Naming a successor for the top spot at a bank holding company can be a double-edged sword.
Such an announcement can send a strong signal that the company plans a seamless management transition. But it can also lead talented but unsuccessful contenders to go elsewhere.
This is one of the challenges Mellon Bank Corp. of Pittsburgh faces now that it has tapped Martin G. McGuinn to be its next chairman and chief executive officer. He was chosen this month over eight other vice chairmen and will succeed Frank V. Cahouet at yearend.
Experts who follow management succession trends say a company in this situation walks a fine line. When someone is promoted, the remaining executives have no prospect of upward movement.
"There is a real need for people to take succession planning very seriously," said Ronald Powers, chairman of Boardroom Advisors Inc., a Tampa-based consulting firm. "You can lose a lot of good people."
Mr. Powers said succession announcements should not come too far ahead of actual management changes. "You want to keep that competitive edge and have a lot of people think they're going to get the brass ring," he said.
But not making a firm public announcement can lead to market speculation about a company's future, including the possibility it will sell out. That was the case with Mellon, which many analysts last year pegged as a takeover target.
An announcement can have a negative side, Mr. Powers said. Once a new CEO is designated, the market assumes others may leave.
"It's a very delicate thing," the consultant said. "Once you announce it, it's hard to retract it. Sometimes the best response is to do nothing."
When Mellon named Mr. McGuinn, it also designated Christopher M. Condron as president and chief operating officer, clearly in the No. 2 position. That was seen as an effort to retain Mr. Condron, the vice chairman in charge of Dreyfus Corp.
But some observers wondered if Mr. Condron would be satisfied staying at Mellon knowing it is unlikely he will ever succeed to the top job. Mr. Condron is 50, Mr. McGuinn is 55.
"It is a very difficult situation when your company has rich talent," said Peter Crist, president of the Chicago executive recruiting firm Crist Partners Ltd. If you are a Mellon board member, he said, "you know in your heart you're putting at risk some of your top talent."
Mr. Condron is a "highly attractive target" for other companies, Mr. Crist said.
"Headhunters will immediately be on the tails of those other guys," said Mr. Powers. "It will be a feeding frenzy."
Mellon's Mr. McGuinn and Mr. Cahouet said in separate interviews last week that they believe they have addressed concerns about potential defections internally and do not anticipate departures. They said Mellon emphasizes a team approach, and it has an unusually large number of vice chairmen-nine.
Mr. Condron was not available for comment.
Could the naming of Mr. Cahouet's successor also imply the company has closed its option of merging with another?
"I'd say the odds of (Mellon) selling out are now less than 50%," said analyst James Schutz of ABN Amro Chicago Corp.