by Amy Keller
Updated 11 months ago
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.
Watching and waiting
James believes he can step back successfully from a company that has in some ways remained a family firm even though it is publicly traded. He says he’s been planning for a successor for the past six years and had been “watching” Reilly since he joined the board in 2005. James says he didn’t consider installing his sons as CEO. The elder son, he says, simply wasn’t interested. His younger son, who is a senior manager at the firm, is “not quite ready” for the role of CEO, James says.
Reilly says he doesn’t feel like an outsider coming in. For one, he’s known Tom James since he was a child playing tennis in St. Petersburg’s Bartlett Park. Secondly, his four years on the board have provided significant insight into the company. “I think as people have also learned what I believe in, that didn’t know me, they’re more comfortable.”
Until the handover, Reilly, whose official title is president of Raymond James Financial, attends budget meetings, meets with James and with all managers who report directly to James, visits branch offices and works on “various projects.” As CEO-in-waiting, Reilly says he doesn’t feel he’s on probation and doesn’t worry whether James will have difficulty stepping away from the company he helped his father to build. “You always wonder when someone’s run something so long, and obviously it’s such a big part of him, I thought there would be a little cold feet,” says Reilly. “I’d never doubt his commitment, but it’s been unyielding.”
Asked what it will mean when there is no longer a “James” at the helm, James is pragmatic. “At some point, every company that becomes institutionalized must survive the founder, or near founder,” he says. “You never know until you try whether the person who is chosen improves on the model, extends the model very successfully, changes the model to suit their personal interest — or simply can’t do it. We’re going to find that out. It’s better to find it out while I’m still around.”
Seven Succession Slip-Ups
Chip Webster, president of Vistage Florida, a CEO think tank whose members advise each other, says transitions usually fail for the following reasons:
• Confusing good management with good leadership: “Leadership is much different than management. Managers do things right; leaders do the right thing. Managers are more concerned with form than substance. Leaders take charge with passion and urgency. Selecting the best manager to succeed the CEO usually ends up in disaster.”
• Promoting from within: “Over time large institutions self-destruct because they become inbred. The seeds of destruction for Sears, GM, et al., were sewn in the ’60s and ’70s when promoting from within was the rule. Experience outside an organization can give a CEO an objective view of the company an insider cannot see.”
• Coronating the next CEO: “ ‘I’m the son or daughter of the owner so I deserve the job’ is as equally non-productive as, ‘I’ve been with the company 25 years and it is my turn to run it.’ Genes and time in grade have little or no bearing on the ability to run a business.”
• CEOs who can’t let go: “Egos play a large role in succession failures. Once the new leader is in place, the outgoing CEO needs to get out of the way. If the outgoing CEO stays around, it invites second-guessing of the new CEO, which is counterproductive.”
• Incoming and outgoing CEOs not in alignment: “Values and vision drive all organizations. If the outgoing CEO’s values and vision are dramatically different from the incoming CEO’s, the transition will be rocky at best.”
• Lack of planning: “Stories of untimely deaths of business leaders aren’t that uncommon, and unfortunately many times the CEO didn’t have a plan in place. The results of such inaction are devastating to those left behind and usually results in the company being greatly hampered and possibly even liquidated.”
• A lack of objective advisers: “We can’t see our own backswing in golf or our blind spots in business. If you want to be successful in transitioning your company, you need a group of unbiased advisers to help you see all the moving parts objectively. Otherwise, there’s a risk that all you did to build your company will be destroyed by an incompetent successor.”
Paul Reilly (left) will succeed Tom James, who succeeded his father, company founder Bob James (painting).
Paul Reilly, 55
Previous positions: Executive chairman, Korn/Ferry International; CEO, KPMG International; real estate developer
Education: MBA in finance, University of Notre Dame; CPA
Family: Married, with three daughters
Timing: “I sold my consulting firm to KPMG on Black Monday, October 1987. I joined Korn/Ferry on June 30 of 2001, which is the year the industry went down by 50% because of the tech bubble, and I joined here in March, which I think was the low point of the stock market. I tell people, I hope I don’t cause the bottoms; maybe I just get to join on the bottoms.”
Similarities with Tom James: “I think we’re a lot more alike than I thought. I found out things about him after I joined — for example, we have the same birthday, which was kind of creepy. Financially, we both don’t have debt. There are a lot of similarities.”
Recruitment: “We both have this philosophy that if you recruit people one by one, they’re more likely to be coming for the right reasons because they believe in what you’re doing.”
Recovery: “The industry I think has gone through the hardest part. Tom and I share (the belief) it’s going to be a longer rebuild, that we are rebuilding, but it may take more time than people think.”
Government regulation: “I think the mood right now is to try and regulate everything. There is always what Icall the law of unintended consequences. So you can put out a cash for clunkers program and it stimulates car sales and it does all sorts of good things and it gets gas guzzlers off the road. But go talk to people who have repair shops and talk to people that sell auto parts for cars — you don’t hear about those things. I’m not a great believer in fiddling with the free market unless there is crisis.”
Good management: “I think there are some managers who like to beat up people and focus on their weaknesses. I actually think great managers are able to look at other people’s strengths and capitalize on them and know their own strengths and weaknesses and make sure they get people who can cover their weaknesses and leverage off their strengths.”
Motivation: “When you get to be this big, it isn’t about a person; it’s about a group of people that can motivate a bigger group of people that can motivate a bigger group of people to get the jobs done. I don’t care how good Tom is, if the financial advisers aren’t good and they’re not motivated in talking to the customers, this whole thing doesn’t work.”