When David Findlay was appointed president and chief executive officer at Lakeland Financial Corp. in 2014 to replace Michael Kubacki, it was the culmination of a long succession process that began in 2000 when he joined the Warsaw, Indiana-based bank as its chief financial officer. Kubacki knew Findlay, having worked with him previously at the Northern Trust Co. in Chicago, and he recruited him to Lakeland.
The bank needed a CFO, but Kubacki had something else in mind as well.
“He was a high-powered person and not only were we going to get a good CFO, we were going to get a succession plan over the long term,” says Kubacki, who remains chairman. “The strengths that he brought from a leadership potential standpoint — it was anticipated that he would eventually become the CEO. That [plan] was hatched right from the get-go.”
Findlay was promoted to president in 2010, and later began spending extra one-on-one time with individual board members in more informal settings so they could get to know him better personally. Kubacki was 63 when the board decided that Findlay was ready to become CEO; he became executive chairman for two years before eventually becoming the board’s independent chair.
Kubacki will leave the Lakeland board in 2023 when he reaches the mandatory retirement age for directors of 72. As for Findlay, he turned out to be a pretty good choice as CEO. With assets of $6 billion, Lakeland was the fifth-ranked bank on Bank Director’s 2020 Bank Performance Scorecard, a ranking of the 300 largest publicly traded U.S. banks.
CEO succession doesn’t always go as smoothly as it did at Lakeland, where a promising young executive was given time to grow into the job. If a bank doesn’t have an internal candidate to succeed a soon-to-retire CEO, then it will have to recruit one from the outside. Whichever way it goes, there is no question that managing an orderly succession process is a core responsibility of the board.
“CEO succession absolutely, unequivocally, is the No. 1 responsibility of the board of directors,” says Alan Kaplan, CEO and founder of Kaplan Partners, an executive search firm in Wynnewood, Pennsylvania. “Public company, private bank or mutual – doesn’t matter. CEO succession is a process that needs to be owned by the board and specifically, by the independent directors.”
One of the most critical elements in any CEO succession process is time. Ideally, planning for a transfer of power at the most critical position in the company should begin years in advance. Say a bank CEO reaches the age of 64 and announces to his or her board that they want to retire in a year. If succession planning hasn’t begun, it forces the board to accelerate a process that ideally should proceed at a thoughtful and deliberate pace.
“Most institutions are pretty poor at executing successful CEO succession plans,” says J. Scott Petty, a partner in the Dallas office of the executive search firm Chartwell Partners. Sometimes the problem begins with a CEO who won’t commit to a firm retirement date, which can delay the process. “The better plan would be to have an age when the CEO will agree to step down, and then be very intentional three to five years before and identify that next generation person and give them the rotational responsibilities to prepare them to be able to step into that role,” Petty says.
Most boards have a strong preference for internal candidates, because bringing in a new CEO from the outside can be extremely disruptive to a bank’s culture. But while an internal successor might be the most comfortable choice, they may lack the skills or experience necessary to help the bank grow. So, another important element in every CEO succession plan is picking someone who not only will be good for today but can help the bank achieve its strategic objectives over the next five to 10 years. “I think there’s always a preference to continue the culture of the bank by selecting someone from the inside,” Petty says. “But often times the person they thought would be right to take the bank to the next level, they realize they’re not and there’s a gap there.”
Both Kaplan and Petty say it’s often useful for boards to bring in an outside search firm to perform an assessment of their internal candidates, focusing not only on their readiness to become CEO but also on whether they are the best person to execute the bank’s long range strategic plan. “A lot of times, boards don’t have context on executives,” Kaplan says. “They may know them in the community, they may socialize with them, they may see them in the boardroom. But they don’t actually know what they’re like to work for and work with.”
Kaplan says that “a painless, bloodless, smooth transition of power internally is always preferable, providing that person is really qualified and ready based on where the company is going. Organizations that can plan ahead and develop people that seem to have leadership competencies … I think that is an ideal way to go.” Kaplan says his firm’s “three-year stick rate” for CEO and C-suite executives recruited from the outside is 97%. Still, “companies with long-term, well-groomed internal contenders on average outperform parachuting somebody in from the outside.”
Kaplan believes strongly that the CEO succession process should be guided by the board’s independent directors. The incumbent CEO can play an important role but should not be the kingmaker. “You would always want them to be a participant in the succession process because they’re your most experienced banker,” Kaplan says. “What I think is to be avoided whenever possible is that the [CEO] is driving the process.”
Ultimately, the choice of a new CEO should be a board decision.
There are many ways that bank boards can organize themselves to manage a CEO succession process. “In some cases, the nominating and governance committee acts as the succession committee,” Kaplan says. “In some cases, it’s the compensation committee because HR matters fall there. In some cases, we see boards form a special committee. Oftentimes, that committee is comprised of what I would call your most capable board members or your board members who really understand these kinds of issues.”
Every CEO search is a little different, reflecting the culture and practices of the board as well as the personalities of the people involved. The succession process at Lakeland worked as well as it did because Kubacki and Findlay had a personal relationship, and the younger executive was willing to be patient. “I think we were very fortunate we had David — that we had him so long and it was just very seamless,” Kubacki says. “Can every organization say they’re going to recruit a person and that person is going to wait 14 years to be CEO? It worked for us, but David is a special guy.”