Clever Geek Handbook
1 March 2026

Business War Games

Recommendation

This short manual provides an action-oriented introduction to the art of the war game. Benjamin Gilad presents interesting anecdotes and examples from ancient and contemporary military and economic history. He offers a general description of the war-game process, the circumstances under which this role-playing exercise is appropriate, and tips on what to do and not do. He also supplies a detailed by-the-clock description of an exemplary war game. BooksInShort finds that his book will help any manager who is considering using war gaming and is wondering how to start.

Take-Aways

  • War games are role-playing exercises.
  • Computerized game-theory programs cannot capture human and organizational responses. That requires personal interaction.
  • Governments have used war games to plan actual military exercises.
  • Companies have used them to enact and assess product launches, acquisitions and other “strategic junctures.”
  • Play a war game only when its outcome can change or affect a decision.
  • Each team should include people who know the competition, the industry and the regulatory environment.
  • Participants should take on a character, much as an actor immerses in a role.
  • War games need simplicity, realism and transparency.
  • Those who are thin-skinned, politically correct, shy or unwilling to face unpleasant facts should not participate in war games.
  • Players must be free to voice their ideas, even if they seem oppositional, risky or countercultural.

Summary

What Is War Gaming?

War gaming is a business technique that uses in-depth role-playing. However, few managers outside of the top ranks have ever participated in a war game. Most corporations invest in computer power, consultants and the other impedimenta of war games, and then restrict attendance to senior executives. Yet, war games do not require such elaborate, expensive outfitting. Straightforward war games can help any manager make better competitive decisions. War games are useful to prepare for market shifts, experiment with strategies, manage new initiatives, create support for a business case, diagnose its deficiencies, and attack – or defend against – your competitors. War games can break through conventional wisdom, reveal crucial data gaps, create support for a campaign and improve awareness of your firm’s position.

“War games in business are hot.”

War games involve acting out various roles. Preparation includes researching your competitors and other parties whose decisions may change your field of play. Computers are not necessary and may even be a disadvantage. Simulations based on computer programs and game theory turn out to be unrealistic, because no mathematical formula can predict or program human and institutional responses to changing circumstances. Live role-playing works best. If you want to hold a war game, your firm’s situation should meet five prerequisites – three formal and two informal. The formal prerequisites are:

  1. A decision or a plan is at stake.
  2. Third parties can determine its success or failure, but you don’t know their intentions.
  3. The wrong decision will be costly.
“If nothing more, a war game is a great catalyst to push managers to actually research their competitors, rather than rely on their anecdotal, personal experience with them.”

The informal – but no less important – prerequisites are:

  1. Management is willing to adjust its strategy and plans if the game reveals weaknesses.
  2. Management permits information to flow freely during the exercise.

Famous Games

War games date almost to the dawn of civilization. Sumerian generals sketched battlefield simulations. Frederick the Great carried a war game kit. In the 1800s, Otto von Bismarck studied probable political responses to his plans, and devised strategies that united Germany. In 1976, Israeli forces used a thorough, detailed war game to plan the rescue of hostages held in Entebbe, Uganda. They role-played the hijackers, who had taken over an Air France flight between Tel Aviv and Paris, and the Ugandan sentries, officers, radar operators and other potential participants on the ground, including erratic Ugandan leader, Idi Amin. Israel’s successful rescue mission took about 90 minutes, thanks to thorough, realistic war game preparation.

“Based on my experience with both human and computer-based games, role-playing games bring far superior results, because predicting human and organizational behavior is far beyond current mathematical models.”

In the 2002 Millennium Challenge, a $250-million, war game exercise, some 13,500 participants enacted a hypothetical U.S. military campaign “against an unnamed Middle East opponent.” The Blue Team represented the U.S. at a time when Secretary of Defense Donald Rumsfeld wanted to reshape its military into a “technological powerhouse.” Paul Van Riper, retired head of the Marines’ Combat Development Council, led the hypothetical Middle Eastern Red Team. Red humiliated Blue with unconventional tactics, rendering Blue’s high-tech military power all but impotent. For instance, Red sank Blue’s navy with suicide attacks. This was so unexpected and unwelcome that the game’s organizers vetoed it. They resurrected Blue’s navy and told Van Riper to disable Red’s air defenses so Blue could attack successfully. Rumsfeld’s team declared victory, having followed a “script,” but not having played a genuine war game. They took the U.S. to war in Iraq using tactics they believed should, in all rightness, have won both the Challenge and the actual war. Van Riper soon quit.

