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Creating the New Utility CEO

Increasing risks call for a new generation of leaders.

Fortnightly Magazine - October 2008

number of CEOs were promoted from within. Today, we’re still seeing a strong preference for internal candidates—and appropriately so—but more boards of directors are responding to shareholder pressure by conducting a more diligent CEO succession process. Many companies are benchmarking internal candidates for CEO succession against a well-qualified slate of external candidates. While many companies don’t intend to conduct an actual search, this CEO benchmarking process helps organizations to identify promising external talent and to pinpoint the strengths and weaknesses of their executive bench. This approach allows them to more strategically build the leadership team with an eye to the future.

While companies should expose their most talented senior executives to experiences that will groom them for a future CEO role, there are limits to what most utilities can do. The industry’s workforce is aging and young talent is in high demand. These circumstances, combined with the ever-increasing complexity of the industry and the ever- broadening skill set it demands, virtually guarantee that utility companies will have difficulty finding a candidate who offers every desired competency.

As a result, boards must carefully consider not only CEO succession, but the strategic development of a senior leadership team. As companies look at the major areas of risk they must manage—from the traditional operational, regulatory and financial risks to the more recent commodity price, environmental and political risks—their senior ranks should contain leaders who, collectively, can cover all of these areas.

Part of the reason the industry has evolved to favor CEOs with legal and financial backgrounds is today’s complex regulatory, political and financial landscape. But another reason is that utility companies also traditionally have very strong operational executives upon whom these CEOs can rely.

After all, a CEO isn’t an individual with a checklist of skills. He or she is, first and foremost, a leader. While financial and regulatory understanding is important, executing the strategy requires the communication and leadership skills that are the hallmark of every successful CEO. It also requires the ability to attract, develop and retain a sophisticated senior team that can manage the full spectrum of increasingly complex risk.

A keen executive intelligence—the capacity to think clearly, analyze situations, and make the right decisions—is a critical trait for the CEO as well as for the members of the senior team he or she assembles. Given the business unit and jurisdictional complexity of the typical utility, organizations need several executives who are ready to step up to the next level.

Hedging Talent

For companies that do it best, succession planning is a comprehensive approach to developing management talent throughout the organization. It is one of a handful of essential duties of the lead or nonexecutive director, but it is also a topic that should remain an ongoing priority for the board and appear regularly on its meeting agenda.

No one can predict which risks will have the biggest impact on future business operations. But constant executive assessment and development can position companies to have the talent in place to handle any scenario. In a world of constant and ever-multiplying risk, it’s