What To Do When A Leader Leaves
When William Caldwell, the president, CEO and chairman of the Marlborough-based Advanced Cell Technology unexpectedly had a heart attack in mid-December, company officials were just as shocked as anyone else to learn of his death.
The contract for Caldwell, who was 62, was set to expire at the end of 2011, so members of the company’s board of directors had given some thought to the company’s long-term management structure.
But no one was prepared for the tragic news of Caldwell’s death.
Immediately afterward, the board named one of its members, Gary Rabin, as interim chairman and CEO. Officials hope to hire a firm to search for a permanent leader for the company soon.
What happened at ACT, while tragic, is not necessarily uncommon, according to business advisers. Unexpected events happen all the time, and businesses need to be prepared if a leader is no longer available.
It may be common sense to have a plan in place, but according to several leadership transition consultants, few firms are ready for the worst when it happens.
Contingency Plans
There can be many scenarios in which a leadership change in a company is needed, according to Terence Shepherd, managing partner at Framingham-based Shepherd & Goldstein partner, who advises businesses on transition planning. In some cases, for example a family business, the transition is a slow process of handing the business over from one generation to another.
In other circumstances, a transition is thought about long and hard, or it is known that a new leader will be needed at some point in the future. This is the case, for instance, when a CEO has been in the position for a long time or is elderly.
And in other circumstances, like ACT’s, there is a sudden leadership vacuum that must be filed.
“Even if you’re not at a transition point, it’s important to think strategically about contingency plans,” Shepherd said.
That can be difficult, however. Business leaders are usually busy enough with day-to-day tasks that they don’t bother to think about the future, Shepherd concedes.
“There’s always thinking that there will be tomorrow to work on that,” he said. “Well, one day you might need that plan and businesses that don’t have a plan are the ones that are caught off guard.”
If a sudden or unexpected change is needed, the first course of action should be making sure that core business functions can continue, said George Tetler III, a partner at the Worcester-based law firm of Bowditch & Dewey, who also specializes in transition planning. Those functions could be sales, accounting, production or research. Whatever the thrust of the businesses is, it has to keep going even if a new CEO is needed.
“Really, almost more important than having an indefinite replacement is making sure the business doesn’t fall apart while you’re looking for a new leader,” Tetler advised.
Shepherd agreed. One of the most important functions of a transition plan is to document what knowledge and functions the business owner or leader has. Then, if a sudden transition is needed, at least there is somewhat of a guide of how to keep the business running.
Even if a business has the luxury of time to plan for a transition, it can still be a long and difficult process.
In early February 2010, Fallon Community Health Plan in Worcester announced that its CEO of more than decade, Eric Shultz, would be leaving to occupy the same position at Wellesley-based Harvard Pilgrim Health Care.
Shultz, a respected and well-known figure in the Worcester community, would not be easy to replace, David Hillis remembers thinking. Hillis is chairman of the FCHP board of directors and president of AdCare Hospital in Worcester.
Hillis and Shultz had discussed the possibility of Shultz leaving months before it was announced so Hillis had time to orchestrate a transition plan. On the same day Shultz announced he was leaving, FCHP announced the promotion of W. Patrick Hughes to interim CEO.
“I think it’s important to immediately appoint someone,” Hillis said. “It’s important for the sanity of the employees, the board and the company as a whole to have someone to be the face of the organization.”
From there, the board had discussions about exploring external candidates for the permanent job, looking at other internal candidates, or staying with Hughes.
By early April, the board named Hughes as the permanent CEO of the company.
Hillis said FCHP was lucky not only to have Hughes, but also that he was willing to take on the added responsibilities. Hughes did so at a time when the state was cracking down on insurance rate increase requests.
The lesson from the entire situation for Hillis: the value of having a plan.
“I don’t care if you’re a small company running a hardware store of if you’re FCHP, you need to be able to say with confidence what the next step is going to be,” Hillis said.
It’s a discussion that business leaders should have about all important positions within a company, Hillis added. Not just the CEO, but in some businesses the CFO, or a research director could be the most important person in the company. There should be some thought about what would happen if they any important people were not there.
Back at ACT, the company has been able to move forward since Caldwell’s death.
After Rabin was named interim CEO, he developed a five-day, two-week, and three-month plan of what needed to be done and how the company would move forward.
“The reality was Bill was the chairman, CEO, CFO and the only signatory on all of the company’s bank accounts,” Rabin said. “When you have someone in that role, you by definition don’t have a succession plan.”
Rabin said the focus immediately after the news was to focus on finishing out the year strong, which the company did.
Just before the New Year, the U.S. Food & Drug Administration gave ACT approval to move forward on clinical trials for treatments the company developed for macular degeneration, which causes blindness. The company hopes to start Phase II clinical trials soon for the use of stem cells for cardiac therapies.
Even if Caldwell had not passed away, the company likely would have been searching for more people to add to the company’s management team, Rabin said. Now those plans have been accelerated.
The company hopes to hire an entirely new management team, including a president and/or a CEO, a CFO and possibly other business development or marketing officials.
The company, Rabin hopes, will soon be ready to bring its product to market, so it will be looking for someone with experience in that area. Rabin may or may not stay on in some official leadership capacity.
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