Predicting the Competition

War gaming can help improve your chances of predicting what your competitors will do. Your forecasts won’t be infallible, but they will be realistic. Preparing involves analyzing market circumstances and trends. Michael Porter, author of Competitive Strategies, provides a useful theoretical framework for this analysis. He identifies five forces – industry rivalry, “threatened lower cost substitutes,” new market entrants, suppliers and end-users – whose interactions shape your business. Shifts in these realms create new threats and opportunities. Your competitors’ responses to such shifts come from their managerial thinking and assumptions as expressed in their strategy and capabilities. Recent work in cognition and neuroscience, however, suggests that rationalization often replaces reason, so managers act out of habit, bias and other irrational factors. To make your game more predictive, use these questions that focus on relevant issues:

  • “Is the competitor satisfied with its present position in the market?” – Managers who are complacent with the status quo will not undertake a dramatic change.
  • “What are the competitor’s hot buttons?” – Some companies have certain issues that drive them to almost instinctive, reflexive action. Know your flash points so you can avoid (or, if need be, provoke) a strong response.
  • “What are the competitor’s blind spots?” – IBM failed to counter Dell’s direct sales model because its leaders did not believe customers had enough sophistication to buy computers without guidance from a sales rep. Ticketmaster’s managers were blind to the emergence of a secondary market, so StubHub exploited resale tickets. [can cut]

Role-playing the Competition

War gaming involves acting. Participants become different characters and must put themselves into their roles wholeheartedly, as if they were on stage. For instance, the gamers representing your competition should begin by understanding your rival’s primary objective, so they know what moves to make in the game. They should ask themselves how they would act under certain circumstances to achieve their primary competitive goal. Their actions should make sense in the context of that goal and the competitor’s character. Game theory provides a very rational, mathematical approach to analyzing competitive situations. Yet, it has severe limitations – most significantly, the fact that people are not ruthlessly rational.

“The only limitation on simple, low-cost, transparent war games is that they should be focused on one industry or one set of players at a time.”

“Hindsight Games” are hypothetical, ex post facto war games that assess what your firm might have done better at a “strategic juncture,” if it had been given the information it has now. When Fox Sports challenged ESPN’s cable sports monopoly, a hindsight game could have helped ESPN identify the ways it could have countered Fox, instead of losing viewers and market share. Such games also can provide insight into acquisitions, like Quaker’s disastrous purchase of Snapple. In fact, acquisitions are so momentous that it is staggering to imagine any firm entering one without first war gaming it – yet most transactions proceed without preliminary games.

“Executives (and their communication departments) may have a strong need to rationalize their decisions, but that does not mean that they acted out of rational consideration.”

Using war games before you act in some significant way makes sense, particularly when you need to know with some confidence what your competitors’ probable responses will be. War games allow you to prepare adequately. They are useful analytical tools when you must develop a tactical or strategic plan, when your competition’s reaction will help determine whether your plan succeeds or fails, when your unfounded assumptions are likely to be unreliable, and when the stakes are high and failure is unacceptable. War games must be simple, realistic and transparent. The three most common reasons that war games fail are:

  1. The timing is wrong – If the decision is already in place and the result of the war game cannot change it, the game has no point. Very probably, the war game will expose the decision’s defects and vulnerabilities, resulting in ill feelings. If it is too late to abandon or reverse a poor decision or plan, don’t bother to game.
  2. Management resistance – Some managers are so sensitive to criticism they should not participate in a war game. It’s best not to invite them. If they insist on playing, put them on a competitor’s team where they have to attack their own firm’s vulnerabilities. Some managers are too neurotic or domineering to play well. The neurotic may find a war game difficult to tolerate because it deviates from his or her preconceived notions of how the game should evolve. The domineering manager may stifle other participants.
  3. Unhealthy culture – A culture that resists anything “not invented here,” suppresses confrontation, fosters “blind spots,” blocks discussion of important issues or is so cynical that it can’t take anything seriously, is likely to doom a game to failure.

