Who’s next?

Wednesday, 01 June 2022

Damon Kitney photo
Damon Kitney

    In an era that demands so much of leaders, does your board have the right CEO for the times? Among the lengthening list of capabilities required of top leaders, authenticity, people skills and humility are high in the mix

    When former Wesfarmers CEO Richard Goyder AO FAICD was appointed chair of Qantas, the Australian Football League (AFL) and Woodside during a whirlwind 18-month period in 2017–18, he says one word immediately became front of mind — “succession”. He views this “as the most important thing a board does”.

    “I’ve had my eyes wide open,” says Goyder. “I knew that [former Woodside CEO] Peter Coleman was eight years in the role when I took over as chair, [AFL CEO] Gillon McLachlan was always going to go in 2022, and [Qantas CEO] Alan Joyce AC has been pretty clear about his future.”

    Goyder and the AFL Commission are now reviewing an all-star cast of men and women, both within the ranks of the league and outside the inner sanctum, to replace McLachlan, who will retire at the end of the current season.

    The Qantas board and its chair will do the same ahead of Joyce’s flagged departure, at the earliest by the end of 2023.

    In April 2021, Goyder presided over an unusual succession process at Woodside where development and marketing vice president Meg O’Neill GAICD was appointed to an acting chief executive role when Coleman brought forward his retirement. She was confirmed in the top job four months later.

    Goyder reveals the initial list of candidates from headhunter Spencer Stuart numbered more than 200. “The first list I saw was 40 and we cut that down then the board got involved,” he says. “I did the initial meetings with candidates on Zoom, then the board got heavily engaged. It was time-consuming. I also had lots of one-on-one conversations with directors because I knew they had a view. If you’re truly prepared to listen to people, the views of other directors can be really important and can change your perspectives. That has happened for me, for sure. That diversity of view is very important.”

    Goyder quips that the Woodside experience now has him in “good form and match fit” to choose the successors to McLachlan and Joyce, two of the most high-profile CEOs in the nation. The task will be difficult and there will likely be fallout for those who miss out.

    Goyder is not alone among the chairs of the nation’s public and private companies and not-for- profit (NFP) enterprises in being confronted by the challenge of CEO succession in a world that has been reshaped by the COVID-19 pandemic, rising geopolitical tensions and social, environmental and economic challenges. More is being demanded of leaders by staff, shareholders and customers.

    In 2021, after listing his skills criteria for the new Woodside CEO, Goyder quipped, “That person looks like — with apologies to anyone — Jesus Christ. Then you work back from that.”

    He says the process has become even more difficult. “Running public companies or something like the AFL is harder now than it’s ever been because of the public focus. There’s always criticism. In days gone by, it came in a letter or via a phone call. Now, it’s social media and a potential pile-on.”

    Hierarchy of needs

    CEOs now need a combination of the intellectual capacity to deal with complex problems, to be strong communicators of the corporate vision to stakeholders, and to have strong execution and people skills to lead an inclusive culture that brings teams along with them. High-performing leaders also need authenticity and humility. Employees are quicker to call out styles considered overbearing or intimidating — long known as drawing from the “command and control” playbook.

    With increasing turnover in the C-suite and recent examples of CEOs who have exited their jobs prematurely due to burnout, bad fit, poor behaviour or other factors, there is much sitting on the shoulders of boards. So, how can they be sure they’re choosing the right CEO for the times?

    Executive recruiter Jason Johnson, founder and CEO of Johnson Partners, says today’s CEOs must have a number of attributes that are deeply accentuated compared to before the pandemic and prior to the era of digital disruption. “It is this notion of learning agility and being able to respond rapidly to a changing environment,” he says. “The great organisations during COVID-19 were quick to reset strategy, refocus resources and re-orient teams, which required that agility. Having an ability to have a strong customer focus is also a factor that defines CEOs today, while being digital savvy is fundamental. Unless you know how to lead a digital company or a legacy organisation through a digital transformation, you’re not a modern CEO.”

    Scentre Group chair Brian Schwartz AM FAICD oversaw what looked like a textbook internal succession when the highly-rated Peter Allen MAICD was replaced in February 2022 as CEO by Elliott Rusanow. Rusanow had joined Westfield in 1999 and worked his way up before becoming Scentre Group CFO in 2019.

    Schwartz says one of the keys to the success of the process was Allen’s move early in his eight- year tenure to start bringing the Scentre Group executive team to board meetings so they could provide regular presentations on their business segments. Allen also invited Schwartz to have several meetings each year with the team.

