Gayle Roberts took over as president and chief operating officer of Muscatine, Iowa-based engineering firm Stanley Consultants Group just a few weeks ago. She’s already looking to develop her successor and the rest of the firm’s next executive team. Since announcing in 2005 his proposed retirement target date of 2010, Kleinfelder Inc. CEO Gerald J. Salontai has carried a to-do list to start planning for leadership transition. The process has progressed so well that he may actually leave a year sooner. “This is no different than contracting projects,” Salontai says. “You put together the  scope and the schedule.”

STEPHEN G. HANKS

Planning for succession is taking on new urgency for industry firms as founders and executives age and companies seek to stay intact and ensure “homegrown” ownership and management as well as tangible career development options for sorely needed managers.

“The issues of succession planning—preparing young candidates—is more acute now than it has ever been,” says Stephen G. Hanks, president and CEO of Washington Group International, Boise. “We spend 30% to 40% of our time on development of people in the organization. Our mission is threefold: First is employee development, second is operational execution, and third is financial results.”

With company stock valuations boom­ing on record revenue and earnings, owners are cashing in, and many foun­ders already have stretched financial ownership more broadly to employees. Others are realistic that family dynasties may be unsustainable.

"Preparing young candidates is more acute now than it has ever been." —Stephen G. Hanks, ceo Washington Group International

Now, it is the workforce that has more options in a tight labor pool, and firms must groom talent earlier to ensure some corporate-culture continuity, keep up with market growth and prevent potential stars from being lured away. “Em­ploy­ees are very susceptible to competing companies during the first five years of employment,” says William C. Schubert, CEO of Kitchell Corp., Phoenix. “If you don’t show a particular interest in their future development, you’ll lose them. You can’t ignore the relationship.”

The firm offers newly hired engineers with management potential the chance to take “future leader” classes, which meet every six weeks for three years. “We then continue to evaluate them on an annual basis and reinforce our thoughts about their potential,” says Schubert.

Photo by: Guy Lawrence for ENR

For others, the zeal to develop a reputation as a talent incubator is strong. “For 82 years, all of our CEOs have been homegrown,” says Chris Arvin, dean of Caterpillar Corp.’s college of leadership. “That’s pretty rare in corporate America. We have a formal succession process, but it’s also a process we just do naturally.”

Other industry firms also trumpet their ability to groom leadership. “We would not ever consider a senior- level employee coming in from the outside,” says Brad Chapman, a spokesman for Kiewit Corp., Omaha. Adds Robert Uhler, CEO of Broomfield, Colo.-based MWH, “If we had to hire an outside person as CEO, we would consider that a failure.” He notes, however, that the firm’s well-groomed management successors are vulnerable to being raided. One candidate recently was lured to another major firm with a million-dollar signing bonus and an annual salary ex­ceeding that. 

“In many cases, potential successors left the firm because the boss never talked to them,” says FMI Chairman Hugh L. Rice. “They got tired of waiting, so they quit. There’s still a tendency to keep them in the dark.” Often, owners are slow or even reluctant to surrender control. “The stronger the personality of the company founder, the tougher it is,” says Rice. “The biggest problem is founders who won’t let go.”

The result is that the succession process is still haphazard in the industry. “In some firms it’s deliberate, but in others, succession planning is almost a randomly occurring event,” says Thomas Warne, a former Utah transportation commissioner who now sits on several company boards. “There’s no thought, no preparation of potential successors. It takes years to grow someone to become president.”

For some, inattention to succession can create confusion and uncertainty. Richard L. Shaw, 80, was called back from retirement a year ago to be CEO of Michael Baker Corp., Pittsburgh, when a predecessor left and there was no one ready to step up to the plate. “There was a failure to pay attention to detail,” he says. “We were focusing on pursuit of megaprojects. When things are going well, you get complacent.” Shaw, a 56-year company veteran, says the firm’s balance sheet is healthy and denies acquisition rumors. The firm is searching for a CEO, although “we have several people who could move up the chain,” he says. Shaw expects the dust to settle by the end of the year. “I’m anxious, but not nearly as much as my wife.”

Fifteen years ago, Lewis Anderson, founder and 85% owner of Isec Inc., a 40-year-old Englewood, Colo., interiors subcontractor, realized it was time to exit the firm, but creating a new ownership and management succession model was not easy. “Succession planning is not always what people want, but you often don’t have an alternative,” says Donald Shaw, the firm’s COO who helped craft the transition plan. “It causes us to deal with our own mortality— issues none of us want to think about.”

Bumpy financials eventually stretched Isec’s planned 10-year succession plan to 14, with the buyout of founder Lewis Anderson completed only last month,says Shaw. But the transition ...

At McCarthy Building Cos. Inc., St. Louis, “Mike McCarthy was fourth generation, but he concluded that there was not going to be a fifth,” says CEO Michael D. Bolen, a carpenter who rose to be­come the firm’s first non-family chief. “The non-family folks knew that for a number of years, but he kept his options open until the very end.” But in some firms, management succession remains a rarely discussed issue, whether for lack of time in the current boom market or lack of priority. In a survey about to be published, Denver-based industry management consultant FMI found that only 42% of 271 contractor respondents say they have capable management successors ready to take over. Some 53% say forces “need further development,” and 5% say they would have to hire successors from outside. “Having talented, motivated em­ployees take the place of an owner who is prepared to step aside is the exception rather than the rule,” says survey author and FMI Senior Associate Matt Godwin.