The appointment of the right CEO is the most important decision that as a director you’ll ever make. (The Chair of Air New Zealand)
INTRODUCTION
An important scholarly question with significant practical relevance in the current turbulent corporate environment is how boards design, plan, and manage CEO succession. Ensuring the continuity of organisational functioning and enabling a smooth CEO transition are the two key tasks for the board of directors (Khurana, Reference Khurana2001; Biggs, Reference Biggs2004). Although the selection of a CEO, in normal circumstances, is an infrequent and unique event (Stiles & Taylor, Reference Rhim, Peluchette and Song2001), the process of CEO selection requires long-term preparation and engagement of the whole board, particularly the chair and outgoing CEO. The process itself has internal and external facets. Internally, it involves complex formal and informal consultations between the chair, outgoing CEO, other board members, and potential internal candidates. Externally, the process includes a majority shareholder and other important stakeholders who need to be informed (if not consulted) about the change in the company’s leadership.
The topic of executive succession holds an important place in corporate governance and management literature in general. Researchers have mainly focused their investigations on the insider versus outsider CEO succession (e.g., Boeker & Goldstein, Reference Boeker and Goldstein1993; Cannella & Lubatkin, Reference Cannella and Lubatkin1993; Clutterbuck, Reference Clutterbuck1998; Zhang & Rajagopalan, Reference Yar Hamidi and Gabrielsson2010), the effects of succession on corporate performance (e.g., Carroll, Reference Carroll1984; Zajac, Reference Zajac1990; Shen & Cannella, Reference Rejchrt and Higgs2002; Lee, Phan, & Yoshikawa, Reference Lorsch and Khurana2008), post succession senior executive turnover (e.g., Friedman & Saul, Reference Friedman and Saul1991; Shen & Cannella, Reference Rejchrt and Higgs2002), and pitfalls in CEO searches (e.g., Khurana, Reference Khurana2001; Biggs, Reference Biggs2004).
The existing literature tends to be focused on the context (i.e., conditions and antecedents) and the outcome of the succession process (i.e., decisions and effects), but does not convincingly elaborate on the succession process itself. Even after some decades of research on the topic, only a handful of scholarly studies specifically address the board’s CEO succession process (Weisbach, Reference Vandewaerde, Voordeckers, Lambrechts and Bammens1988; Zajac & Westphal, Reference Weisbach1996; Ocasio, Reference Ocasio1999).
The objective of our research was to study the process of board involvement CEO succession in order to better understand its multidirectional causality and multilayeredness (Langley, Reference Langley1999). We did this by integrating theories from two different disciplines – corporate governance and leadership (Erakovic & Jackson, Reference Erakovic and Jackson2012).Our approach supports growing research on boards of directors which has moved beyond formal, static and impersonal legal models, based primarily on agency theory, to multidimensional understanding of board roles as an organisational mentor, leader, motivator, and value creator (see for example, Huse, Reference Huse2007; Minichilli, Zattoni, & Zona, Reference Leblanc and Schwartz2009; van Ees, Gabrielsson, & Huse Reference Thomsen and Pedersen2009; Vandewaerde, Voordeckers, Lambrechts, & Bammens Reference Useem2011; Yar Hamidi & Gabrielsson, Reference Zajac and Westphal2014, among others). In order to generate fresh ideas and gain a better understanding of the complexities inherent in board functioning, researchers have discovered new ways of conceptualising and investigating actual rather than prescribed board behaviour.