    “That began to expose the board to the internal candidates,” says Schwartz. “Peter is very comfortable in his own skin and not threatened by anyone around the table. So he made a point of including his executives and asked them to lead particular areas, as well. That’s something fundamental to the culture of the organisation.” Goyder says Joyce has done the same at Qantas. “Alan is very good at letting executives answer questions around the board table. He doesn’t jump in and takes the lead from them.” Steven Münchenberg GAICD, managing partner at board advisory group Blackhall & Pearl, says allowing directors to observe the dynamics between the CEO and their executive team is fundamentally important to choosing a future leader. He believes the best-performing boards allow “psychological safety” in the boardroom, “where executives can feel comfortable identifying and acknowledging issues in front of the CEO”.

    Boards need to be looking at not just what they’re being told, but how they’re being told. “What is the body language, what is the dynamic?” asks Münchenberg. “When the CEO won’t let directors talk to executives outside formal meetings, what is that about? We see CEOs who still do that. Usually, they are less experienced or are running mid-tier organisations. They should be quite willing for directors to reach out to executives.”

    As Rusanow’s prospects of becoming CEO became clearer, he was also asked last year to lead the creation of a refreshed strategy for Scentre Group and present it to the board. Then, two years ago, Scentre Group engaged headhunter Russell Reynolds and consultant Peter Fuda — founder of international management consulting firm The Alignment Partnership — to conduct assessments of the internal candidates.

    “After they started, they also did a global search so we could get an understanding of what we were comparing to,” says Schwartz. “They found 10 candidates and ranked them in comparison to our leading internal candidates.”

    At the beginning of that process, Reynolds also gave Schwartz a piece of advice he has never forgotten. “They told me, ’Don’t think Elliott should be compared to Peter today’. Peter was eight years in the job. You can’t expect someone who has never been a CEO to be the same as someone who has been a CEO for that long. It was a powerful message.”

    Ilana Atlas AO MAICD — who joined the Scentre Group board in 2021 and so was late to that succession process — is now involved in another live process at ANZ Group, where the board is looking for a successor for CEO Shayne Elliott MAICD. In March, Maile Carnegie‘s ascension to retail banking boss meant she became the leading internal candidate to succeed Elliott.

    While Atlas won’t comment on the Westfield or ANZ processes, she says boards are now thinking about growth and what sort of attributes CEOs need to have to grow organisations in a world where that is difficult. Reflecting on her experiences of multiple succession processes, the former chair of Coca-Cola Amatil and former HR director of Westpac asserts that interviews are not particularly effective ways of determining the capabilities of candidates.

    “You need multiple data points to make such an important decision,” says Atlas. “You analyse the history of the person, you have some form of assessment of their capability and there will be areas you want to test. There is not a generic set of questions you ask. It caters to the specific person. There is a judgement always, and you have to be careful about the weight you place on opinions, but it is all part of due diligence.”

    Atlas believes boards also need to be cognisant of having a CEO with the right cultural fit for the company at that point in its life cycle. Do you need someone who is visionary in terms of taking an organisation to a new level? Or is there a clear agenda of work that requires impressive execution capability?

    In this context, Atlas believes there are some situations where you need to be comfortable backing an external candidate, where you want to profoundly change the organisation. “It is not a general rule to rule them out,” she says.

    Johnson says there are also times when more directive leadership styles can work, for example, in a crisis situation at the start of the COVID-19 pandemic. “But in more benign times, a more open, transparent and collaborative leader with a high EQ might be seen as more effective,” he says.

    Telstra director Dr Nora Scheinkestel FAICD — a member of the board that recently presided over the elevation of CFO Vicki Brady GAICD to replace Andy Penn as CEO of the telco giant — says the current world requires leaders with “some new perspectives, which are likely to be required for a long time”.

    “For example, the ability to operate in times of considerable uncertainty, volatility and being able to lead sometimes remotely,” says Scheinkestel. “These attributes have come more to the fore in recent times.”

    Scheinkestel, who is also a director of Brambles and Westpac — the bank board is currently working on who will follow Peter King as CEO — says she likes to probe potential CEO candidates on their perceptions of both the external environment and the competitive landscape. “These are quite helpful to assess how plugged in they are to what is happening,” she says. “How broadly are they thinking about challenges and opportunities? Asking about their perceptions of the team is important if they are an internal candidate. And is there complacency about the competitive position of the organisation? The competitors now and tomorrow are not the old competitors. The new have far more niche models driven by technology. Does the candidate also regard ESG (environmental, social and governance) issues as box-ticking, or something they have a genuine commitment to and would be very much part of their agenda?”

    Fundamentally, Johnson says succession should be a “systematised, continuous governance cycle” that starts with a new CEO the day they are appointed — to best nurture talent within the organisation and build its future leaders.                     

    “Boards need to ask: ‘What talent do we need in the future to drive the vision, strategy and cultural development of the organisation?’ Then they need to look internally at the gaps between that vision and the people, and start working to close those gaps through developmental plans for each of the internal successors,” he says. “Development of any individual happens in years, not months. A board that is managing a process like that gives themselves multiple potential internal successors. Then they should be looking to the external market and a talent-mapping process of that market to calibrate what that pool looks like and how they benchmark against the internal candidates.”

