Selecting the CEOs of big corporations.

Board Chairman, Swiss Re Canada Ltd.

How do they decide who will be the head cheese in a big corporation? Selecting the CEO depends on the type of company -- a wholly-owned subsidiary, a company with a controlling shareholder, a widely-owned company -- says this executive, who has sat on 70 boards, including 25 not-for-profit organizations. But in the case of companies with minority share-holders, it is the board of directors who must control senior management succession if the board is to be anything more than window dressing. Keynote address to a conference on senior executive management succession, Council of Human Resources Executives, Conference Board of Canada, Toronto, January 21, 1998.

For the next 25 minutes, I'd like to talk about senior management succession planning with special emphasis on the CEO. I'll tell you how I believe this process is being carried out in a lot of companies today. And I'll give you my view of how it ought to be carried out, that is, of best practice.

But to make this exercise meaningful, I need to categorize companies by the nature of their share ownership. This is because succession planning, both descriptively and prescriptively, varies with how the shares are held.

The first category is wholly-owned companies, usually subsidiaries of a parent company which is often headquartered in another country though sometimes here in Canada. Occasionally companies in this category are owned by an individual although this is far less common than the parent-subsidiary relationship, which is where I'll focus.

The next question is whether or not the wholly-owned subsidiary has a board with independent directors. As the result of globalization and NAFTA, more and more wholly-owned, foreign-owned subsidiaries are moving in the direction of advisory boards or advisory councils in which independent members have no legal liabilities as directors and no real responsibilities other than to give advice and open doors when asked.

With large diversified multinationals with coherent global strategies, the head of each product-market or individual business in a country like Canada reports in any meaningful sense of the word to the head of that same business globally and who's most likely located at world headquarters.

In a more secondary and sometimes even peripheral sense, he or she (1) reports to the CEO of the Canadian subsidiary. The role of such a CEO is, more and more, that of a senior lobbyist, also that of the person who has a responsibility, sometimes a rather ambiguous one, for the aggregate financials, that is, the sum of the individual businesses. He is also responsible for any of the staff functions where economics of scale favor a single department to service all of the individual businesses. He may also have some sales, marketing and customer relations responsibilities, especially when there's only one business.

I won't dwell further on this category of company except to say that the appointment of the …