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CEO Succession – An Example from British Petroleum (BP)

On July 27, 2010, the Board of Directors at British Petroleum (BP) announced that Robert Dudley will replace Tony Hayward as Group Chief Executive Officer, effective October 1, 2010. This blog entry will share some of the existing literature and research findings on CEO selection. The intent of this entry is not to place BP, its board, or its managing executives in a negative light, but to compare the BP real-life scenario to theory and practices in the leadership selection process.

Corporate Board Responsibility

First, and most important, I extend my deepest and sincerest condolences to the families and loved ones of those who lost their lives in the explosion from the deepwater drilling. Hopefully, the BP Board of Directors and executive management team has done the same in addition to setting up a $100 Million Fund for workers and families impacted. It can be difficult in trying to place a price on the loss of human life. On the one hand, $100 million is a significant amount of money. On the other hand, $100 million to a company that consistently reports annual profits in the tens of billions of dollars is miniscule.

The corporation’s board of directors is accountable for CEO selection. Selecting a Chief Executive Officer is a crucial decision an organization makes. CEO selection is a reflection of the organization’s identity – its culture, people, strategy and structure, and environment. Simultaneously, Corporations are faced with the challenge of developing leaders, but corporations have not developed enough talented leaders to successfully fill the internal pipeline with CEO level candidates. As a result, a number of corporate boards now make it a requirement for the current CEO to help develop and groom a successor. Further, corporate boards now evaluate and compensate CEO’s on their ability to execute this critical assignment. Yes, company performance is a major measuring stick, but so is executive development to ensure longevity and sustainability of corporate operations.

Internal CEO Selection

In order to promote an executive from within the company to the level of CEO, there has to be a succession planning process and an executive development process where internal candidates are groomed for the CEO position. According to Mr. Dudley’s biography and accomplishments listed on the BP website, he has been extremely successful in his various roles. There are only a few executives within a corporation that would possess the knowledge, skills, and abilities to develop the company’s next CEO – the existing CEO; a prior CEO serving on the corporate board; or a corporate board member who has CEO experience from an outside company. The BP website did not give any information if Robert Dudley was developed and groomed by his predecessor, Tony Hayward, or by other board members. The information given was that the existing CEO is being replaced, and the new CEO has been chosen from within the organization.

From an alternative viewpoint, “promoting from within” is a positive sign to an organization’s employees. It demonstrates that hard work and appropriate employee development will be rewarded with additional responsibility and authority. A crucial selling point to newly recruited executives is the ability to grow and move up within the company. If a corporation does not have the development and succession planning processes in place to help their employees advance, talented executives from outside of the organization may be skeptical about joining such an organization.

Societal Perspective

During the past two months, one of the questions I have asked in both graduate and undergraduate business classes is “because of the BP accident in the Gulf of Mexico, will you still purchase products and services from the company?” The classes included were: Organizational Theory and Behavior; Management and Supervision; Critical Thinking; Organizational Analysis; and Introduction to Research.

Although this approach constitutes a highly informal survey, the responses were an overwhelming “yes”. The general consensus was if consumers were to boycott or refuse to buy goods and services from every company that makes a mistake, there would be very few companies to purchase any goods and services from. The amount of adult learners who emphatically stated that they would not use BP products and services was minimal. There were more respondents who stated that they did not give any consideration to the leadership selection or practices of the gasoline stations they went to. The only concern was one of the prices of the gasoline.

Final Thoughts

An additional critical role of the corporate board of directors is to protect the investments of the corporation’s shareholders. The board is responsible for reviewing the corporate strategies and processes for providing a return on shareholder investment. When selecting a new CEO, the board is communicating to the investment community their confidence in identifying the right leader.

Selecting an external CEO implies the organization is changing its direction and possibly its overall corporate vision. Selecting an internal CEO implies the existing direction and vision is fine. Monitoring the fluctuations in BP stock prices will give a clear indication of the investment community’s perspective and acceptance of the newly appointed leader. Of course, the true societal and investment community reaction will be seen at the end of the 4th Quarter of 2010 when Robert Dudley has been in the role for 90 days.

More information on CEO selection and can be reviewed in Corporate Leadership Selection: Impact on American Business, Employees, and Society (Authorhouse Publishing).

Feedback to this blog entry is always welcome.