In shifting their focus, researchers have noted that the interpersonal dynamics of different individuals working together in a board-level environment can significantly influence how effectively the board performs in its designated roles. Through their interactions, directors develop a specific boardroom culture (Leblanc & Gillies, Reference Leblanc and Gillies2005) which, in order to promote effective board functioning, needs to balance trust and distrust (Nooteboom, Reference Nooteboom1996), closeness and distance, dependence and interdependence (Huse, Reference Huse1994), as well as consensus and conflict in the boardroom. Forbes and Milliken (Reference Forbes and Milliken1999) were among the first scholars to discuss boards as strategic decision-making groups underlying the importance of task performance and group cohesiveness for effective board functioning. Huse (Reference Huse2005, Reference Huse2007) in his various works has reiterated this point by arguing that, although directors are elected or appointed to the board because of their individual skills and knowledge, they work as a group and the final outcome is the result of their joint efforts. Recently, Vandewaerde et al. (Reference Useem2011) have developed a conceptual model of shared leadership in the board. Their model considers the task-oriented (i.e., control, services, and networking) and maintenance-oriented outcomes (i.e., affective, cognitive, and behavioural conditions) of shared leadership. In terms of our current discussion on board dynamics, the authors (Vandewaerde et al., Reference Useem2011) have acknowledged the impact of the board design and chair’s behaviour on the prevalence of shared leadership in the boardroom.
CASE METHODOLOGY
The research that we undertook to create this case study is anchored by two crucial considerations. First, the case study adopts a process perspective: it unravels the underlying dynamics of phenomena that play over time and how processes actually play out (Pettigrew, Reference Pettigrew1997, Reference Pettigrew2012). Related to this, the case study considers the dynamic interactions between the phenomenon and various contextual components (Langley, Reference Langley1999). Second, we track board leadership and governance processes in a single unique case, reasoning that the opportunity to study board leadership and governance in a context not previously examined offsets concerns about generalisability gained from the use of multiple cases (Yin, 2003; Flyvberg, Reference Flyvberg2006; Leblanc & Schwartz, Reference Lee, Phan and Yoshikawa2007). Our process-oriented research aims to contribute to the growing interest in ‘opening-up-the-black-box’ types of projects in corporate governance (e.g., Machold & Farquhar, Reference McMorland and Eraković2013; Pugliese, Nicholson, & Bezemer, Reference Pugliese, Nicholson and Bezemer2015) which aim to shed more light on actual versus normative governance experiences.
We also employ the narrative strategy (Langley, Reference Langley1999) by telling ‘the real story’ of an important governance process. The choice of this strategy was determined by several factors. First, time plays a key role in our study. Each of the three consecutive successions, which stretch out for more than a decade, has important chronological sequences that are central in understanding causal links between mechanisms and outcomes. Second, the context of a board (and direct access to board members), as an elite and closed organisational group, provides a unique opportunity to tell a story supported by rich descriptions. Third, we investigate this under-researched governance process within a context of a large, internationally reputable organisation.
The original aim of our research project was to investigate leadership-in-governance practices in large and mature New Zealand companies. From a learning point of view, well-established organisations provide rich evidence, complex and diverse issues to building an interesting and informative case study. We were also looking for well-known New Zealand companies which would have more appeal to international readers. Air New Zealand was selected as the case study subject because we believed it could provide a substantive context for our conceptual analysis. Air New Zealand is an internationally respectable airline, which was rated the best airline in the world for four consecutive years (2014–2017) and awarded the Deloitte’s 200 Best Company in New Zealand in 2015. Through its 75 year history, Air New Zealand has undergone various ownership, organisational and governance challenges, crises, and changes. The most significant crises occurred in 2001 when Air New Zealand found itself in major financial trouble created by a disastrous merger with a much larger and under-performing Australian airline. While much was written about this business failure (e.g., Forester & McGraw, Reference Forester and McGraw2002; Thompson, Reference Thompson2003; Lockhart & Taitoko, Reference Lockhart and Taitoko2005), there has been little research into Air New Zealand’s remarkable transformation that was supported by a substantial governmental capital injection, and led by a board and three consecutive CEOs. We, therefore, began our leadership-in-governance research programme with Air New Zealand.