Who’s on the Team?

Be careful and selective about the size and composition of your war game teams. Depending on the type of game you have, include at least nine participants, but no more than four dozen. Smaller “family only” games are more intimate, but a larger game generates more political support. Each team needs at least three players, but a maximum of eight, and the game should have no more than half a dozen teams. If your firm has more than six squads, consolidate some of them as one team. The game’s participants should include insiders who know your competitors; people whose support may be valuable in implementing the game’s plan or decision; former employees of your competitor, if possible; representatives of internal functions that matter in executing the plan; and players who understand key third parties, like “customers, distributors and regulators.”

“Encourage participants, especially those on the host team, to be honest and to identify the ‘elephants in the room’.”

The people on your teams need to be courageous, because part of their job is to identify your firm’s vulnerabilities, blind spots and deficiencies. This can be hazardous to their careers. Be careful about senior managers; sometimes it works to place a senior executive on a team that represents your competition to ensure that your rival is well-played. People who are easily insulted, politically correct, shy or unable to face up to issues should not participate.

Choosing Roles and Gathering Data

When a company has only one competitor to worry about, it can play the game to get a handle on that entity’s probable actions. However, a company in highly contested markets with no single, dominant competitor – or in markets where new threats may be emerging – must broaden the game’s focus. Porter suggests bunching or “clustering” firms with similar strategies, assets and goals – like your most direct competitors – that may respond similarly to change. However, not all industries form clusters. Some industries have already converged on a single operating model – for example, the oil industry. In this case, plan to role-play those competitors who threaten you most directly.

“The whole value of a war game is that you don’t have direct intelligence about [your] competitors’ plans, and yet you want to make the most realistic assessment of their future moves so you can prepare for them.”

Intelligence is invaluable. While you do not need secret information from your competition, you are trying to get a handle on its character. Therefore, your intelligence should include its:

  • “History” – Know how your competitor began and changed over time.
  • “Culture” – Understand its values and sacred cows.
  • “Position” – Study its current state, market share, distribution (or channel) relationships, sales force, marketing, production, R&D, finances, management profile and the like.
  • “Stated goals” – Know its publicly posted objectives and its tacit expectations.
  • “Thinking” – Find out what consulting firms your competitor uses, the background of its executives and the focus of its political relationships.
  • “Performance” – Have up-to-date data on its performance against its objectives.
“Summing up a game in a productive way is crucial.”

Give all the participants in your war game a focused briefing packet with the above information plus relevant industry news, analyst reports, trade magazine articles and such. A few years of annual reports can help, not for what the competitor said, but for changes in its tone and documentation of its actions. Look closely at quotes from senior executives that appear in the press. These are often mere spin, of course, but sometimes they point at very serious concerns – so serious that they need to be spun.

Using the Results

After your war game, aggregate the analyses (make sure that you do not leave sensitive information in a hotel room), summarize them and distribute the summaries to participants. Share the findings and decisions as widely as possible or necessary within your firm. War games often provide valuable data and intelligence for shaping later follow-up. If the game illuminates your competitor’s probable future actions, record those predictions. Keep track of the competitor’s real actions and decisions, and update its profile. Notify senior managers and other relevant units in your company that you have useful data about its competitors.

About the Author

Benjamin Gilad, Ph.D., ran war games for 25 years on behalf of Fortune 500 clients in various industries. He is a former associate professor of strategy at Rutgers University’s School of Management, and the founder and president of The Academy of Competitive Intelligence.

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Business War Games

Book Business War Games

How Large, Small, and New Companies Can Vastly Improve Their Strategies and Outmaneuver the Competition

Career Press,
 


1 March 2026

More Than a Minute

Recommendation

Holly G. Green capably covers basic leadership and management, and stresses the importance of communication, honesty, feedback and goal setting. Her book, while not particularly innovative, will help novice managers set objectives and meet them by working with the people they lead. Green’s goal, as former president of The Ken Blanchard Companies, is to expand on the advice Blanchard gave in his classic, One Minute Manager, decades ago – hence, her book’s title. Green’s counsel on dealing with problematic employees will be particularly useful to beginners. Experienced managers and leaders are undoubtedly familiar with this material, even if they aren’t updating it or putting it into practice, and that is where BooksInShort thinks this back-to-basics, contemporary manual might spur them to action.

