When Paul B. Murphy succeeded Walter E. Johnson as chief executive officer at Southwest Bancorp of Texas in January, it was no surprise - the plan was 10 years in the making.
More banks may want to consider giving themselves such a head start.
"Management succession is a huge issue, especially if you want to keep your bank independent," said Jeffrey C. Gerrish, a Memphis attorney and the chairman of the bank consulting firm Gerrish & McCreary. That's because boards of directors at some community banks - especially those with older members - frequently wind up selling out when a CEO retires and no plan is in place, Mr. Gerrish said.
He called the passing of the torch at Houston-based Southwest Bancorp "an ideal situation."
Mr. Johnson was 54 when he started putting Southwest together, and he did not want to be CEO past age 65. In 1989, Mr. Murphy, who is now 41, was his first hire at the Houston banking company, and "about three years ago, it began to look like Paul was running the company," Mr. Johnson said. "The best mark of a good leader is building a management team that can carry on without him."
Mr. Gerrish said Mr. Johnson was smart to groom his successor at such an early stage. "I know a lot of CEOs in their 60s who don't think that far ahead," he said.
Jason Richardson, an analyst at the research firm Best Practices LLC of Chapel Hill, N.C., said few companies do a good job of letting their employees know where they stand in the succession picture.
"The goal should be to develop enough bench talent internally to meet any succession needs," Mr. Richardson said. "Succession planning should be an all-the-way-through-the-organization process. In addition to its CEO, the organization should be looking for its next branch manager and its next vice president of marketing."
Mr. Richardson, who co-authored a succession-planning report by Best Practices, says candor is important in this process.
"If you don't intend to promote someone, let them know it as soon as possible, but in a positive way," he said. "You can't just go up to someone and tell them they're not management material."
In a well-planned succession, no employee will be surprised that he or she did not get the job. That was certainly the case at Southwest Bank of Texas: From day one, Mr. Johnson says, he intended for his protege, Mr. Murphy, to succeed him. Mr. Johnson and Mr. Murphy came to Southwest Bancorp from Allied Bank of Texas, where Mr. Johnson was president from 1972 to 1988. Mr. Murphy worked in its commercial lending division, starting in 1981.
However, both Mr. Gerrish and Mr. Richardson said Southwest's approach is not necessarily the best one for all banks.
"It's OK if you have an organization that is driven by a single personality," Mr. Richardson said. "Mr. Johnson sounds like a strong leader, but most companies need to have a more formal process. Instead of singling out one person, it needs to be communicated throughout the entire organization."
Best Practices' 103-page report, released Oct. 20, also urges companies to emphasize their corporate culture in succession planning.
Ensuring that new top executive hires share the company's values "is the most important first step," Mr. Richardson said.
For Independence Bancorp, of Brooklyn, N.Y., that meant instructing the search committee to cast a wide net so that people from a variety of racial and ethnic groups would be considered for the job of president and chief executive officer.
"We take our constituency and its characteristics very seriously. Whoever leads this place has got to be sensitive and respect that diversity," said Charles J. Hamm, 63, who has been Independence's president and CEOs for more than 15 years and is to remain chairman. The $6.87 billion-asset holding company of Independence Community Bank appointed the search committee in October, and the new president/CEO will likely be announced early next year.
From Our Archive:
Succession Proves to Be a Delicate Issue for CEOs- February 22, 2000 ABA: Many Small Banks Lack Succession Plans- February 22, 2000 Planning to Retire as CEO? Start Succession Planning Early- September 13, 1999
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