The topic of board’s leadership role in the process of CEO succession in this company was of a particular interest. First, the airline industry, in general, faces severe business risk with highly cyclical and intense competition, and a severe financial risk in the form of high debt-to-equity ratios which increase the variability of earning and the chances of insolvency (Dempsey, Reference Dempsey2008). In such an environment, it seems reasonable to expect a board to put particular effort into the CEO succession process. Second, as Air New Zealand is the national flag carrier, the appointments of all three CEOs, their actions and achievements have attracted significant public attention. All three CEOs arrived to the airline from outside the industry with no experience in the airline business and all three left their own marks on the company’s successful cultural and business turnarounds. For their leadership and achievements all three CEOs were awarded with a prestigious Deloitte’s Top 200 Award Executive of the Year (2003, 2009, and 2015).
It took us almost a year to gain access to the Air New Zealand board. During our negotiations with the board, the then current chair stepped down and we had to wait until the new chair had time to (re)consider our research proposal. With all ethical approvals from the university and legal scrutiny from the company we eventually gained access to all board members and CEOs appointed in the period 2001–2014 and the right to name the company and all research participants in our publications. Our primary source of data was interviews with directors of the board: a total of 12 individuals, including 10 current and former directors and two CEOs The interviews were semi-structured and open-ended and were conducted by the same two researchers to enhance trustworthiness. Directors were asked about board decision-making, actions undertaken by the board and their rationale, and the nature of the relationship with three consecutive CEOs. The interviews lasted between 40 and 90 min and all were audio recorded and transcribed. Given the potential for hindsight bias and limitations of memory recall associated with retrospective accounts (Golden, Reference Golden1992), we triangulated the interview data with archival data in the form of publically available internal reports and external government documents. After the interviews some participants provided us with additional information taken from their personal board meeting notes. This was communicated via emails and served to clarify interview data.
THE CASE STUDY
John Palmer, board chair for Air New Zealand, felt positive about stepping down after 12 years. He was especially pleased to see former CEOs and the new CEO among the well-wishers at the farewell function following his final board meeting in March 2014, a heartfelt acknowledgement reflecting on the decisions made by the board in all three CEO appointments.
In 2002, Palmer and the board had set out to revitalise the troubled company, recognising the selection of a CEO required not only the best CEO – it demanded the ‘right’ CEO for the flagship carrier at that time. Now, with his planned departure at hand, Palmer anticipated the board’s CEO succession process would again reap the expected performance for this world top 40 airline group.
AIRLINE ACQUISITION FIASCO AND BAILOUT: 2000–2001
In 2001, Air New Zealand’s 60-year history of practical, fast, and economic transport for people and goods was in jeopardy. Its aggressive acquisition of Australian-based Ansett Airlines in 2000 threatened to ground the carrier less than 1 year later. Faced with a loss of $1.4 billion in 2001, the biggest loss by a public company in the corporate history of New Zealand, Air New Zealand had exhausted its credit and its options. Trading in its shares was halted on the New Zealand Stock Exchange on 13 September 2001 due to the company’s financial crisis.Footnote 1 In early October the Air New Zealand board, its major shareholders, and the New Zealand Government announced a proposal for a substantial capital injection. By December 2001, Air New Zealand shareholders had approved the proposal and accepted an $885 million equity rescue package from the New Zealand Treasury. Consequently, the government acquired 83% ownership of the company. Through necessity rather than by design, the airline became New Zealand’s first stock exchange listed state-owned enterprise.
THE ART OF THE REBUILD (2002)
A clean break amid crisis meant a new board and CEO – terms set by the Crown as part of its rescue package. Following a search, the responsible shareholding Minister identified and approved John Palmer as a board chair-designate and director. As an experienced board chairman, well-versed in leading turnarounds, he moved swiftly to exercise his leadership skills. Palmer faced two urgent and major tasks at the outset – rebuilding the board and appointing a new CEO. He began the board rebuild by selecting independent directors with expertise in fields ranging from international business, finance, information technology, marketing, engineering, and labour relations gained outside of the airline industry. Palmer invited to the board two directors from the previous board, four new directors, and the acting CEO (who was also a board member). Palmer agreed with the majority shareholding Minister, before his appointment, that the Minister would have a veto right on any proposed director, but would have no part in the search process. Each hand-picked director was approved by the shareholding Minister and subsequently ratified at the annual general meeting. To preserve the board’s independence, none of the initial directors was a government appointee despite the Crown being the largest shareholder.
