Plan for success(ion)

Angelica Berrie, CEO of Oakland, N.J.-based Russ Berrie, knows first-hand the importance of careful corporate succession planning. The former vice president of strategic planning for the specialty gift company had the unfortunate experience of landing in the chief executive's seat following the untimely death of her husband and business founder Russ on Christmas Day 2002. "Russ and I had talked about who might succeed him, but it was never a job that I aspired to have," Berrie tells PLAYTHINGS.

According to William J. Rothwell, Ph.D., professor of human resource development at Pennsylvania State University and the author of Effective Succession Planning, 20 percent of the Fortune 500 CEOs will be eligible for retirement in the next few years, making succession an issue of paramount concern.

But death or retirement of a CEO are not the only succession planning issues. In a world of constant uncertainty, corporate scandal and an aging and retiring work force, careful and diligent succession planning is crucial for any company's long-term success.

With emotional attachments to the company and sibling rivalries, succession planning at wholly or majority-owned family businesses can be especially challenging. Frequently, the founder and CEO can have difficulty relinquishing the lead role, making it hard to choose a successor. And with no outside board to govern the company as in the case of a sole proprietorship, the fate of the company can be left up to the founder's own devices.

Management consultant Peter Roche, CEO of Redbank, N.J.-based London Perret Roche Group, LLC, suggests that a founder and CEO of a family business who is serious about passing on the baton must be prepared to match actions with stated objectives. "They must be willing to state when they plan to leave and what skills, qualifications and characteristics the successor should have," he tells PLAYTHINGS.

Rothwell argues that the family may need to hire a family psychologist to work through some of the more difficult questions like, "What if the founder dies and the business goes to the spouse? Who's running the show? and Who's in charge?" Such a professional, he offers, might be able to provide the necessary objectivity to help a family determine the best solutions to these and other important issues.

Filling any CEO's shoes can be a challenge, but it can be even more daunting when the CEO was also the founder and one significantly identified with the company in the marketplace.

Berrie describes her late husband Russ as a unique CEO who was heavily involved in the company's day-to-day operations. "It was a traditional culture where people were used to taking instructions from Russ without asking questions. Russ knew where he wanted the company to go," Berrie tells PLAYTHINGS.

Despite not envisioning herself as a possible successor to her husband, she, having worked closely with him for 11 years prior to his death, learned the business and was well-positioned to step in to run the company. "I did not miss a beat," she affirms, immediately having held a board meeting the day after her husband's death. "It was important to have continuity for our employees, customers and vendors. We had strength in our relationships; they were familiar with me and invested in my success," adds Berrie who had managed a factory in the Philippines that made products for Russ Berrie before the two married.

Following Russ' death, Berrie points out that it was important that the leadership transition be smooth. "Bringing in a new person to the unique challenges of specialty retailing would have been traumatic," she says. "I needed to make some tough decisions regarding issues like technology and we needed to rethink our business processes," she adds.

Berrie argues that the staff was more willing to accept new ideas from her versus an outsider as CEO, further easing the transition.

A transition was eventually made, albeit after almost two years. This month, a new president/CEO is taking the helm at Russ Berrie: toy industry veteran and former Toys R Us executive, Andy Gatto.

In ensuring that her company continues to run after she leaves, Sharon DiMinico, the founder and CEO of Learning Express, plans to eventually sell her company to employees and franchisees via an ESOP (Employee Stock Ownership Plan). And at 58 years old, DiMinico underscores the fact that she is not ready to retire right now. Should she leave the company in a worst-case scenario, she says her staff is very capable of managing without her. "I am not indispensable. We have the people in place to continue on. I have no doubt that [president] Joe Diaz could run the company," she tells PLAYTHINGS.

However, for companies that require some form of intervention when implementing a succession plan, experts believe this task should not fall on one pair of shoulders. Prof. Rothwell says, "If the CEO decides to let human resources do the plan, this could lead to disaster. Human resources alone cannot hold senior management accountable for implementing the plan," he tells PLAYTHINGS. He adds that in order for succession planning to be effective, managers should be held accountable and given incentives to carry out company objectives.

For the first time in its history, last year, Hasbro named as its first CEO from outside the Hassenfeld family: Al Verrecchia, a 38-year company veteran. Further, the company also has strong young leadership in the ranks; Brian Goldner, at only 40 years old, is toy division president.

Senior vice president of human resources Bob Carniaux tells PLAYTHINGS, "Hasbro is actively looking to develop its people through the ranks instead of seeking leaders from outside the company." He stresses that the company's commitment to management development is driven by its very own senior management. Specifically, Carniaux cites the company's global leadership development program, which takes place at Dartmouth's Amos Tuck School, as a strong initiative structured to help the company address its future management needs. And while there is no economic incentive for managers to develop their staffs, the development of people is a part of Hasbro's overall operating plan.

"If you have the point of view that people are your most important asset, then the question of what happens if someone leaves, if there is an accident or illness, should be a part of the enterprise's culture," says Roche.

Mattel also embraces a top-down approach to succession planning. "Succession planning is a part of an overall people development strategy and a main goal of our CEO," says Lisa Marie Bongiovanni, the company's vice president, corporate communications and government affairs. "Managers are not only judged by how well they do their job, but also on how well they develop their people." Bongiovanni cites Mattel's Leadership Development Center as a key component in the company's efforts to assure that qualified people are being nurtured and identified for opportunities throughout the company. This approach, in effect, thereby eliminates any 'brain drain' due to attrition or retirement, she notes.

Going forward, companies must continue to adequately plan for succession throughout the management and workforce ranks. Such planning must come from the top in order to be effective. Those interviewed for this story agree that companies with CEOs most committed to implementing succession planning are best ready to tackle the future.