Egon Zehnder In Hunt for Next Hershey Company CEO

October 17, 2016 – Egon Zehnder has been retained by The Hershey Company to lead its search for a new chief executive officer. John Bilbrey said he is resigning next summer from the post he’s held for five years.

As part of the company’s succession planning process, the board has appointed a special committee to direct the search for a new CEO. The committee is led by Pamela Arway, who chairs the company’s governance committee. Insiders and external candidates are all in contention for the top job, including the chocolate maker’s chief operating officer Michele Buck. Her chances of being selected might be improving, according to some talent advisors watching the search closely.

“I am proud of all that we have accomplished as a team,” said Mr. Bilbrey. “I am confident that the board will identify an outstanding candidate to lead The Hershey Company through this next phase of growth. I look forward to working alongside the board to make the transition to new leadership a seamless process. Until that time, I will continue to work closely with my management team to grow the business and create additional value for all stockholders.”

What’s Going On Within Hershey?

The news of Mr. Bilbrey’s departure follows Hershey’s recent rejected takeover attempt by rival Mondelez International. The company declined a $23 billion offer in late August as other candy and food companies — facing shifting consumer tastes in a low-growth industry — are busy merging and consolidating operations. Shortly after, Hershey’s stock fell by more than $15. The stock has traded as high as $118 within the past year; it is now hovering at around $96 per share.

Mr. Bilbrey’s decision to leave also follows on the heels of news that the charitable trust that controls Hershey reached a major reform agreement with its overseer, the Pennsylvania attorney general’s office, raising questions about its future plans for the company. Following a dispute with the Pennsylvania attorney general over its governance policy, the Hershey trust in July agreed to expand its board from 10 members to 13, and for five members to resign by year’s end.

“John has been a great leader and we are grateful for his unwavering commitment and many contributions to Hershey’s success during his 13 years with the company,” said Ms. Arway. “Succession planning has always been a top priority for our board of directors, and we look forward to an orderly leadership transition. We are confident in John and his leadership team and know they will continue to focus on growing the business while upholding Hershey’s great heritage and values as the board conducts a thorough search to identify the right person to lead this company into the future.”

The Hershey Company, headquartered in Hershey, PA, is a global confectionary leader that markets, sells and distributes its products under more than 80 brand names in approximately 70 countries. It has annual revenues of $8 billion and 22,000 global employees.

Hershey’s Use of Executive Search Firms

Hershey’s choice of Egon Zehnder to lead its most important search in at least a half decade caught some industry watchers by surprise. This past June, Hershey said it had expanded its business relationship with executive search firm Ward Howell International to hunt for new leaders in the U.S., the candy maker’s largest consumer market.

The broadening alliance with Ward Howell, in part, came from a top to bottom review of Hershey’s external search providers, led by the company’s vice president of talent, Chris Scalia. Mr. Scalia had been seeking to improve hiring efficiencies at the company recently and he succeeded by reducing the number of vendors in use — some 22 search firms —  down to four global generalists and a handful of specialists. These included Ward Howell, Egon Zehnder, Spencer Stuart, Korn Ferry and ZRG Partners, among others.

Mr. Scalia said in June that all of these providers were “in rotation” and that Ward Howell had risen to chosen “outlier” status among the group given the search firm’s strong 15-year relationship finding talent for Hershey’s in some 25 far flung global markets.

Ward Howell, according to Mr. Scalia, has provided Hershey’s with executives in just about every conceivable function, from head of digital to chief procurement officer, from marketing executive roles to HR leadership positions to finance and audit leaders. The recent culling of executive search providers this past year, called an “optimization opportunity” by Mr. Scalia, is expected to keep Ward Howell as Hershey’s preferred talent provider.

The nod to Zehnder to conduct its chief executive search, said a Hershey source, “is nothing more than a common top down directive taken at the board level.”

Why Consider Outsiders …

Last year, 17 percent of the largest 2,500 public companies in the world changed their CEO, more than in any of the previous 16 years of the ‘CEO Success Study‘ from Strategy&, PwC’s strategy consulting business.

The report found that over the past several years more big companies have been deliberately choosing their new CEO from outside of the company as part of a planned succession, an indication that hiring an outsider has become more of an intentional leadership choice than a necessity.

Outsiders accounted for 22 percent of all CEOs brought in via a planned succession between 2012 and 2015, up from 14 percent in the 2004 to 2007 period, said the report. In addition, almost three quarters of all outsider CEOs were brought in during planned successions during that same period, up from 43 percent in 2004 through 2007.

However, the majority of companies have continued to promote insiders to the CEO position and the study authors think this will remain the preferred succession planning practice (77 percent insiders vs. 23 percent outsiders in 2015). Outsider CEOs have caught up and closed a performance gap that the study previously found between outsider and insider CEOs, possibly strengthening the case for considering a new leader from outside the company.

“Hiring an executive from outside a company to serve as chief executive officer used to be seen as a last resort. That is not the case anymore with the disruptive market-related changes that companies are facing today,” said Per-Ola Karlsson, partner and leader of Strategy&’s organization and leadership practice for PwC Middle East.

While an internal CEO candidate may have an excellent record of achieving the business goals a company has pursued in the past, Mr. Karlsson said boards are recognizing that insiders might actually lack the skills needed to lead and see through the changes necessary to win in the future.

In a recent Mullin International online poll conducted by Greenwich-based Hunt Scanlon Media, ‘Insiders vs. Outsiders: Which Candidate Type Fits Best, and When?’ the survey findings found that promoting from within remains a preferred way for organizations to address their leadership needs. But when executive recruiters are brought in to openly recruit for vacant positions, they are often given mandates to look wide and deep for candidates and that typically results in the search shifting to a hunt for outsiders.