Take-Aways

  • Less than 5% of organizations have written goals and objectives.
  • Studies show that effective communication within a company improves business.
  • Employees cannot excel without the proper tools, equipment and information.
  • Employees without goals have no sense of direction.
  • Strategic planning requires a formal approach.
  • Successful goal setting demands diligent follow-up from managers.
  • Constructive criticism is designed to help employees – not punish them.
  • Good, mutual feedback between managers and employees happens constantly, not just once a year during performance evaluations.
  • You can take corrective action with an employee without confrontation.
  • Good leaders solve problems instead of assigning blame.

Summary

Start with Strategic Planning

Good managers and leaders have always shared the same admirable qualities. They set reasonable goals for their employees, communicate openly and honestly, offer encouragement and guidance, and welcome feedback – both negative and positive. However, the workplace environment has changed significantly during the past 25 years. Managers now must contend with employees from three or four generations who have different attitudes, principles and ethics. Turnover rates have increased dramatically. People rarely stay with the same company for their entire careers. The Internet has removed geographical obstacles, enabling companies to employ people all over the world. Managers accustomed to dealing with workers face-to-face are now communicating with long-distance employees via e-mail and teleconferencing.

“Almost all employees want to be part of a compelling future, want to know what is most important at work and what excellence looks like.”

With so many changes in the business environment, managers can lose sight of their fundamental responsibilities. Many managers neglect goal setting, yet insist that their employees know what is expected of them. In fact, employees are often unaware of the company’s strategic planning initiatives. They don’t know their priorities or objectives, and they can’t explain how to measure their personal success, or their companies’. Managers must spend serious time and energy on goal setting and strategic planning. They can hold their employees accountable only when they’ve made them aware of their responsibilities. This process of “organizational strategic planning” covers:

  • “Mission” – Why does your organization exist? Are you trying to make the best products in your industry or are you focused on customer satisfaction? Are you interested in energizing and inspiring people, or do you aspire to solve problems?
  • “Guiding principles and organizational attributes” – These values and principles govern how your company deals with employees and conducts business. These qualities must be realistic, attainable and unshakeable.
  • “Value proposition” – If integrity, loyalty, innovation and honesty are among your stated priorities, you must be able to deliver.
  • “Destination” – Where is your organization headed? When and how do you plan to get there? Long-range planning only works if it’s clearly spelled out and achievable. The commitment to reach a set destination must exist at all levels of your organization.
  • “Strategies or areas of focus” – Organizational or departmental goal setting requires a coordinated effort. Employees must understand their tasks and duties, and have the necessary tools and resources to accomplish their personal and organizational objectives.

Identifying the Target

Most leaders don’t commit their corporate goals to paper, even though studies show that employees who write their goals are higher achievers. Many business leaders don’t know how to set goals or just believe that the whole process is a waste of time, but written goals are pivotal to your success. Employees want to know what you expect of them and of the organization.

“If you do not remain vigilant in aligning core initiatives with your strategies, you will find that time, money and other resources are spent working on the wrong things.”

As a manager, you should meet personally with your employees, if possible, since face-to-face meetings convey urgency. Explain the organization’s objectives, codes of behavior and ethical standards. Discuss how the company plans to reach its targets. Share as many details as possible. Employees should understand how goal setting affects their teams and departments. Reaching goals requires follow-up. Without reinforcement, employees will forget about 75% of what they’ve learned. Send e-mail updates and reminders to your staffers. Meet briefly once a month to keep everyone in the loop. To keep your goal-setting initiatives on track, take these steps:

  • Be enthusiastic – Employees will feed off your energy.
  • Publicly recognize employees’ accomplishments – Creating excitement and building morale is a vital part of your job.
  • Share information – Quickly tell staff members about changes in personnel, policy or operations. People perceive a lapse in sharing information as dishonesty, so failure to be forthcoming can damage your relationships with your workers.
  • Improve communication – Build your conversational skills. Look people in the eye. Listen instead of thinking about what you want to say next.