Palmer was convinced that effective leadership from a governance perspective required him to address first the composition of the board of directors to bring vision and relevance to New Zealand’s first publicly listed state-owned enterprise. The board received ‘a flying start in a governance sense because we had a board purpose built for the job which had to be done’, which included generating a steady sustainable stream of revenue. As one director explained, ‘we were starting from behind zero, I can read all those due diligence files, what is it going to do for me? I just know what is ahead of us.’ Good leadership by the board demanded a shared vision: Palmer did that. The directors on the board all shared a commitment to restoring the airline to its place of pride in New Zealand and the world. Unlike most boards, this newly formed board had limited experience in understanding the specific drivers and dynamics of the airline industry. Importantly, though, they had candour, commitment, and a wealth of domestic and international experience and knowledge to engage in the turnaround. Along with building a motivated board, Palmer tackled the pressing issue of finding a Chief Executive Officer. He understood that the next few months – and subsequent years – would demand a high-quality CEO and ongoing board leadership.
Naming a chief executive officer
In early December 2001, the board appointed an international recruitment firm and constituted a new three-member CEO selection subcommittee, consisting of Palmer, a director reappointed from the previous board, and the acting CEO and deputy chairman. As the new search began, the ad hoc subcommittee soon confronted barriers. ‘No one wanted to be the CEO of a company that had just lost $1.4 billion… also September 11 was very fresh and raw. New Zealand would have seemed miles away to any off-shore resident. The CEO job did not have any appeal at all to any really good candidates’. Despite the tarnished reputation of the airline, two candidates applied.
Faced with mounting pressure to choose between the two applicants, the selection committee met in the Air New Zealand office and each director independently arrived at a similar conclusion. Palmer made the tough but courageous call: neither of the candidates was selected. He acknowledged, ‘I did not know what we were going to do but I did have enough experience to know that when you are making key decisions if it does not feel right you should not make it’. His self-awareness and character came to the fore. He was ‘prepared to walk away [from either candidate] because it was more than considering “who is the best person” without actually asking the question, “is this the right person” for the job?’ The search would have to start over and the interim CEO and director might need to stay on for an additional 6 months.
Then the CEO search took an intriguing turn. To the surprise of his fellow directors, Ralph Norris, one of the directors on the subcommittee, decided that he would apply for the position of CEO. Following a discussion with the board, he was required to adhere to the same process as other candidates. He was fast-tracked through the psychological assessment and interviewed in only 2 days. The decision was now in the hands of Palmer and the interim CEO and director. Within a week, Norris received an offer and the board approved his appointment in February 2002. At a press conference, they announced the decision and Norris stepped into the role as CEO and Managing Director of Air New Zealand.
Norris’s decision to ‘throw his hat in the ring’ for the position of CEO was not one he took lightly. When he joined the board in 2001, before the financial collapse of the airline, Norris had no intention of becoming its CEO. He had recently retired as CEO of ASB Bank, a bank owned by the Commonwealth Bank of Australia. However, as the paucity of qualified candidates for the airline’s CEO role became apparent, he seriously considered his personal situation, the obstacles faced by the airline, and the strategy for the airline’s future. Norris pointed out, ‘At the high level, I had a good understanding of the business and the industry; when it got down to the operational areas I was obviously not as well equipped’. As an experienced CEO, Norris was acutely aware that ‘the appointment of the chief executive is the most critical decision that any board makes. The company will thrive or wither on the quality of the performance of the chief executive and the team the chief executive builds around him or her so that is really critical’. On that basis, he applied – and was chosen – for the job.
