Wanted: CEO of major corporation

Many corporate boards are failing at leadership development and getting careless about choosing backup CEOs, says Fortune's Geoff Colvin.

By Geoff Colvin, Fortune senior editor-at-large

NEW YORK (Fortune) -- Here's what I find most shocking about the departures of CEOs Stan O'Neal of Merrill Lynch and Chuck Prince of Citigroup: Neither company had a successor.

We've seen many examples in recent years of big, famous, supposedly well run companies having to go outside for new CEOs. I've been railing for quite awhile about talent pipeline failure, and how it's a major problem for many firms. But what has happened in the past week is the most startling evidence yet of how serious the problem has become.

No one is running the store at Merrill Lynch since the departure of former CEO O'Neal.

At Merrill (Charts, Fortune 500), the board has given a director, Alberto Cribiore, the utterly juiceless title of interim non-executive chairman. Note the "non-executive" part; that means no one is actually running the store. The board's search for a new CEO will take at least weeks and may take months, so America's largest brokerage firm may be leaderless for that long.

At Citi (Charts, Fortune 500), the board appointed Sir Win Bischoff, who heads Citigroup's European unit, interim CEO. The eventual real CEO may come from inside the company, but that's not certain.

What is simply stunning is that neither company had a name in an envelope, the person who is chosen and prepped to take over in case the CEO gets hit by a bus. (Both these CEOs got hit by the same bus, the subprime mortgage mess.)

Many boards of directors go through this exercise as a matter of course; General Electric (Charts, Fortune 500), for example, does it at the December board meeting. The name in the envelope may not be the long-term successor, but it's a name that can go in the same press release that announces the incumbent CEO's departure, reassuring investors, customers, employees, and regulators that everything is under control. That's as opposed to a press release that says, in effect, "We have no one to run this place."

Though Citi has avoided that particular embarrassment by naming Bischoff in the same announcement that detailed Prince's departure, it also appears there was no standing plan to have Bischoff or anyone else step in should Prince unexpectedly depart.

Former Merrill CEO Dan Tully told Bloomberg the company always used to do the hit-by-a-bus exercise, but the practice died out under O'Neal. He said, "It is sad that we think we have to go outside."

Merrill and Citi are hardly alone in admitting that their next CEO is nowhere to be found among their tens of thousands of employees. Other big, famous companies that have been forced to hire outsider CEOs in recent years include Boeing (Charts, Fortune 500), Hewlett-Packard (Charts, Fortune 500) (twice), Sara Lee, 3M (twice), Ford (Charts, Fortune 500), Chrysler, and Alcoa. What makes all this especially amazing is that in this post-scandal era virtually every board has gotten religion about taking its responsibilities seriously, and no responsibility is more important than naming the CEO.

Yet even the boards of these major companies have failed. It's tempting to believe that corporate governance has improved significantly over these past six years, and in some ways it surely has, but in one critical way it obviously remains lousy, at least at several companies from which we'd expect better.

Leadership development is all the rage in companies worldwide, and Fortune recently published a listing of companies that are doing it best. Merrill and Citi weren't on it, and now we see why.

If any company, or any board, still wondered whether vigorous, formal leadership development should really be a top priority, the events of the past week ought to remove all doubt. Top of page