Brew a Culture of Excellence

High-performing organizations typically generate a culture of excellence. Employees are aware of their contributions to the company’s success and take pride in being part of a successful team. Motivated employees “go the extra mile” even when it’s not required. Companies with high-performing cultures “nurture an atmosphere of trust.” Employees know they have their managers’ support and they act in the company’s best interests. If first-class customer service is a stated organizational priority, empower employees to step outside traditional procedural boundaries. Happy employees always look for ways to make things better. The factors that contribute to a culture of excellence include:

  • Sufficient resources – Employees have the right tools, equipment and information. Adequate staffing ensures that each person can focus on the tasks at hand.
  • “Inspiring” communication – Individuals understand what managers expect of them in the context of corporate goals. Employees can discuss issues openly with their superiors.
  • Smart assignments – Leaders give people jobs that fit their knowledge, skills and motivation. Workers should not be overwhelmed or underchallenged.
  • Systematic feedback – The lines of communication are open between managers and employees who provide mutual reinforcement.

Hear Ye, Hear Ye

High-quality employee management relationships depend on continual feedback. Too many organizations rely solely on yearly evaluations. Managers should monitor employee performance constantly, offering rewards for exceptional efforts and consequences for subpar performance. Unfortunately, feedback is not part of the culture in many companies. Employees may have had bad experiences with feedback from insensitive supervisors or may view any change in the internal system with apprehension. At its core, effective feedback is based on facts, not opinion, and is designed to improve performance, not to tear people down.

“Goal setting is a subset of strategic planning.”

The whole concept of feedback intimidates many people, mainly because they associate it with negativity. In fact, good feedback must link directly to attaining “agreed-upon goals.” An employee’s personality or behavior is irrelevant unless it affects job performance. Be careful when offering constructive criticism. Managers, as well as workers, must welcome feedback about their performance and commit to correcting negative behaviors. In some companies, people who are not involved with the interested parties facilitate feedback sessions.

“Presenting data-based information is a powerful way to begin strategic planning or goal setting.”

Some managers claim that they value open communication, but send negative messages by glancing at their computers or papers while speaking with employees, postponing meetings or ignoring staffers’ e-mails. Managers may be reluctant to commit to a formal feedback system because it’s time-consuming and requires effort. Daily demands and responsibilities can divert managers’ attention from their employees’ need for “clarity, direction, information, inspiration and engagement.” Managers often make these mistakes during performance evaluations:

  • Comparing employees instead of using objective standards.
  • Holding onto old notions and opinions about employees rather than keeping an open mind and evaluating data fairly.
  • Judging employees favorably simply because they have agreeable personalities or treating them unfairly in reaction to some unpleasant personality quirk.
“Don’t praise someone because you are feeling guilty after providing constructive feedback and you think you need to cushion it.”

Employees see compliments from a manager who offers positive feedback randomly and without purpose as insincere. Since you expect your staff to report to work on time and perform basic job duties, save your praise for people who exceed quotas, solve difficult problems, give sparkling presentations, spearhead charity drives or inspire their colleagues. Recognition takes many forms, from a handshake to a gift certificate or a special parking space. Workers who consistently exceed expectations frequently should earn promotions.

Now for the Bad News

Many managers are uncomfortable dealing with underperforming employees, especially those who have quick tempers or abrasive personalities. But ignoring problems and allowing them to fester will eventually affect your entire department by damaging morale and hurting performance. To make a plan for corrective action without a confrontation, follow these guidelines:

  • Constructive criticism is meant to improve future performance. Be clear that you are not scolding or punishing the employee.
  • Don’t waste time chatting about the weather. Without being accusatory, explain in direct language the problems you observed and the conclusions you reached.
  • Encourage the employee to respond, and offer his or her side. Listen carefully and be receptive to taking in information that could change your thinking.
  • Reach agreement on a plan to correct the problems.
“Figure out what is getting in your way and work to remove the beliefs, the thoughts, the rationalizations that stop you from spending time and energy on strategic planning and goal setting.”

You may not see a change right off the bat. Give employees sufficient time to make adjustments. Coach them through the process. Help them succeed. Provide encouragement when you see progress, and gentle reminders when old behaviors surface. Chronic underachievers must understand that consequences will become more severe and possibly lead to termination.

