01 February 2014

Succession at McDonald's

If the most important decision a board of directors makes is selecting the chief executive officer (CEO) then why do so many businesses and nonprofits fail to have a succession plan in place?  Those who have a plan often struggle to implement it properly.

In 2008, at the 1,000 largest American companies (by revenue), 80 new CEOs were appointed, and only 44 of them--55%--were from within.  

According to Steven Miles, vice chairman of the executive search firm, Heidrick & Struggles, this may be a clear signal of failure on the part of many boards. "If you view a board's having to go outside to hire a CEO as a failure in succession planning, that represents a breakdown in the system. 
A failure rate of 45% means far too many plans aren't working," Miles was quoted as saying in a Forbes Magazine article.  

Coming back to "why" there aren't more plans in place the answer may be three-fold:
  • Succession is not a priority
  • It makes the current CEO a "lame duck"
  • Corporations may not be sure how to go about it
A good example

One company that stands out as having done consistently well with the process is McDonald's Corp, headquartered in Oak Brook, Illinois. While stumbling in 2013, the past decade has been good for the world's largest fast-food chain operating 33,000 locations in 118 countries. 

Current CEO Don Thompson inherited from his predecessor, Jim Skinner, eight years of solid sales growth and a nearly 188% increase in McDonald's stock.  Longer-term McDonald's stock has returned 8,000% over the last 30 years. (My Daily Finance)

Prepared to act

Behind the scenes at McDonald's is a board of directors that seems to know what to do when trouble and even tragedy come along.  If you are a CEO or member of a board, there is much to learn from McDonald's board practices when it comes to succession.

In 25 months, from December 2002 to November 2004, McDonald's had four CEOs:
  • Jack Greenburg
  • Jim Cantalupo
  • Charlie Bell
  • Jim Skinner
From April 2004 to November 2004, just eight months, the company had three CEOs:
  • Jim Cantalupo
  • Charlie Bell
  • Jim Skinner
A tragic timeline

Here is an unimaginable timeline of CEO succession guided by seasoned board leadership and detailed preparation: 

April 19, 2004 1:30 a.m.

Jim Cantalupo, Chairman and CEO, age 60, has a massive heart attack at the Peabody Hotel, Orlando, Florida, while attending McDonald’s company-wide convention, and dies later that morning.
April 19, 2004 5 a.m.

Andrew J. McKenna, lead director at the time receives a call from McDonald's President Charlie Bell informing him of the death of CEO Cantalupo.

April 19, 2004 6:45 a.m.


Eight board members assemble while two join by conference call.

April 19, 2004 8 a.m.

Charlie Bell, 43, was elected CEO by the board.

April 19, 2004 9:30 a.m.

New York Stock Exchange opens with a news release issued that morning.

November 2004, just eight months later

Charlie Bell resigns and Jim Skinner, 59, is elected Vice Chairman and CEO.

January 17, 2005
The former CEO, Charlie Bell, dies of cancer at age 44, in Sydney, Australia, where he became the youngest store manager in his native country at age 19.

June 30, 2012

Jim Skinner steps down as Vice Chairman and CEO after eight years at the helm where he led the company through a period of solid growth. 

July 1, 2012

Don Thompson becomes the new CEO.  

Learning from McDonald's

Although McDonald's situation in 2004 was extreme and rare, it underscores the importance of having some kind of succession plan in place. That should include the current CEO, the board of directors, legal counsel, chief financial officer (CFO), and human resources (HR) each knowing who does what when preparing and executing the plan.

What are some lessons from the McDonald's experience that might be helpful to your organization?
  1. Be prepared--most have no succession plan in place
  2. CEO succession belongs to the entire board--not just a committee
  3. A succession plan is only as good as the people on it
  4. Know the current criteria for the job--don't rely on past criteria--and look for a good fit
  5. Sometimes it's best to promote from within--and other times not--know which time it is
  6. The McDonald's Corp. board of directors rehearsed the succession process during the year--just in case
  7. Make succession a priority throughout management ranks--not just at the top
More change coming?

In a recent interview with The Wall Street Journal, CEO Thompson admitted that McDonald's had lost "relevance" with some customers; needs to improve its complicated menu, and provide better value.

Last year same-store sales dropped 0.1% dragged down by a 3.8% decline in USA sales.  

All businesses get in trouble at some point. The question is how to deal with problems promptly, something the McDonald's management team says it plans to do in 2014.

Debora Wahl is coming on board as the new chief marketing officer and $3 billion has been allocated for capital expenditures. That figure will cover up to 1,600 new restaurant openings and the refurbishing of 1,000 existing locations, according to published reports.    

McDonald's has a largely in-grown culture but a long-term view.  An interesting combination.  However, the board will expect progress in making the company more "relevant" to its global customers who buy some six billion hamburgers and other products each year.  

In an increasingly time-sensitive culture McDonald's says it needs to find ways of simplifying its menu and restaurants to keep customers happy, profits flowing, and its stock rising in value.   

How difficult can it be to order an Egg McMuffin, or for that matter, a Big Mac and fries?

Evidently too hard for some customers who've gone elsewhere for faster food. McDonald's needs them back at the Golden Arches to achieve another decade of growth, and keep succession at bay.


(C) Bredholt & Co.