Sudden Leader Loss Leaves Firms in Limbo

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Sudden Leader Loss Leaves Firms in Limbo
By JOE LIGHT at WSJ.com

When Apple Inc. Chief Executive Steve Jobs disclosed his medical leave last week, Chief Operating Officer Tim Cook was ready to take over day-to-day operations. Other companies aren't so prepared

More than one-fifth of senior managers say that their companies are "not at all prepared" in the event of a sudden loss of a key member of the company's senior management team, according to a newly released December survey of 1,098 senior managers by the American Management Association, a nonprofit training and consulting organization.

"For the last few years, companies have been in survival mode and losing sight of the things they need for the future," said Sandi Edwards, a senior vice president at AMA.

According to the study, about 22% of senior managers said that their company wasn't prepared for the sudden loss of key senior managers. About 14% said their companies were well-prepared.

Recently, companies haven't had to face as many retirements by senior executives, who saw their retirement savings take huge hits during the recession, Ms. Edwards said. Now that the market has come back, some leaders might soon start to reconsider leaving, she said.

Many managers don't think their companies have a sufficiently strong leadership pipeline. About 39% said that their own company's leadership pipeline is inadequate, versus 10% that said it was "robust." About 47% said their pipeline was adequate.

Companies often acknowledge that leadership development is important but rarely back that up with action, said David Larcker, professor at Stanford Graduate School of Business. Compensation programs, for example, rarely factor in how well the manager has planned for his own succession, he said.

Even if a succession plan is in place, some companies find they aren't really committed to it when it comes time to replace a leader, Mr. Larcker said. "You need to make sure people believe in the plan. You don't want to go months without senior leadership," he said. According to the AMA survey, about 34% of managers said senior management often ignores the management-succession plan and recruits from the outside instead.