Follow the Game Plan

For goal setting, build in monitoring, motivation, tracking and flexibility. Since business is always evolving, priorities may shift and goals can change quickly. Align your core initiatives and your strategic actions. If you want to increase sales, for instance, make sure your salespeople are learning innovative techniques for working with customers. Providing a new fleet of vehicles for your salespeople would be an example of misalignment.

“Goal setting today must be more strongly linked to the big picture to be effective. Today’s employees crave an understanding of the why coupled with the what.”

Leaders and managers in today’s environment have a greater responsibility for personal improvement. They need to expand their knowledge and make themselves increasingly valuable to thrive in an uncertain job market. They must understand that almost every situation and exchange is a valuable educational experience. Outstanding leaders share these traits:

  • They have a natural curiosity and never pass up learning opportunities.
  • They are interested in the way other employees and departments operate.
  • They never consider themselves to be above anyone else.
  • They are open-minded and nonjudgmental.
  • They are willing to listen to other perspectives and opinions.
  • They are more concerned with solving problems than with assigning blame.
  • They are aware of how their behavior affects others.
  • They understand the consequences of their actions.
  • They approach others honestly and directly.
  • They try to spend more time listening than talking.
  • They make important decisions without hesitation, but only after gathering the necessary information.
“Think of your employees as water. Provide a container and direct the flow, and you will create extraordinary power.”

Good managers are in a constant state of self-evaluation. Many record their thoughts and reflections for future reference. They understand the value of analyzing both triumphs and disappointments. Being a leader means taking risks and not being afraid to stumble occasionally, but effective leaders admit their mistakes and rebound quickly. The biggest mistake leaders can make is failing to appreciate the enormous role they play in goal setting and creating a culture of excellence in their organizations.

About the Author

Holly G. Green is CEO of The Human Factor, Inc., and has been an employee and consultant for several multinational corporations, including AT&T, Sony Electronics, Microsoft and Google.

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More Than a Minute

Book More Than a Minute

How to Be an Effective Leader and Manager in Today's Changing World

Career Press,
 


1 March 2026

CEO Succession

Recommendation

Authors Dennis C. Carey and Dayton Ogden present a thorough, insightful guide to choosing a new Chief Executive Officer in this nicely written, concise book. Offering plenty of inside information and real-life corporate examples, the authors explore their ideas without resorting to fluff or to the dry, dull prose that often fills such books. Given their experience helping corporations choose CEOs and other executives, the authors know what they’re talking about and understand the tricky issues involved in putting any advice into practice. Their book delivers what it promises, and given that it can be repetitive, it delivers on some of those promises two or three times (but we’re quibbling, some of those lessons do bear repeating). GetAbstract recommends this book to anyone involved in executive succession and recruitment, especially board members (read it now, before you ditch your CEO, not after).

Take-Aways

  • CEOs leave companies for various reasons, including sudden illness or death, performance issues, a move to another business or retirement.
  • Executives and boards must have a succession plan.
  • A succession plan must provide a seamless transition of leadership.
  • CEO succession is an art and a science.
  • Without a succession plan, companies can be thrown into turmoil.
  • Your company must create a reliable succession agenda and timetable.
  • A self-renewing succession culture develops leaders at all levels of management.
  • Internal candidates must be groomed for the role.
  • Measure internal candidates for CEO and other top posts against comparable outside leaders.
  • A strong, involved board should work with the CEO on the succession plan.

Summary

Planning for CEO Succession

CEO succession is both an art and a science. CEOs move on for many reasons, including sudden illness or death, performance problems, a move to another business or retirement. No matter what the reason, your company’s executives and board members must provide a seamless transition of leadership, which means:

  • Establishing and sustaining a reliable succession agenda and timetable.
  • Implementing a self-renewing succession culture that develops leaders at all levels of management.
  • Creating a healthy relationship between the board and CEO that keeps the CEO on track.
  • Benchmarking internal candidates for CEO and other top posts with comparable outside leaders.

Worst-Case Scenario

In March 1996, Richard Swift, the CEO of Foster Wheeler Corp., a $4.5 billion New Jersey-based engineering and construction giant, was invited by then U.S. Secretary of Commerce Ron Brown to accompany him on a trade mission to Bosnia. Unable to make the trip because of prior commitments, Swift asked Robert A. Whitaker, vice president of Foster Wheeler’s Energy Equipment Group and president of Foster Wheeler Energy International to represent the company in his place.

