Succession Planning for a CEO

Lone Star Bank, based in Amarillo, is the fourth-largest bank in Texas. Its leader, Harry “Tex” Ritter, has been with the company for 30 years, the last 12 in his current position as president and CEO. The last three years have been difficult for Lone Star, as earnings have been below average for the industry, and shareholders have grown increasingly impatient. Last month’s quarterly earnings report was the proverbial last straw for the board. Particularly troublesome was Ritter’s failure to invest enough of Lone Star’s assets in higher-yielding investments. Though banks are carefully regulated in terms of their investment strategies, Ritter’s investment strategy was conservative even for a bank. In a meeting last week, the board decided to allow Ritter to serve out the last year of his contract and then replace him. An attractive severance package was hastily put together; when it was presented to Ritter, he agreed to its terms and conditions. Although the board feels it has made a positive step, it is unsure how to identify a successor. When the board members met with Ritter, he indicated that he thought the bank’s senior vice president of operations, Bob Bowers, would be an able successor. Some members of the board think they should follow Ritter’s suggestion because he knows the inner workings of the bank better than anyone on the board. Others are not sure what to do.

1. How should Lone Star go about finding a successor to Ritter? Should Bowers be recruited to be the next CEO?

2. How should other internal candidates be identified and recruited?

3. Does Lone Star need a succession plan for the CEO position? If so, how would you advise the board in setting up such a plan?

4. Should Lone Star have a succession plan in place for other individuals at the bank? If so, why and for whom?