In Conversation With Patrick Daniel, former Chief Executive Officer of Enbridge Inc.
December 12, 2013
Knightsbridge: Do you get the sense that CEO tenure is shorter now than it was when you headed up Enbridge?
Patrick Daniel: There’s no doubt that it at least appears to be getting shorter. I remember when I came into the job, our departing CEO Brian MacNeill had been in the job almost ten years. He said to me that on average CEOs were serving for less than five years at that time. So he made the comment that if I served for zero years, we’d be right on average. Using that as a reference point, that was twelve years ago now. But it does seem to be getting shorter, there’s no doubt about it, for a variety of reasons.
Knightsbridge: How long should a CEO stay in that job?
Patrick Daniel: I think every case is individual, and every corporation is different, so I wouldn’t ever want to say that there’s an optimum tenure. For some companies, maybe twenty years is right; for others, five might be right. But it seems that when CEOs stay more than ten or twelve years, then a company might need to refresh with new leadership. Especially in these changing times. I think that becomes the long end of tenure, around that ten or twelve-year mark.
Knightsbridge: When you reached the decade mark of your tenure, did you notice a change in the way people saw or treated you?
Patrick Daniel: I didn’t at that point. Where I noticed the biggest change myself was after I turned 60, and then everybody starts asking when you’re going to retire. It was more of an age-related thing. Now if you look at a long-service CEO, a CEO like (Suncor’s) Rick George, he was several years younger than me when he retired (in 2012), and therefore I think he probably wouldn’t have had the same kind of questioning. It seems more like it’s an age-related thing rather than tenure in my case.
Knightsbridge: When did you start succession planning, given that being the CEO can be an uncertain future?
Patrick Daniel: I think it was my first board meeting as a CEO when the board reminded me that I needed to think about succession planning for my role. That didn’t take me by surprise, because the Enbridge organization is well known for its succession planning. In that case, it was succession planning in the event that I got hit by a bus or something happened and there needed to be an emergency successor in place. That kind of evolves then into more development planning for the people around you.
Knightsbridge: If the company is performing well, is there any reason change CEOs?
Patrick Daniel: No, not at all. As a matter of fact, I think that a long-tenure CEO is likely to produce better results. The analogy that I always like to use is the experienced goaltender in hockey. Coaches love to have the older, experienced goaltenders around. They often say it’s pretty hard to win the Stanley Cup with a rookie goaltender. So I think there’s a certain comfort there with investors, with the board, with employees, in having a CEO that’s been around and is experienced. If the company is doing well, there’s no need to change until you get to the point where you need to develop and bring people along.
Knightsbridge: What prompted your decision to retire?
Patrick Daniel: In my case, when I left it was more because I felt that some of the people reporting to me were not going to continue to develop if I stayed there. I had to move and open up the position and positions under it to keep developing.
It was probably about three to four years before I left that I really got serious with the board and let them know I was thinking about retirement. Up until then, the succession planning had been more emergency succession planning. Although I talked with the board off and on about retirement, it wasn’t until I was within a year of retiring that we started to put the succession plan in place.
At that time, I had reached age 66 and thought, there are so many great young people in the company that for me to stay would be kind of holding them down, and I didn’t want to do that. I wanted to make sure that they developed fully and had their opportunities to run the company. Not just the current senior executive, but the level underneath that and all the way down. There’s such tremendous depth at Enbridge that it was time in my mind for me to move on and give them a chance.
Knightsbridge: Are there situations where a shorter-term CEO might be the best option?
Patrick Daniel: It depends on the task to be undertaken at the company. If you’ve got a company that’s not performing well and you need somebody to turn it around, quite often I think that is best done with a short-tenure CEO. Often, the kind of person who is able to take a non-performing company and turn it around isn’t the best to run it in the long run, and vice versa. Maybe you need a CEO that’s going to go out and do a lot of mergers and acquisitions for a period of time. That takes a certain CEO with a certain kind of skill and maybe they’re not very good at running the company in the long term. With what I would call the ‘specialty CEOs,’ the tenure can quite often be shorter.
Knightsbridge: Even with a specialty CEO in place, should the board ultimately be looking to install a longer-term CEO at some point?
Patrick Daniel: Absolutely. It very seldom works in the long term to have a specialty CEO with a very specific, limited skill set. The entrepreneurial or turn-around CEO has a limited lifespan. Because of that, the board must always be doing succession planning to find someone with that broader skill set to run the company long term.
Knightsbridge: When we talk about a CEO with ‘turnaround skills,’ is that the elegant way of describing someone who is brought in to make difficult and painful decisions when a company is off track?
Patrick Daniel: Yes, I think that’s a good part of it. Someone who realizes that in order to ensure the long-term health of a company, sometimes you have to cut off certain parts of the organization so that the rest can grow. It’s kind of like pruning a tree with dead limbs on it. As much as you might have nurtured those limbs over the years that are now dead and non-performing, somebody’s got to be able to come in and cut them off and nurture the new growth. It’s often a difficult thing for someone to do if they have been the person who’s grown the tree in the first place.
Knightsbridge: Is it difficult for the short-term CEO to stay on long-term after having wielded the pruning shears?
Patrick Daniel: Yes, that’s right, because quite often there’s been a little bit of bleeding, and those wounds don’t necessarily heal because human wounds are a little bit more difficult to heal than the analogous tree.
Knightsbridge: Are you worried that the trend toward shorter CEO tenure may become the standard, or do you think companies will realize that longer-term stability is really where the value is?
Patrick Daniel: I would tend to be in the latter camp. I would hope that longer-term tenure would produce the kind of value that would cause shareholders and boards to want to keep CEOs around. From the point of view of shareholders, I’d like the idea of the stability – I think most shareholders do. I guess if you’re in a high-growth business with rapid technological change then maybe three to five years is appropriate. But usually I don’t think a short-term CEO is going to produce the long-term investment value that a longer-term CEO would.
When you’re investing in companies where fortunes may change every three to five years, that’s more like gambling than investing to me. I think you want to be able to put your money with a company where you can expect ten years of pretty steady, strong, reliable growth. You need a longer-term tenure CEO to be able to produce that.