    Affirmative action

    More than 20 years ago, Christine O’Reilly became one of the first female CEOs of an ASX 200 company when she took the role for the float of utility group GasNet. Her path to the C-suite has been followed by other women at public companies such as Coca-Cola Amatil, CSR, Lynas, Fortescue, Incitec Pivot, Optus and, most recently, Telstra and Woodside.

    Goyder is deeply proud of the fact that his Woodside board was able to appoint a female CEO to run one of Australia’s top 20 listed companies. “That is a big, forward, progressive step,” he says, noting that having a female candidate as part of any succession process is “more than implicit now”.

    “It has to be on the table,” says Goyder. “One of my regrets at Wesfarmers was that I wasn’t as good on affirmative action as I should’ve been. I should have done more in the executive ranks, in hindsight. There were one or two female candidates who I couldn’t get to take the next step to run one of the businesses. We will definitely have a female candidate at the AFL and, in due course, at Qantas.”

    Johnson agrees with Goyder that diversity needs to be consciously “inserted” into succession processes by boards and their external advisers.

    “The fact we still have so few female CEOs in the large companies shows traditional processes can lead to non-diverse outcomes,” he says.

    Scheinkestel says she can’t remember a more important time to have diverse thinking in the C-suite, given the issues facing corporate Australia and the world. Gender is a “no-brainer” part of that, but it also goes to all forms of diversity. There is still work to do, she says, on all those fronts.

    Building a pipeline

    Another hallmark of good succession planning is having the courage to rotate executives through senior management roles. Joyce has notably done this with three of his potential successors at Qantas.

    Over the past decade, Gareth Evans has shuffled from being Qantas Group CFO, to heading international and freight, to now being CEO of budget carrier Jetstar.

    Current Qantas CFO Vanessa Hudson was chief customer officer, while Qantas loyalty chief Olivia Wirth was formerly head of marketing and corporate affairs for the airline.

    However, having a range of potential successors in big public roles can fuel internal competition. Hudson made waves in March 2022 by publicly voicing her desire to be CEO. Competition for the top job also guarantees there will be fallout when a major CEO appointment is made.

    Qantas lost a host of senior executives when Joyce was appointed in 2008; as did Wesfarmers when Goyder handed the CEO baton to Rob Scott in 2017. Many of those who left saw themselves as rivals for the top job.

    Atlas says all boards must be acutely prepared for fallout from a succession process. “The consequences of an appointment need to be thought about. That is part of the package. You should not be taken by surprise by things that happen after an appointment,” she says. “These decisions are difficult and there will be consequences that you may prefer not to happen. But you accept the fact that in making that decision, they may happen. You need to have plans in place to deal with it.”

    As chair of Jawun, an enterprise that manages secondments from corporate and government partners to Indigenous partner organisations, Atlas has also run a succession process in the NFP sector when her board recently found a replacement for Jawun CEO Karyn Bayliss AM. While Atlas says the process of appointing new CEO Shane Webster was the same as for a public company, it had other challenges unique to the sector.

    “It is quite difficult to find candidates because you can’t pay well, and working out the measures of success is quite difficult,” she says. “It is also quite hard to promote internally, because they are small organisations and the career paths are less clear. Yet the skills required for the CEOs of these organisations are really up there. The demands of the job are extraordinary. Selecting CEOs for NFPs is an incredibly important role.”

    Tim Beresford FAICD, chair of The Benevolent Society, appointed former Department of the Prime Minister and Cabinet deputy secretary Lin Hatfield Dodds to the role of CEO in 2021. Beresford says he ran a process with a search firm to ascertain the relative strengths of the internal and external candidates. “You have to look at the process for what the future needs of the organisation are, whether you are public, private or NFP. For us, it was about where we wanted to take the organisation and future-proofing the group as a social policy leader.”

    In Hatfield Dodds, Beresford says the board chose an external candidate who could play an advocacy role in the development of social policy, especially with the federal and state governments.

    He says the board has already started talking to Hatfield Dodds about her succession planning, hopeful that unlike the group’s past two CEO appointments, her successor might be an internal candidate. “We discuss future hires with her, who may be future leaders of the organisation,” says Beresford. “There’s a process running now for someone to come in to lead the strategy and impact team. We hope the person who does could be Lin’s successor in five to seven years.”

    Fit for purpose

    In securing a suitable CEO, values must be mandated and demonstrated, writes Dr Denise Fleming AM FAICD.

    The role of a CEO is all about the leadership of a specific organisation, in the organisation’s unique context. As the context in which organisations operate is fluid, an organisation requires directors to ensure they review the organisation’s context and the “fit-for-purpose” aptitude of its CEO regularly.

