cut costs, Mr Thomson was spending so freely that his office was dubbed the “Todd Mahal”. There was also unhappiness at the way he handled his friendship with Maria Bartiromo, the glamorous financial journalist.
Still, such things happen: senior executives disappoint investors, embarrass themselves or – as Chuck Prince’s number two, Bob Willumstad, did in 2005 – quit in search of greener pastures. The mark of a good succession plan is that it can adapt to events.
Mr Prince himself is now under some pressure, but one of the reasons his job does not seem especially vulnerable is that Citigroup has left itself with few credible alternatives. Since the weaknesses of Citigroup’s succession plan have left Mr Prince in a strong position, it is tempting to blame the troubles on his own self-interest. That is implausible: the executives who have jumped or been pushed were not credible CEO material – either too lightweight or, in the case of Mr Willumstad, older than the man he would be succeeding.
A cock-up, then, is a more likely explanation for the concerns over succession. In leaving too few top executives with the breadth and depth of experience necessary to run the world’s largest financial services company, Citigroup has simply got it wrong.
That should not be surprising. Succession planning is hard. Corporate employees are not chessmen to be deployed at the will of a central planner and, as they rise to the top, they will develop big egos, receive tempting offers and encounter booby traps.
The trick, then, is to cultivate a steady crop of promising managers, give them a variety of jobs that will develop their skills and experience and then hold on to several of them long enough that when the chief executive finally leaves, there is a meaningful choice of replacements. Simply to explain the challenge is to understand why so many companies fall short – and why investors are starting to take such an interest in succession plans.
The irony is that one of the most convincing justifications for conglomerates such as Citigroup is that they may provide a better and more varied training ground for managers than smaller companies. General Electric is widely thought to be the perfect example of this, although successful succession planning requires luck as well as good processes.
Citigroup is using the search for a new CFO to bring in a candidate with the potential to do the top job. That is a good first step. But a succession plan, like a battle plan, requires strength in reserve.