The appointment of Ralph Norris was not without controversy. First, Norris had a reasonably tense relationship with the Labour government given his role as Chair of the Business Round Table, a conservative think tank.Footnote 2 Second, Palmer did not consult the responsible shareholding Ministry over the appointment. However, Palmer’s primary concern of selecting a permanent CEO outweighed these concerns; ‘the consequence was getting the right person. Norris ticked all the boxes that were really important; he has a very savvy business head. And having concluded that this was a people issue… if he could motivate this group of people and put them in the right direction, we had a good chance of saving the business.’ Palmer demonstrated his knowledge that what Air New Zealand needed at that time was a CEO who could lead people, rather than just manage a business.
Defined departure
Over the next 36 months (2002–2005), Norris and the board focused on stabilising and then revitalising the company. Norris began his work with people described by one director as ‘incredibly beaten up and bruised; [whose] confidence was non-existent’. In response, Norris invested in laying the foundation for a new culture – one that embraced innovation, technology, and customer service. ‘We changed every aspect of the business,’ Norris explained, ‘from customer contact at the airport to experience on the aircraft, and in an integrated fashion’ (Knibb, 2004: 34). Initiating a cultural transformation was a daunting leadership challenge. They overhauled the business plan and reconfigured domestic operations with a strong emphasis on cost leadership.
In June 2003, Air New Zealand reported a profit of NZ$166 million – its first in four years. Critics of the bailout by government fell silent at the stabilisation of the company. The board and CEO had achieved their desired results: the hallmark of effective leadership. In 2004, the airline extensively refurbished the long haul market tying New Zealand to the rest of the world, investing in a new family of aircraft. It added new routes and product upgrades such as new seats with video screens and movies on demand. In a world’s first, the relaunched airline loyalty programme allowed customers to use their points like cash to book a seat.
An outsider-inside
Midway through his tenure, his former employer, Commonwealth Bank, approached Norris with a plum position. Norris declined the offer, knowing if he left at this critical time, the airline could take a major step back in its financial recovery. He was also aware one of his biggest decisions to aid in the airline’s turnaround was not which technology to invest in, but which people. The board and Norris agreed his primary key performance indicator (KPI) during his last 2 years was to find, recruit, and mentor a potential successor. Once again, Norris demonstrated his leadership skills; persevering with his commitment to the airline, and working with people to accomplish results. He believed there was no future rising star among his senior executive team with the strength, talent, and character to lead the airline. Some did not have the strategic vision or the capability to implement strategy successfully. For others, integrity was in doubt, a leadership attribute that the company required in its CEO. No one offered the complete package. He needed an external prospect.
The directors recognised the need for a good cultural fit between any prospective CEO and the airline. As one director explained, a ‘new CEO [who] gets off a plane—does not understand the culture and values—and begins making decisions’ does not bring about the desired effect. Because they are not ‘familiar with culture and values’, it is ‘very helpful to if you can embed a new CEO in the organisation in advance of the appointment’.
Norris tapped into his network and found two potential candidates. One of them was Rob Fyfe, whom Norris once tried to recruit for the ASB Bank. He approached Fyfe and by the end of their third meeting, Norris had offered Fyfe the role of Chief Information Officer – a new position created within the executive management team. Fyfe accepted the position with an upfront understanding he would be a contender for the CEO role.
Developing and field testing a candidate
Like Norris, Fyfe gained his experience in banking and telecommunications, although he had also worked for the Royal New Zealand Air Force. Norris explained that banking and aviation shared common traits – both were network, global, mass-customer businesses with a high reliance on information technology (Knibb, 2004). As part of his leadership development within the airline, Fyfe embarked on a deep immersion so that he could learn about the industry, the company, its people, and the issues.
