Aaron’s announcement last week that Chief Executive Officer Ron Allen planned to retire at the end of the month left a pressing question unanswered: who will replace him at the troubled company’s helm.
The Atlanta-based rent-to-own giant said it has hired executive recruiting firm Spencer Stuart to search for his successor and that candidates will be sought within the company as well as outside.
Experts say, however, it’s best for companies to know who will succeed a leader before his or her decision to step down, and that grooming the next chief should be a top priority for a company’s board of directors.
“The best companies do [succession planning] well in advance, and it’s an ongoing process,” said Joel Koblentz, whose firm, the Koblentz Group, does executive and board searches.
Studies show companies usually look to their own ranks or at least in the same industry for new CEOs – except when the company has been doing poorly under the current leader.
Last year, 76 percent of new CEO hires were company insiders, according to Strategy&, a consulting firm formerly known as Booz & Co. Over 70 percent of the departures were planned, rather than resulting from mergers or firings.
The least profitable firms were more than twice as likely to fire their CEO and hire an outsider, said Strategy&.
Getting a succession plan rolling well in advance is a critical job shared by the board of directors and the CEO. The CEO is responsible for hiring talented managers and grooming potential replacements by rotating them through key positions to broaden their experience and knowledge, Koblentz said. The board is responsible for figuring out what kind of CEO the company needs and picking the best candidate.
The CEO also guides a company, investors and analysts through a transitional period that can be rocky as new management styles or changes in direction clash with long-time methods of operation.
Recent shakeups among top brass demonstrate succession plans are in full swing in metro Atlanta.
Earlier this year, Home Depot promoted Craig Menear to president of the company’s U.S. retail operations, setting tongues wagging that Menear is the front-runner to replace CEO Frank Blake when he retires.
In 2012, Coca-Cola divided its business into teams under three leaders, Steve Cahillane, Ahmet Bozer and Irial Finan. The move was considered an effort to groom a replacement for CEO Muhtar Kent and avoid past transition problems associated with the tenures of Coke CEOs Doug Ivestor and Doug Daft.
But Cahillane, who headed Coca-Cola Americas — the company’s biggest region — abruptly left the company in December 2013, leaving some to wonder if the company has an heir apparent. The Americas business was broken into two groups — Coca-Cola North America, headed by Sandy Douglas, while Paul Mulligan was named president of Coca-Cola Refreshments.
On the other hand, Chick-fil-A smoothly filled the shoes of founder and chairman Truett Cathy, with his son Dan Cathy. The younger Cathy became chief executive officer and chairman in November after years as the company’s president.
Aaron’s, for its part, seemed to start preparing for a leadership change in April. Allen, 72, relinquished the title of president and board chairman, and Aaron’s elevated Steve Michaels to the former position and Ray Robinson to the latter. Michaels had been vice president of strategic planning and business development. Robinson was Aaron’s lead independent director.
John Robinson, chief executive officer of Progressive Finance, a company Aaron’s bought that month for $700 million, became the company’s executive vice president.
Aaron’s has a lot riding on a smooth change. The company’s last leadership changeover hardly looked ideal.
Allen, a former Delta Air Lines CEO and longtime director on Aaron’s board, stepped in as interim CEO in 2011 after the sudden departure of Robert “Robin” Loudermilk, the son of company founder Charlie Loudermilk. Robin Loudermilk had been in the job three years.
Koblentz said Aaron’s may already have the next likely CEO waiting in the wings.
Allen may be lobbying for a colleague to replace him, but the board of directors may want to vet other candidates first, said Koblentz.
“The board may have said this is a unique time for us … to really take a good look” inside and outside the company for a replacement, he said.
Ken Bernhardt, a retired Georgia State University marketing professor who sits on several for-profit and non-profit boards, said Aaron’s board was unlikely to have been caught off guard about Allen’s departure, especially since he was almost 70 when he became CEO.
“The board had to be thinking this is not a long-term solution,” said Bernhardt.
Bernhardt said he didn’t have any inside knowledge about Aaron’s workings. But in that situation, a company would ideally be grooming internal candidates and also looking for other people with industry knowledge who might make good CEOs.
“Often, companies will put people like that on the board,” he said.
“Very successful companies are the ones that have built up the bench strength to choose the next CEO internally,” he said. “UPS has done that beautifully. They don’t want an external person.”
On the other hand, he added, “sometimes the company wants to go in a totally new direction, in which case they don’t want to look inside.”
About the Author
