Worcester Business Journal

16 Worcester Business Journal | May 14, 2018 | wbjournal.com F O C U S S U C C E S S I O N P L A N N I N G Picking the successor Organizations should think ahead and look to the future when lining up their next leader BY GRANT WELKER Worcester Business Journal News Editor E ach year, the Hanover Insurance Group board of directors sits down with the Worcester company's CEO and privately plans a succes- sion for each top executive. "You never know when someone might get sick, or die, or take another job," said Michael Angelini, a longtime Hanover board member. "It's not just a judgment at a point in time. It's an evalu- ative process. And it's not something you wait to do when you need to do it." Yet, this type of advance planning at large organizations is atypical, even though CEO tenures are usually short and companies' profits are at stake. Boards spend only two hours per year on succession planning, and 39 percent of boards could not claim a single viable internal candidate for CEO, according to a 2015 study by the Stanford University Graduate School of Business surveying 140 CEOs and board directors at public and private North American companies. Inadequate planning may exacerbate the problem, according to a 2014 report on the world's 2,500 largest public com- panies by the New York consulting firm Strategy&. CEOs who replaced someone who was forced out of the job typically had tenures themselves more than a year shorter than average, Strategy& found. at lack of advance planning makes a difference to the bottom line. Aver- age shareholder return for companies changing CEOs falls 3.5 percent in the year following the transition, Strategy& said. at's an average of $1.8 billion lost compared to if the company had proper- ly prepared for succession, according to the report. "Too many companies still aren't getting succession planning right," the report said. Main function of a board Finding a new head of a company is one of the main roles of a board of directors, and something it has to do fairly oen. e search firm Korn Ferry reported last year a typical CEO tenure at the country's 1,000 largest compa- nies is eight years, while earlier this year, a Harvard Law School report put the median at five years for S&P 500 companies. Only 6 percent of those companies had a CEO stay longer than 20 years, the Harvard report said. Angelini, the chairman at the Worces- ter law firm Bowditch & Dewey, led the Hanover board when in 2016 it had to find a successor to Frederick Eppinger, who was Hanover's CEO for 13 years. e company more than doubled in size during Eppinger's tenure, and the company was tasked with replacing someone who became an institu- tional figure. e board had time on its hands, but had already considered what it would do anyway, Angelini said. It chose an outside hire, Joseph Zubretsky, who lasted 16 months and was replaced last fall by John Roche, an internal candidate who was hired during Eppinger's tenure. In the latter case, the board knew it wanted to make a promotion instead of going outside the company. Because of the stakes with succession planning, Angelini said he's seen more of his law firm's business clients put more of an emphasis on considering who their next leaders may be before they're forced to find someone quickly. "ere's a lot more attention on suc- cession planning," he said. Looking to the future, not the past When Mount Wachusett Community College was looking for a new president in 2016, it was no typical executive search. Mount Wachusett was looking to Over the course of 16 months, Hanover Insurance Group in Worcester had three CEOs: first was Fred Eppinger, followed by Joseph Zubretsky and then John Roche. Gail Carberry led QCC for 10 years and was succeeded by Luis Pedraja following a nationwide search by the school.

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