    Before making a critical CEO hire/retain/fire decision, a board needs to include four fundamental issues of review in its preliminary undertakings to enable directors to identify and confirm their priorities and agree on a course of action. These are:

    • Mandated and demonstrated values required by the organisation’s CEO
    • Defined context in which the organisation operates, facilitating a CEO match-fit for purpose
    • CEO’s demonstrated relevant and required leadership and experience
    • Key leadership strengths of CEO matched to the organisation’s context

    As well as the organisation’s changing priorities, each organisation and industry will have many additional, unique requirements to include and identify for consideration by the board.

    Framework for board to review leadership in context

    • Board to weigh against context and prioritise
    • Board to weigh against the context

    1. Demonstrated values

    Integrity and strong governanceRespect for a wide range of peopleAccountability and consistencyInclusiveness and decisivenessTransparent communication

    2. Context of organisation

    Nature of the time frame for changeOrganisational culture and clarity of purposeOrganisation’s position in its lifecycleNature of industry competitiveness — global/ nationalNature of the workforce and people intensity

    3. Demonstrated quality of leadership experience

    • Leadership characteristics matched to the context
    • Strategic thinker and inclusive leader
    • Strategic problem-solver able to implement
    • History of resilience and of employing smart people
    • Engages, communicates and delegates with clarity of purpose

    4. Leader’s key strengths

    • Strategic with an open mind
    • Business acumen matched to the context
    • Prioritises what really matters
    • Holds themselves accountable, delegates, collaborates and grows teams
    • Memory for numbers, history and people

    Dr Denise Fleming AM FAICD is founder and MD of Foresight Management Group and Foresight Global Coaching.

    Leadership style

    By Damon Kitney & Narelle Hooper MAICD

    High-performing executives tread a fine line between a focus on performance and going too hard. Narcissistic personality types have traditionally done well in executive ranks, helped by their traits of self- confidence, risk tolerance, goal achievement and extroversion. But in recent years, several high-profile CEOs who ticked the boxes on business performance have exited amid questions about their behaviour.

    James Hardie chief Jack Truong was replaced in January 2022, the board said “to uphold the company’s core values”. Truong said he was “blindsided”by his termination and unequivocally rejected any assertions made against him.

    Cleanaway Waste Management CEO Vik Bansal exited in early 2021 after the board and he “mutually agreed” it was the right time for new leadership.

    Oil Search CEO Keiran Wulff left on medical grounds in July 2021. The board acknowledged the magnitude of the tasks he’d undertaken and said it recognised the challenges his recent health issues had presented for him.

    Board advisory Blackhall & Pearl’s Steven Münchenberg GAICD notes a growing realisation by boards of the risk of having an “alpha male, A-type personality, my-way-or- the-highway CEO”.

    “Where people subsequently lodge complaints about harassment, bullying or inappropriate behaviour, it creates difficulties for the board,” he says. “There are two sides to the story in these cases, but there is a growing recognition that those domineering CEOs can carry innate risk.”

    Best behaviour                                       

    Boards are more explicit in identifying reasons for early exits, and nomination committees and recruiters require a greater degree of behavioural psychology testing to ensure there are no surprises. “The prime driver is an awareness that, at the end of the day, there are few secrets anymore,” says Münchenberg. “More boards think they should be facing into issues, not just seeing them as a contingency to be dealt with.”

    Financial performance, however measured, has long been seen as offsetting less than ideal behaviour. “We’re moving away from that,” says Münchenberg. “You not only need to get good outcomes, you have to get them the right way.”

    Telstra director Nora Scheinkestel FAICD says boards need multiple contact points into their company to get negative feedback on potential CEO candidates and “pick up any of the amber lights” that indicate a problem.

    “Sometimes, its tempting — if the organisation is in a difficult position and someone is getting the results — to turn a blind eye to an incident and make excuses,” she says. “But you need to act.”

    Johnson Partners CEO Jason Johnson emphasises that boards reduce the risk of being caught out with a candidate that blows up in their faces by running a defined and robust succession process. “The more data points you have, the more robust the process,” he says.

    “We advocate that there are multiple elements to any CEO succession assessment. Psychometric testing, done early in the process, can be valuable. We also recommend a structured, multi- interview process to dive into candidates and their achievements. Interview panels can probe red flags that come up as a result of that.”

    At Woodside, headhunter Spencer Stuart conducted an executive intelligence assessment of the final shortlist of CEO candidates. “It was not an IQ thing,” says Woodside chair Richard Goyder AO FAICD. “It was assessing how they benchmarked against a significant group of people in terms of executives in the market. That gives you an idea of capacity and potential. Those things are important in terms of identifying upside, but also identifying a significant weakness you may not have seen.”

    Latest news

    This is of of your complimentary pieces of content

    This is exclusive content.

    You have reached your limit for guest contents. The content you are trying to access is exclusive for AICD members. Please become a member for unlimited access.