The process to find a replacement CEO for the high profile and successful Gail Kelly at Westpac started three years before she walked away from the top job.
Kelly was appointed as the GFC was unfolding. During her tenure, as Australian bank stocks recovered from their lows, the value of Westpac more than doubled, with market capitalisation rising from just under $50 billion to $104 billion.
Finding someone to replace her, who would be accepted by the market, the bank’s board, and staff, was always going to be a big job.
At every meeting of the Westpac board in the year before the change, there was a separate session to discuss Kelly’s replacement. She helped drive the process, but directors also discussed it in private sessions without her.
Westpac built an executive development program to prepare potential internal successors for the role. This was designed to develop strengths and fill in weaknesses in skills and style. Those in the running were senior executives who reported to Kelly.
Lindsay Maxsted, the chairman of Westpac, says the field was narrowed in the last 12 months, with the key question being whether the candidate was ready to be CEO of Australia’s second-largest bank.
An external consultant was hired.
“That meant we had another lens on our CEO candidates, in addition to that of the board and incumbent CEO, from an external third-party who analysed the executives’ skills and advised on their suitability for the role,” Maxsted says in an interview in with Company Director, the magazine of the Australian Institute of Company Directors.
“At a board level, succession planning was a key issue for all of 2014, and also pre-dating that,” Maxsted says.
This ensured a smooth handover for the eventual winner, Brian Hartzer. He had only joined Westpac in 2012, when the search for Kelly’s successor began, and started as CEO in February this year.
Maxsted, as chairman, gave feedback on progress to Gail Kelly and Christine Parker, Westpac’s group executive of human resources and corporate affairs.
“Critical to this succession-planning process was absolute alignment with the outgoing CEO,” Maxsted says. “For succession to be seamless, the board and the incumbent CEO must have similar views on CEO tenure.”
Why not just go to an international search firm and find the best person in the world for the job?
“If an outsider joins as CEO, the risk is you automatically stop and start again, and the progress stalls,” Maxsted says.
“From the board’s perspective, you know the calibre of the individual with an internal candidate. You can do all your formal and informal referee checks, but you don’t know how an external candidate performs, particularly under stress, until they are working for you.”
Maxsted suspects succession goes badly at some companies because the board is not aligned on the organisation’s strategy and so there are differing opinions on the qualities required for the next chief executive.
The internal candidate, properly groomed, has a big edge over someone from the outside.
“Also, if the board does not do the hard yards on executive development and training, it can quickly realise the pool of potential internal candidates is smaller than it thought,” he says. “Then you may be restricted to external candidates, which is always harder for many reasons including because you cannot control the timing of when they start. Your preferred external candidate might have to give 12 months’ notice to his/her existing employer.”
Gail Kelly was one of the most successful bank chief executives in Australia. The relationship between her and her chairman, Maxsted, was a critical part of that.
Maxsted says it’s down to mutual respect, needed in any good relationship.
“It’s easy for the chairman to respect the CEO’s role, because most of us have been there before,” he says. “Sometimes it is harder for the CEO to understand the importance of the chairman’s role. Once mutual respect is established, then comes trust, communication, transparency and all the other things needed for successful relationships.”
Maxsted says the Westpac board knows what to expect of Brian Hartzer and he knows what to expect of the board.
“And we know that in a very formal way, given our succession-planning processes,” he says.
“Brian has been an integral part of Westpac’s strategy development, so it would be unusual if there were large sudden changes. The board is entitled to expect there won’t be huge change in terms of strategic content and direction.”
One of the main reasons Hartzer got the top job was because of the threat to banks’ business models through digital disruption.
“That is Brian’s home ground,” says Maxsted. “He understands the threat; he understands how the Westpac brand is perceived by customers and that there will be significantly different customer interactions as technology changes. He has a great opportunity to put his stamp on this issue.”