“Sometimes a decision to bypass the internal team in favor of an outsider is a way for a company to make a powerful statement about fundamental change.”

The plane carrying Brown, Whitaker and eleven other corporate executives crashed in the Bosnian mountains, killing everyone on board.

Because Foster Wheeler’s board had planned ahead, the loss of this key executive didn’t leave a gaping hole in the company’s organization, even though the loss was, of course, personally painful to everyone. On a practical level, the company was prepared for something like this. Because Foster Wheeler’s board wisely wanted to avoid any long-term disruption in its leadership ranks, it had created a succession plan for its top executives long before the Bosnia trip. The plan was designed to deal with unanticipated events.

“As the company’s strategy shifts over time, so should the roster and ranking of likely CEO successors.”

Many other companies, including some that lost senior executives in the Bosnia crash, have faced sudden succession without being nearly as prepared. Among those caught unprepared were ABB, Inc., a subsidiary of Asca Brown Boveri, Ltd., a $31 billion Swiss company whose president and CEO, Robert Donovan, died in the crash. A spokeswoman told The Wall Street Journal that ABB was only prepared for an interim appointment.

“The science and art of selecting the most capable successor to the CEO has more to do with a vision of the company for the future - and finding a leader who will be capable of bringing that vision to fruition - than its assessment of the past or even the present.”

The spokesman for the Bechtel Group, which lost P. Stuart Tholan - senior vice president and president of Bechtel Europe, Middle East and Southwest Asia - said after the crash that he had "no idea" who would succeed Tholan.

Early in the spring of 1996, the CEO of Texas Instruments, Jerry Junkins, was speaking with consultants about succession planning. He explained that no plans were in place for anything unexpected, adding, "I’m healthy as a horse." The company’s only plan dealt with his planned retirement, two or three years in the future. He didn’t see the need for any other kind of planning. A few months later, while he was visiting a customer in Europe, Junkins died of a massive heart attack in the backseat of his car. Left without an immediate successor, Texas Instruments was thrown into turmoil.

“If a company is suffering losses, declining share price, bad media or other problems, shareholders may conclude not only that the CEO isn’t right for the company but that the strategy isn’t either.”

Despite the growing emphasis on thorough succession planning, almost no practical information is available on the subject, leaving companies to try to figure it out on their own, reinventing the wheel each time they begin the process. The cornerstone of any succession plan is identifying who will be an executive’s successor in the event of the need for immediate succession. Choosing that person is part of a larger, overall plan.

What Works?

Systematic steps and best practices undertaken by leading companies demonstrate some effective components of a good succession plan:

  • Establish a board that isn’t afraid to challenge the CEO if necessary. A strong board will take a major role in crafting and maintaining momentum for a well-thought-out succession plan.
  • Don’t view succession planning as a phenomenon limited to only the very top of an organization. An organizational process that continually emphasizes identifying high-potential executives and providing them with opportunities to grow and develop is integral to any succession plan. You want to make sure that your leadership well doesn’t run dry.
  • Keep the board up-to-date about high-potential employees at all levels. At regular intervals, the board of directors must prod the CEO about the development process, particularly when it comes to grooming potential CEO successors.
  • Even companies with strong cultures that have been highly successful in leadership development are increasingly calibrating internal candidates for CEO against comparable outside leaders, a practice called "global intelligence."
  • Consider structuring specific financial incentives to assure success in succession planning.
  • Avoid practices that can undermine the succession process, such as appointing a director as CEO. Consider this a practice of last resort, since having board members who aspire to be CEO can create unnecessary conflict and politicize the succession process.
“No succession process proceeds in a vacuum. It is closely linked to other critical corporate processes, particularly the determination of strategy.”