Over the next 18 months, Fyfe engaged in a series of structured development opportunities. Fyfe led a strategic review of Air New Zealand’s business in collaboration with the top 20 people from across the various business lines of the company. In weekly meetings, they framed a strategy, teased out options for the airline, and ultimately presented a strategy to the board. The outcome of the strategic review ‘demonstrated Fyfe’s ability to work with people and established his credibility across the organisation which was really important’, stated Norris, as a desirable leadership trait of the prospective CEO. While this activity proceeded with a view to getting Fyfe ‘up the learning curve quickly as possible’, of equal importance was the strategy the board was developing for the airline.
THE SEARCH FOR THE NEXT CEO (2005)
With the announcement of Norris’ departure, the board did not consider the appointment of Fyfe to the role of CEO a fait accompli. The board was committed to following a process that would validate their appointment of the ‘right’ person. Fyfe would be expected to apply for the job like anyone else.
Selecting the next CEO and planning for succession were among the most important responsibilities among the board of directors. The board implemented an organised succession planning process. Palmer explained it ‘involved a whole board process that started a long time in advance of the appointment of a CEO.’ The board exercised its leadership by modelling a process that reflected the values of the airline. Succession planning involved establishing board ownership of the process with the whole board engaged in regular annual discussions of the plan, including updates on talented leaders within the company. Palmer relayed the questions the board wrestled with: ‘firstly, how do we identify people inside the business? And how do we have discussions to work out whether there is enough capability in some people that with some assistance, that they can become genuine candidates?’ In the absence of promising CEO talent among the executive members, what measures do we take ‘to get some people inside the business to give them a feel for the airline that they can build on or [do we] run the risk of appointing the capability from outside?’
For a successful CEO transition, the board re-affirmed its need to agree on the requisite capabilities to lead the airline. Between 2005 and 2006, the company faced tough strategic, workforce, and workplace decisions. Layoffs ensued in the corporate office and among engineering because of the decision to outsource engine maintenance. These challenges were coupled with an unprecedented 44% rise in the price of jet fuel, which forced the company’s profitability down 47%. Net profit after tax was $96 million for 2006. It was an apt time for the board to again exercise its leadership, set a vision, set future direction, and align the capabilities of the next CEO to achieve the airline’s goals. The board, unaltered in its composition since originally selected by Palmer, ‘had started to strategise much more about a little fast nimble airline that would be quick on its feet, would be a bit different, and would emphasise its New Zealand-ness’.
At a special directors-only meeting, they assessed the airline’s current market position, the achievements realised in technology, customer service focus, and culture shift. Against the backdrop of the airline’s successful early stage turnaround and new vision, the board next identified a constellation of qualities, characteristics, and experience for the next CEO. For some directors, the next CEO needed to be a change agent, people-oriented, commercially astute and bring a strong customer service ethic. Others sought a CEO with experience in leading innovation and transformation. Collectively, these attributes defined the corporate leadership needed by Air New Zealand for its next CEO. ‘We were looking for fresh thinking and we were not even fixed on airline experience’ stated one director. While the board debated and discussed the requirements and desired attributes, Palmer was, ‘literally writing them on a white board and then ticking the common ones so [the board] got a matrix’.
With the desired CEO profile in hand, a selection firm conducted a global search for the qualities sought by the board. Representatives of the search firm facilitated identification of potential external candidates when they ‘really got inside the board’s thinking and understood what we were trying to do and focused the search down so that the “fit” would be good’. They generated a list with international and domestic candidates sourced internally and externally.
