The people who lead a company, obviously, have a major effect on its performance. They call the shots on its strategy, decide how resources will be allocated and, ideally, inspire staff members to perform.
A strong leader can make a company, but a weak or ineffectual leader can break it. When a leader departs, the change can be destabilising.
As BHP Billiton chairman Jac Nasser told shareholders in Sydney on Thursday, “succession planning and executive development is a process, not an event”.
“At BHP, this process is ongoing and thorough,” Nasser says. “It starts from the first day the CEO and his team are appointed. It involves assessing the skills and experiences that will be required and, in turn, focusing our development actions to make sure we have those skills and experiences when they are need. This is not only good people practice, it is good risk mitigation.”
BHP Billitonhired executive search firm Heidrick & Struggles to help it find a successor for chief executive Marius Kloppers. The Australian Financial Review reports that it’s also considering internal candidates.
Hyperion Asset Management managing director Tim Samway says a change of leadership is important because of its effect on the future execution of the company’s business model.
Samway prefers when successors are appointed through internal channels. “We are more confident in someone who has a proven track record with that business model,” he says.
He adds that sometimes companies have issues and need new people to resolve them, but that typically carries greater risk which he prefers to avoid.
“We don’t buy that risk, we don’t buy turnarounds,” Samway says.
What should you do?
If the head of a company in which you invest signals their departure, consider what that could mean for the company. A new leader will fresh new ideas and could breath life into an organisation. Alternatively, change is often destabilising.