Deep Succession Planning
Tough competition in Japan and Europe, emerging markets such as Korea, and a desire to improve its engineering systems and technologies are also behind Delphi’s highly structured management development process.
“We spend a lot of time on progression and succession planning,” says Mr. Battenberg. Each year, the company identifies 40 to 45 candidates for officer positions, going three or four levels down in the organization. Those candidates are invited to meet with the board in a variety of settings — social events; meetings, where they are asked to give formal presentations; and the three-and-a-half-day strategy retreat.
Management experts note that the current corporate governance crisis grew, in part, out of a failure by many companies to develop a strong slate of internal candidates to succeed an existing CEO and to fill other crucial positions. “In most companies, succession planning begins toward the end of a CEO’s tenure,” says Jay Conger, a professor of leadership at both the London Business School and the University of Southern California. “That’s one thing that’s wrong with the process. Companies also need to think about developing a strong bench.” One obstacle to doing so, Professor Conger adds, is that “in American culture, executives expect that they’re going to be moving constantly” and, during the 1990s, “the war for talent drove faster turnover.” That is, companies felt they had to promote high-potential executives quickly, or risk losing them to competitors. (See “CEO Succession 2002: Deliver or Depart,” by Chuck Lucier, Rob Schuyt, and Eric Spiegel, s+b, Summer 2003.)
Delphi is consciously trying to stretch the tenure of key executives. “Irimajiri says that American companies rotate too fast,” Mr. Battenberg says. “I would like to expand and lengthen the time” that key executives stay in their jobs. Adds Mr. Opie, Delphi’s lead director: “We’d like them there long enough so they can live with their decisions.” The Delphi board reviews the list of high-potential candidates periodically, adding candidates as some are promoted and others fall off the list.
Board members have also weighed in on moving senior executives to different locations, says Ms. Sueltz, to give them “a truly global perspective.”
For Mr. Battenberg, having the board looking deep inside the organization for future talent is enormously valuable. “The board is very familiar with those people who are immediately promotable. We want to get them exposed to candidates who are two or three years away from promotion,” he says.
To evaluate high-potential candidates, Mr. Battenberg has borrowed heavily from GE methods. For example, he has broadened the number of line executives who have profit and loss responsibility. The seven presidents of Delphi’s divisions always had P&L responsibility, even when Delphi was still part of GM. But now he is pushing that bottom-line responsibility down the hierarchy to the next 30 line executives.
Measuring the Board
Delphi executives, and others who are close to the company, insist that the structure for charting strategy and for evaluating executives and board members keeps the freewheeling dialogue in check. Indeed, both board members and executives undergo a careful assessment each year. Board members serve three-year staggered terms. And only outside directors serve on the board’s three standing committees: the audit committee, the compensation and executive development committee, and the corporate governance and public issues committee. (Although the New York Stock Exchange rules are requiring some board committees — the audit committee, for example — to be made up exclusively of outside directors, Delphi’s committee structure predated and goes beyond the current guidelines.) During the annual retreat, concrete objectives for key performance measures, including market share and employee development as well as standard financial targets, are determined. Mr. Battenberg and his direct reports are evaluated on how they meet those goals.