Governance experts, lawyers, accountants and consultants debate over defining diligence for boards. The lines between oversight vs. micromanagement and between an adversarial vs. a collaborative tone can be nuanced. However, the duty of a board to provide mentoring guidance as a new CEO takes charge is undisputed. The challenge is how to help weather a succession crisis without crowding a new CEO.
Recently, in my Yale leadership class, I welcomed legendary former Xerox CEO Anne Mulcahy to speak with my 100 MBA students—and then promptly ambushed her with a surprise visit by Nick Nicholas, the former CEO of Time Warner and a Xerox director, who played a key role in her appointment and post-announcement mentoring.
They recounted the distress Xerox faced in 2001 when the company lost 70 percent of its market share in the office technology category that it had pioneered over a decade and was teetering on the brink of bankruptcy with an atrophying product line. The SEC was investigating its accounting policies and the previous two CEOs had resigned in scandal, while several high-profile outside CEO candidates claimed to have turned the job down.
A CRISIS SUCCESSION
Mulcany had held top jobs in sales, HR, administration and operations but had never been CEO of a major enterprise. Nicholas recalled, “We, as the board, recognized Anne Mulcahy was a solid candidate from inside Xerox, but we wished she had some more experience, particularly on the corporate finance side. Looking back, you can understand why some board members were reluctant to go with Anne. But ultimately, the board decided to choose Anne, even though she may not have had the full quiver of arrows immediately for the assignment.”
In fact, two directors quit when Mulcahy was selected. To many observers, the deck was stacked against Mulcahy—and Xerox more broadly. When Mulcahy approached the newly retired Jack Welch for help, Welch declined, stating. “I don’t think you can make it, honey.”
Given Mulcahy’s learning agenda and the existential challenges facing Xerox, the board members, especially Ralph Larsen of J&J and John Pepper of P&G. led by Nicholas, proactively partnered with Mulcahy. “One thing I hadn’t seen on other boards, which was immensely valuable for us, was that the board asked me to meet with Anne privately one-on-one, after each executive session of the board,” said Nicholas. His mission? “To be open and transparent with her about the decisions made by the independent members of the board, and to give her as much feedback as we could on what our learnings were or what views might not have been expressed overtly to her,” he recalls. “As a result, we didn’t have to say, ‘I wonder, what does Anne think about x, y.z?’ Nor did Anne have to wonder that about us. Anne welcomed this, and so did we. It was open dialogue from day one.”
LESSONS FROM LEADERS
The board/CEO mentoring partnership worked. Xerox’s stock, which had fallen 90 percent during its existential crisis, soared 40 percent under Mulcahy. “Nobody wants to be in a business that survives; you want to be in a business that is successful,” she recalled. “We knew we were in a crisis and had to turn things around. In a crisis, making fast decisions is really important, and I could not do it without the partnership of my board.
Nick and his colleagues were people with great business acumen, so testing some things with them, seeing what resonated, was a big part of it for me.”
With the blessing and encouragement of the entire board, Nicholas served as a teacher, guide, sponsor, exemplar and coach, while Mulcahy served as a fast-learning, non-defensive protegé. Experience is the best teacher-but only for good learners.
