Edward Bennett has done wonders at Star Enterprises. In the 15 years he’s been CEO, the company has more than tripled in size through product line extension and disciplined acquisitions and is now distributing its cleaning, personal hygiene, and skin care products nationwide. But Stars chief executive is 64 years old, and while all his attention is taken up with a new strategy to expand into international markets, board members are becoming increasingly worried about the issue of succession.
Bennett wants none of it, arguing that if he were to die suddenly, his second in command, Tom Terrible, could take over. Besides, after much prodding, Bennett, former vice-chairman Vincent Dalton, and longtime HER head Gail Thompson have already come up with a list of four possibilities. “When will these guys back off? ” Bennett complains to Thompson. “I’ve told them who the candidates are. Why do we need to talk about it? ” Thompson knows, however, that the board chairman, Tom Galloway, considers Terrible a nonstarter without the requisite skills to take over in anything more than an interim capacity.
As for the other three candidates, only one is even known to the board, and none has any significant international experience. Galloway is ell aware of how critical Bennett is to Star- But he’s equally certain that the board risks failing in its fiduciary responsibilities if it doesn’t create a viable succession plan. What should Galloway and the board do if Bennett refuses to cooperate? Commenting on this fictional case study in AURORA and RAZZ are John W.
Rowe, the executive chairman of Eaten; Edward Reilly, the president and CEO of the American Management Association; Jay A. Conger, a professor at Claremont McKenna College and London Business School; Douglas A. Ready, a visiting professor at London Business School; and Michael Jordan, the CEO of DES. This HOB case study includes both the case and the commentary. For teaching purposes, this reprint is also available in two other versions: case study only, reprint ERRORS, and commentary only, reprint RAZZ.
Tom Galloway, nonconsecutive chairman of Star Enterprises Edward Bennett, Star’s CEO presentation and lead a discussion on succession planning at the upcoming board meeting Star had recently initiated a major global expansion, and as the public face Of the company and a dynamic speaker, Bennett had been centrally involved in the road shows required to secure equity funding from the investment banks. Under Bonnet’s leadership during the past 1 5 years, the company had more than tripled in size and begun nationwide distribution.
This growth had been accomplished through product line extension as well as a disciplined acquisition strategy The new global strategy was expected to increase revenues to $5 billion within three years Star would have to move quickly to secure distribution in Europe and Asia and build its regional sales, service, and manufacturing capabilities before its much larger and better-established competitors could preempt the company’s strategy Ann Ronald, head of the compensation committee – Stars stock price and nod ratings would take a major hit if Bennett were to leave or be incapacitated unexpectedly Fred Henderson -? the lack of attention to CEO succession at Star was a major lapse in the board’s fiduciary responsibilities, as well as a possible violation of SEC regulations and the rules governing listings on the New York Stock Exchange Gail Thompson, Star’s veteran senior vice president of human resources Staid former vice chairman, Vincent Dalton In Bonnet’s mind, the board’s “sudden interest”in succession planning would merely distract his team from the strategic tasks at hand Tom Terrible, the current vice chairman Marianne Klein, executive vice president of corporate services Robert Glenn, head of Star’s Consumer Products Group Brian Jacobs, the vice president of sales and marketing Roughly half of all managers don’t trust their leaders. That’s what I found when I recently surveyed 450 executives Of 30 companies from around the world.
Results from a Glossaries survey of Americans back in 2002 were similarly bleak: 69% of respondents agreed with the statement “l just don’t know who to trust anymore. ” In that same year the University of Chicago surveyed 800 Americans and discovered that more than four out of five had only some” or “hardly any” confidence in the people running major corporations. Granted, trusting corporate leaders in the abstract is different from trusting your own CEO, and some companies and executives are almost universally considered trustworthy; but the general trend is troubling. It’s troubling because a distrustful environment leads to expensive and sometimes terminal problems. We hardly need reminding of the recent wave of scandals that shattered the publics faith in corporate leaders.
And although you’ll never see a financial statement with a line item labeled distrust,” the World fiasco underscores just how expensive broken trust can be. When teach executive seminars on trust, I ask participants to describe how a working environment feels when it is characterized by low levels of trust. The most frequent responses include “stressful,” “threatening,” “divisive,” “unproductive,” and “tense. ” When asked how a high-trust work environment feels, the participants most frequently say “fun,” “supportive,” “motivating,” “productive,” and “comfortable. ” Clearly, companies that foster a trusting culture will have a competitive advantage in the war for talent: Who old choose to stay in a stressful, divisive atmosphere if offered a productive, supportive one?
It is crucial, then, for managers to develop a better understanding of trust and of how to manage it. I define trust as confident reliance on someone when you are in a position of vulnerability. Given the pace of change in organizations today-?mergers, downsizing new business models, globalization-?it is not surprising that trust is an issue. Fortunately, 50 years of research in social psychology has shown that trust isn’t magically created. In fact, it’s not even that mysterious. When people hose to trust, they have gone through a decision-making process-?one involving factors that can be identified, analyzed, and influenced. This article presents a model that sheds light on how the decision to trust is made. We will ignore the extremes of complete trust based on blind faith and total distrust based on paranoia, and focus instead on the familiar situation in which uncertainty, possible damage, and multiple other reasons to trust or distrust are combined. ) By understanding the mental calculations behind the decision whether or not to trust, managers can create an environment in which trust flourishes. A Model for Trust Building on the social psychologist Morton Deutsche research on trust, suspicion, and the resolution of conflict, and on my own experience over the past 15 years consulting with organizations and executives on trust, I developed a model that can be used to predict whether an individual will choose to trust or distrust another in a given situation. (See the exhibit “TO Trust or Not to Trust? ) have tested this model, which identifies ten factors at play in the decision-making process, with hundreds of top executives. Using it, they were able to identify relationships that would benefit from greater trust ND to diagnose the root causes of distrust. Armed with that knowledge, they took concrete steps that made it easier for others to place confidence in them. To Trust or Not to Trust? Decision-maker factors. The first three factors concern the decision maker himself: the “trustee. ” These factors often have little to do with the person asking for trust: the “trustee. ” They are the result of a complex mix of personality, culture, and experience. Risk tolerance. Some people are natural risk takers; others are innately cautious.
How tolerant people are of risk has a big impact on their willingness to trust-?regardless of who the trustee is. Risk seekers don’t spend much time calculating what might go wrong in a given situation; in the absence of any glaring problems, they tend to have faith that things will work out. Risk avoiders, however, often need to feel in control before they place their trust in someone, and are reluctant to act without approval. Not only do they not trust Others, they don’t even trust themselves. Research by the Organizational anthropologist Egger Hefted suggests that at some level, culture influences risk tolerance. The Japanese, for instance, tend to have a lower tolerance for risk than Americans.
Level of adjustment. Psychologists have shown that individuals vary widely in how well adjusted they are. Like risk tolerance, this aspect of personality affects the amount of time people need to build trust. Well-adjusted people are comfortable with themselves and see the world as a generally benign place. Their high levels of confidence often make them quick to trust, because they believe that nothing bad will happen to them. People who are poorly adjusted, by contrast, tend to see many threats in the world, and so they carry more anxiety into every situation. These people take longer to get to a position Of comfort and trust, regardless of the trustee.