Last Updated May 20, 2010 6:45 AM EDT
Succession planning is now seen as important enough to warrant a section in the debate over the new corporate governance code. The cost of being without a boss at a crucial time can be close to catastrophic. It makes sense to ask what the company would do if it lost a senior officer.
An orderly replacement of the top roles is every company's ideal but the best prepared plans can be upset by a CEO forced out by scandal, finding a better job elsewhere, or merely being run over by the proverbial bus.
A good company should be constantly reviewing its middle-management to see if they are ready to move to the top and surveying the competitors to see who might be worth poaching.
When the crisis comes, a business should not have to promote a deputy merely because the market is demanding a new leader instantly. It is not unreasonable, therefore, that chairmen and headhunters are constantly considering their options. Nor is it unreasonable to include CEOs in the debate over their successor unless they are to removed unexpectedly against their will.
So when the change of Britain's government left Lord Davies â€" chief executive, then chairman, of Standard Chartered when he was simply Mervyn Davies â€" without a job, Lloyds' chairman was wise to sound out whether the ex-minister would like to be the retail bank's CEO. Even if discontented shareholders do not force out Eric Daniels because of the disastrous HBoS takeover, their discontent might well encourage him to quit anyway. Having a suitable replacement lined up would be good succession planning.
Such soundings can backfire. Davies ticks all the boxes as a successful banker, but having already swapped the executive role at Standard Chartered for the chairmanship, he could well think he should be running the board at Lloyds rather than running the bank. While Lloyds chairman Sir Win Bischoff was looking for a new CEO, Davies might think he should have Bischoff' s job.
Ideal succession planning would have ensured the approach to Davies remained secret. If Bischoff wants his chief executive to resign he would have been hard-pressed to find a better starting point. A company can be undermined by having no chief executive but the CEO's confidence and command can be undermined by the world knowing his position is up for grabs.