When creating succession plans, consider the following trends shaping the current executive hiring environment:

  • The emerging predominance and power of outside directors on corporate boards;
  • Constant cries from the media and shareholder activists for these directors to fulfill their fiduciary duties and provide a stronger counterbalance to the CEO;
  • The increasingly high turnover and generally short tenure of CEOs of major public companies (one recent study says the average tenure of a CEO at a Fortune 100 company is seven years);
  • The growing realization that ensuring continuity of leadership is a board’s most important responsibility.
“Well-planned successions start with a thorough delineation of business strategy, which then serves as a road map for the rest of the process.”

Given these trends, you can see why more and more boards are taking control and establishing the agenda for the succession process. This process calls for a delicate balance between the board and the CEO.

Best Practices

International research demonstrates that companies that take succession planning seriously follow these ten best practices:

  1. They have strong, involved boards that work with the CEO on the process.
  2. They continually expose their top-management team to the board so potential candidates aren’t strangers to those who are will participate in the choice of successor.
  3. They encourage "next-generation CEOs" to gain exposure to outside board service, to the media and to the investment community. This helps shape their understanding of the proper relationship between a board and management, and of critical outside forces.
  4. They form executive or operating committees to facilitate the development of several executives who are aware of challenges, business plans and strategies across the entire organization. Some firms with effective succession plans ask CEOs to develop small teams of insiders who become interchangeable through learning and cross training.
  5. They view succession planning as an ongoing and real-time process. Their boards and CEOs communicate regularly (at least one or two times a year) on a formal basis to determine who would likely be in line to take over in the event of a crisis. These discussions are part of the strategic planning process to ensure a fit between where the business is going and the skills of the successor.
  6. They take the human drama out of the succession process. They try to build in as much predictability as possible. Companies reduce the risk of losing a valuable top executive when the CEO successor is named by openly communicating succession plans and timing to probable successors, encouraging a team leadership approach and reducing "horse races" among top contenders.
  7. They link the CEO’s compensation to the development of succession plans. Their boards require the CEOs to report regularly on succession-planning activities with various contingency plans and formally link this to their bonus opportunity. Some companies are beginning to attach a specific formula (up to one-third of total bonus opportunity) based on their success in this area.
  8. They pay their directors increasingly in stock and require directors to make a personal investment in the company. Directors take succession more seriously when their own economic interests are at stake.
  9. They periodically calibrate likely internal candidates for CEO against comparable outside leaders. This helps ensure that the best possible leader is tapped from the broadest possible universe. This process is vital in companies that are undergoing substantial change, particularly where outside experience may be critical to executing a new strategy or changing the momentum or direction of the business.
  10. They develop a succession culture. They take CEO succession seriously and their boards and CEOs require all organizational levels to plan for the inevitability of change.

Financial Tools for Succession Planning

Your board of directors can use these financial tools to provide incentives to the participants in the succession-planning process:

  • When designating specific areas to be given weight in CEO performance appraisals, assign a high priority to succession planning and to involving the board in that process.
  • If an heir apparent has been officially designated, consider linking his or her performance appraisal and compensation formula to the current CEO’s, and revising compensation to reflect changing responsibility.
  • When a strong potential Number Two has been turned down for the position of CEO, determine the priority of retaining him or her, and adjust compensation accordingly.
  • Devise packages tied to profitability, and timed to ensure the executive’s retention through an extended transition period, long enough to provide the new CEO with the support required to ensure leadership stability.
  • Bonuses should meet the performance-based criteria required in the revised tax code.
  • Move toward significant director share ownership, primarily through compensating directors with equity. Shift away from compensation arrangements that treat directors as employees, such as directors’ pension plans.
“In selecting a CEO, a company must look not just at the business environment in which it has traditionally operated, but also at the ways in which it is changing.”

These financial tools aren’t just incentives, they’re reminders that the process of selecting a new CEO - and making the choices that follow - have a major impact on the company financially and can lead toward failure, stagnation or success.

About the Authors

Dennis C. Carey specializes in the recruitment of CEOs and corporate directors for major U.S. corporations. He is Vice Chairman of Spencer Stuart, a global executive search firm. He is a co-founder of the Director’s Institute at the Wharton School, University of Pennsylvania. Dayton Ogden is co-chairman of Spencer Stuart and has previously served as the firm’s CEO and Chairman of the Strategy Committee.

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CEO Succession

Book CEO Succession

A Window on How Boards Can Get It Right When Choosing a New Chief Executive

Oxford UP,
 



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