Governance experts, lawyers, accountants, and consultants debate the definition of board due diligence. The line between oversight and micromanagement, between adversarial and collaborative, can be fine. But the board's obligation to provide guidance as a new CEO takes over is undisputed. The challenge is how to navigate the succession issue without burdening the new CEO.
Recently, in a leadership class I teach at Yale, we invited legendary former Xerox CEO Anne Mulcahy to speak to 100 MBA students. Shortly thereafter, Nick Nicholas, the former CEO of Time Warner and a member of the Xerox board of directors, paid Mulcahy a surprise visit and played a key role in Mulcahy's appointment and post-announcement mentorship.
They recalled the difficulties Xerox faced in 2001, when it had lost 70 percent of the market share it had spent more than a decade cultivating in office technology, its product line was in decline and it was on the brink of bankruptcy. The SEC was investigating the company's accounting practices, its two previous CEOs had resigned in scandal and several high-profile outside candidates for the CEO position had allegations that they had turned down the job.
A series of crises
Mulcaney had held top sales, human resources, administrative and operations roles, but had never served as CEO of a large corporation. Nicholas recalled, “As a board, we recognized that Ann Mulcaney from within Xerox was a strong candidate, but would have preferred more experience, particularly in corporate finance. In retrospect, I understand some directors were hesitant to appoint her, but ultimately the board decided to select her, even though she did not possess the full capabilities required for the job.”
Indeed, when Mr. Mulcahy was selected, two directors resigned. To many observers, the situation was not good for Mr. Mulcahy, and for Xerox more broadly. When Mr. Mulcahy turned down the offer to the recently retired Jack Welch for help, Welch said, “I don't think you can do it.”
Given Mulcahy's learning agenda and the existential challenges facing Xerox, board members led by Nicholas, particularly Ralph Larsen at J&J and John Pepper at P&G, actively partnered with Mulcahy. “What I hadn't seen with other boards and that was extremely valuable to us was that the board asked me to meet with Ann personally, one-on-one, after each executive meeting,” Nicholas says. His mission? “To be open and transparent with Ann about decisions made by the independent members of the board and to give as much feedback as possible about what we had learned and any opinions that had not been articulated to Ann,” he recalls. “As a result, we didn't have to ask, 'What does Ann think about x, yz?' And Ann didn't have to think that about us. Ann welcomed this, and we welcomed it too. There was an open dialogue from day one.”
Lessons from Leaders
The mentoring partnership between the board and the CEO paid off. After plummeting 90 percent during an existential crisis, Xerox's stock price soared 40 percent under Mulcahy. “Nobody wants to be in a business that survives; they want to be in a business that thrives,” Mulcahy recalled. “We were in a crisis and we knew we had to turn things around. Quick decision-making is really important in a crisis, and we couldn't do that without the cooperation of the board.”
Nick and his colleagues have great business acumen, so a big part of it for me was trying out some things with them and seeing what resonated.”
With the blessing and encouragement of the entire board, Nicholas served as teacher, guide, sponsor, role model and coach, while Mulcahy served as a fast-learning and non-defensive disciple. Experience is the best teacher, but only for good learners.
