Leadership transitions are high-stakes affairs. In hiring his own replacement, Tom James has adopted a phased-in succession.
Paul Reilly will take over at Raymond James Financial in May. Until then, he’s “shadowing” Tom James.
[Photo: Mark Wemple]
“I used him like this consigliere who knew all the historical facts and had more experience than I had but didn’t really like the administrative parts of management,” says James, 67.
Today, as James prepares to pass the torch to Paul Reilly, he’s created a more gradual succession plan that takes into consideration the fact that Reilly hasn’t grown up in the company’s culture. Reilly, a St. Pete native who served as executive chairman of the executive search firm Korn/Ferry, began working at Raymond James earlier this year but won’t formally take over until May. In the meantime, James will mentor and coach him while continuing to serve as CEO. Once Reilly takes over as the CEO, James will become executive chairman, assuming the role his father played for him nearly 40 years ago.
James says the transition process is as important as the selection itself “because if you don’t integrate the person properly into the organization, either because you don’t give them the historical knowledge or an understanding of the people, the culture, you’re almost destining the person to have a higher probability of failure.”
Reilly, who has been a Raymond James board member since 2005, views his shadowing period as an opportunity to fully learn the culture, systems and processes of the company. “Tom and I are very clear when people ask — he is the CEO. You can’t have two CEOs. It doesn’t work. Someone has to make the decisions and run the company, and that’s Tom. I came in this position for a year with the opportunity to learn and observe.”
Experts say establishing clear lines of authority is a key element in the high-stakes process of leadership transition. Failure is both frequent and costly. The Center for Creative Leadership estimates that two out of every five new CEOs fail in implementing business strategy in their first 18 months. And a recent study by RHR International showed that the faulty integration of new senior executives can cost a company 10 to 20 times the executive’s salary in lost momentum and missed opportunities and have a lasting impact on the company’s stock price.
Robert Dutkowsky, who in September 2006 became CEO of Clearwater-based computer distributor Tech Data, the biggest Florida-based public company, says the key to a smooth transition is discussing everything upfront. It’s critical, he says, that the incoming CEO’s view and the company’s view on how the transition should proceed are “in alignment.” Equally important, he says, is that the prior CEO is actually willing to “step out of the business” and cede control to his successor.
Like Reilly, Dutkowsky replaced a man who had been CEO for more than 20 years and whose father had founded the company. Steve Raymund assured Dutkowsky he was ready to leave, and thanks to the detailed planning, the transition went “flawlessly,” Dutkowsky says.
Tech Data CEO Robert Dutkowsky:
“The agreement we came to was that if I ever needed Steve, I would call him.”
The “optics” of the changeover were also important. Raymund, who remained as chairman of Tech Data, agreed to move to a new office on an entirely different part of the company’s campus. “I think that helped not only for the business to come to me, but for Steve to detach himself from the day-to-day,” says Dutkowsky.