Three rules for brand-new CEOs

Incoming chief executives have a lot to learn, which is why so many of them don't last very long.

By Jennifer Reingold, senior writer

bob_mcdonald.03.jpg
Robert McDonald will take the reins at P&G on July 1.

NEW YORK (Fortune) -- There's heavy turnover in the C-suite these days. The latest CEO transition came this week, when Robert McDonald was named the new CEO of $84 billion Procter & Gamble, the successor to nine-year chief A.G. Lafley, who will step down July 1.

The announcement at one of the country's oldest and best-regarded companies was most notable for its lack of drama. It was that rare event in business: a CEO transition that drew kudos rather than anxious selling. "The real story here is the non-story," says author and management guru Jim Collins. "This reflects the way things should work."

The relative lack of ripples is all the more unusual in a treacherous environment in which CEOs are getting the boot on a regular basis: 115 departures in May alone, according to outplacement firm Challenger, Gray & Christmas.

The credit in P&G's case belongs to Lafley and his board, which organized a careful and deliberate succession process in which the only surprise was the timing. But despite the fact that McDonald, a 30-year P&G (PG, Fortune 500) veteran who joined out of the Army, is highly regarded both inside and outside the 172-year old company, the transition from a long-admired CEO to a new one is still fraught with peril.

While making it to the top of the pile is hard work indeed, many leadership experts caution that a new executive's ultimate success may hinge as much on the transition itself as the process of getting there. After all, fully one in three CEOs doesn't last more than three years in the job, observed McKinsey consultants Kevin Coyne and Bobby Rao, in "A Guide for the CEO-Elect," which appeared in the McKinsey Quarterly. Based on the research of Coyne, Rao and other experts, here are a few rules for successful CEO transitions:

1. ) Make it clear who's in charge.

It's not easy to walk in the shoes of an iconic CEO like Lafley, particularly when he's sticking around as full-time chairman. "It's true," says John Pepper, P&G's onetime CEO and chairman. "He's a tough act to follow." Nor is it easy to manage a relationship in which the power dynamic has shifted; after all, Bob McDonald has worked with, and primarily for, Lafley for close to 30 years. One of Lafley's most important jobs, says Bill George, the former CEO of Medtronic (MDT, Fortune 500) and now a professor of management at Harvard Business School, will be to make clear to the board and the employees that the ultimate decision now belongs to McDonald. The former CEO "can be the wise man, or a confidant," he says. "Otherwise it's hard for the new CEO to feel fully in charge with the longtime CEO still in the office."

Certainly, there are many situations, particularly in founder-run companies, where a meddling chairman who is not quite ready to give up all of his authority can be toxic to a new leader. In this case, however, P&G watchers think that's unlikely. "What makes this work is the relationship," says Pepper, who notes that the two at the top of P&G are extraordinarily close. "Lafley's role is to support Bob, full stop."

2.) Use the interim period wisely.

It would be natural to think of the period between the announcement and the actual changing of the guard as something of a honeymoon for the new CEO, who has all of the accolades but none of the responsibilities yet. But that's a missed opportunity to build board relationships and other external interactions that will soon become key, say McKinsey's Coyne and Rao. It's also, they say, a great time to bone up on skills that are missing from the new CEO's repertoire. Some of the CEOs they interviewed on this topic did such things as take a crash course in chemical engineering and hire a private coach in preparation for their new role.

3.) Stay confident -- but remember how much there is to learn.

Robert McDonald knows P&G inside and out. He has lived on several continents for years at a time, run many P&Ls, and is a longtime friend and confidant of the CEO. That doesn't mean he's totally prepared for the job. Lafley himself, writing in the Harvard Business Review last May, described how surprised he was to find that the role of the CEO was so different from that of other operating roles; only the chief executive, he says, can "link the external world with the internal organization."

McDonald will have to learn this on his own, while at the same time keeping his confidence up at a time when P&G has had to revise its sales estimates downwards and to reconsider its emphasis on premium brands. At the same time, he must be humble enough to understand that he has much to learn -- and he must not be afraid to find his own sounding board. After all, it may well turn out that Lafley's strategy was appropriate for a very different environment.

McDonald's friends and colleagues say he's up to the job. "Right from the beginning, I knew he was going to be very successful," says Pepper, who met McDonald during the future CEO's first week in the package, soap and detergent division. "He had a sense of purpose, excellent standards, enormous energy and a great depth of caring about what he was doing."

But the pressure is on, even as McDonald says he thinks he can grow P&G's stable of $1 billion brands to 30 in the future, from 23 currently. If he acts quickly and wisely, he'll make the leap to success that his predecessor did --and that so many others fail to do. To top of page

More Galleries