When asked why internal candidates are given preferential treatment for job openings, 40 percent of the respondents said ‘knowledge of the organization,’ followed by ‘sensitive to corporate culture’ (33 percent), and ‘demonstrated potential’ (27 percent). When asked what primary attributes external hires bring, 40 percent of respondents pointed to ‘innovation,’ another 40 percent said ‘change,’ while 20 percent thought that outsiders brought ‘fresh perspective.’ Interestingly, when asked if companies are ‘risk averse’ when it comes to expanding their leadership ranks with outside talent, a third responded that they were.

Does Hershey’s Female Insider Have a Chance? Yes 

Globally, the share of incoming women CEOs fell to less than three percent in 2015, the lowest percentage since 2011, according to the PwC report. Just 10 of 359 incoming CEOs in the class of 2015 were women. This is an astoundingly low figure given the global focus that executive recruiters like Egon Zehnder, MWM Consulting, Russell Reynolds Associates, Spencer Stuart and others have put on this problem.

The news was even worse in the U.S. and Canada where the share of incoming women CEOs fell for the third year to the lowest in the study’s history. Surprisingly, there was just one woman among the total 87 incoming CEOs in the U.S. and Canada last year (one percent, compared to four percent in 2014 and over seven percent in 2012).

Female CEOs are more often hired from outside the company than male CEOs are, according to this study. Thirty two percent of all incoming and outgoing female CEOs from 2004 through 2015 were outsiders compared to just 23 percent of males CEOs.

“That women CEOs are more often hired from the outside may be an indication that companies have not been cultivating enough female senior executives in-house,” said DeAnne Aguirre, an advisor to executives on talent and culture with Strategy& and a principal with PwC U.S. “One of the reasons why women may be more likely to be outsiders is that their development is not being recognized within their own organization, and therefore they may be more likely to be attracted away.”

Hershey’s current executive vice president and COO, Michele Buck, who joined the company nearly 12 years ago and ascended to her current post in June, has been pegged as a strong inside contender for the CEO job. She leads Hershey’s day-to-day North American operations as well as the company’s business in Central and South America. Hershey’s global supply chain, sales, marketing, innovation, research & development, and consumer & shopper analytics and insights capabilities all report in to her.

In her prior role as president at Hershey’s, she led the company’s U.S. and Canadian businesses, which account for 85 percent of its annual revenues. She has 25 years of brand management, global marketing and general operating experience at top tier consumer packaged goods companies in addition to Hershey’s, including Frito-Lay, Kraft and Nabisco.

Recruiters are now keeping a watchful eye on her. They say if Ms. Buck is passed over she is likely to become a candidate for another top CEO post somewhere else in short order.

Nevertheless, some still favor outsiders. “Boards of directors following well thought-through succession plans should have a deep bench of strong, internal candidates. However, when the company needs to make transformational changes away from their former strategic and operating plans, boards should factor the ‘outsider option’ into their succession planning,” said Gary Neilson, thought leader on organizational design and leadership with Strategy&, and a principal with PwC U.S.

Outsiders don’t have biases and commitments built up over the years, he said, and they can therefore make changes more objectively. “They also may be able to look at the organization from a broader perspective based on an understanding of what the world will require in the future,” he added.

… When Insiders Might Do

But, according to recruiters focused solely on landing talent for the C-suite, the fact of the matter is that at least half of all job openings are filled by internal candidates before they’re ever introduced to the public job market — suggesting, perhaps, that companies have relatively reliable bench strength even though leadership development is seen as stagnating at many companies.The main reason given: companies prefer to promote from within.

And for those searches that go to recruiters to manage, with a clear mandate to look wide and deep both inside and outside a client organization, internal candidates surface more often than you think, and get the job about 20 percent of the time.

Recruiters say clients generally like to be seen as making bold moves, but at the end of the day many remain risk averse when it comes to hiring elite executives, especially into their highly protected upper leadership ranks. They therefore look at insiders as safer bets. Ms. Buck clearly falls into this category.

Knowing this mindset going in, recruiters say they advise their clients that have an inside candidate who is 70 percent as strong as an outside choice to hire the insider. Fit and culture seem to be the deciding factor.

“There is a greater risk when you bring somebody in from the outside that it won’t work out,” said Kathleen Yazbak, founder of Boston-based Viewcrest Advisors, a boutique search firm focused on finding leadership talent for mission-driven and high-performing companies, social enterprises and philanthropies. Ms. Yazbak is a former recruiter for Heidrick & Struggles, Whitehead Mann, and Ridgeway Partners.

Internal candidates know the business model, organization goals and inside cultures, say recruiters, and oftentimes they have the requisite skills required. They know the customers, clients, and fellow co-workers. They also have established relationships with colleagues and their organization’s leaders — but, more importantly, they have already demonstrated their potential. They can, therefore, assimilate faster and will be likely more satisfied in their new roles than outside hires.

Fierce Competition

Competition for top jobs can be fierce, however, and internal candidates are often put up against all sorts of rivals before given the nod. Spencer Stuart recently assisted in the placement of Mark Pritchett as president and CEO of the Gulf Coast Community Foundation. After a five month search that considered 309 potential candidates, the Foundation and search committee decided to hire from within – selecting Mr. Pritchett to fill its top post after an exhaustive man (and woman) hunt.

External hires, by contrast, typically bring fresh perspective, and most likely bring skill sets not found within the company’s leadership ranks. External hires bring creativity, vision, innovation and change. But, say recruiters, they typically cost more than insiders and may need longer adjustment periods to integrate with other leaders — two things most companies might rather do without.

Contributed by Scott A. Scanlon, Editor-in-Chief, Hunt Scanlon Media and Dale M. Zupsansky, Managing Editor, Hunt Scanlon Media

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