To aid the process, the board convened an ad hoc subcommittee with two directors and the chairman, who developed a short list of three candidates – two external and one internal (Fyfe). The whole board interviewed the candidates with questions posed by the directors. Following the final interview, the board discussed the strengths and talents of each candidate. Each director assessed the relative risks connected with each potential appointment as Palmer posed a series of questions. One external candidate without airline experience was determined to be a high risk despite a demonstrated record of accomplishment leading change in large organisations. The other external candidate was a seasoned aviation professional, someone who could ‘come in and run the airline, not a problem, but would he really transform it?’ queried one director. And then there was Fyfe: he had gained 18 months’ aviation experience under the mentorship of Norris. He knew the strategy, the desired culture, and the people. He was aware that ‘we have got to try new things and if they don’t work, adapt, adjust, withdraw and try something else’ (Le Pla, 2006). Although some directors initially expressed concern over his potential appointment, this concern was not shared by Norris. He recalled, ‘When I left I made it very clear to the board, and it is never the chief executive’s decision who will be chief executive, but I did make it pretty clear to the chairman in my view Fyfe was the right candidate for the job.’ Following robust discussion and considerable deliberation the board ultimately selected Fyfe. However, an additional 6 months passed before they announced him as the CEO. ‘It was a great risk and great choice and he achieved far more than what the board thought’ at the time, as one of the directors put it.
By the end of 2007, Fyfe was well underway with the airline’s fleet renewal plan that kept the craft in top condition, fuel efficient, and low in maintenance cost. Fyfe cut the price of domestic travel, introduced fresh marketing schemes, and reorganised the Tasman and Pacific region flights. These efforts combined to create a net after-tax profit of $214 million, 123% up from the previous year. Despite the global financial crisis 2008 heralded new global recognition for the airline. Of the top 30 airlines identified by operating profitability, Air New Zealand jumped into 11th place. This was very different from the previous year, when it did not even make the top 30 cut.Footnote 3 Once again, the board and CEO demonstrated its leadership in achieving their desired results.
BEGINNING A FRESH SEARCH FOR THE NEXT CEO (2011)
By 2011, Fyfe had transformed Air New Zealand financially, operationally, and culturally (CAPA, 2012). He exemplified leadership that instilled the desired culture among employees, managers, and supply chain partners. He initiated and achieved open and lateral communication within the company; the absence of that communication had prevented cross-departmental collaboration in the past. He also developed a personal practice of working one day a month in roles such as baggage handler, service call operator, and food server aboard aircraft. Together with the chairman, they initiated a similar annual practice for all directors.
The relationship between Fyfe and the board was ‘traditional with the boundaries between the role and management and the role of governance very well established’. Although Fyfe was offered the role of Managing Director, he declined. With this clear separation, Fyfe’s interaction with the board was ‘mature and professional’. The relationship with Fyfe and the board was ‘about having a safe environment at the board table,’ which grew and evolved over Fyfe’s tenure. For the board, clarity of role and responsibility was vital to their collective leadership action. The contributions of board members and Palmer’s leadership style enabled Fyfe to do his job – lead the company – ‘in a way that some other boards would not have probably been prepared to risk’. Fyfe and Palmer had a respectful professional relationship and Fyfe ‘would never make any significant decision without talking to the board about it, and making sure that [Palmer] was across things’.
Another defined departure
After 7 years in the role, Fyfe notified the board of his desired departure by December 2012, providing the board with an 18-month timeline for transition. The board once again embarked on a recruitment process for the next CEO. The same recruitment firm initiated a search for prospective candidates internationally and domestically. This future orientation demonstrated the board’s leadership thinking and awareness that the fate of the board and its future chosen CEO were intertwined.
A new outsider-inside
In May 2010, Christopher Luxon, then CEO of Unilever Canada and a New Zealander, attended a presentation in Toronto about non-executive directorship given by a global expert from a large international search firm. Luxon and the search expert chatted briefly about the country where they both grew up. Subsequently in December 2010, the search expert contacted Luxon and indicated that Air New Zealand was looking for new promising executive talent. He invited Luxon to meet Fyfe and learn about the cultural journey of Air New Zealand while Luxon was in New Zealand for his family holiday. Intrigued, Luxon accepted the invitation. He met Fyfe in Auckland in late December 2010 and promptly received another invitation – this time to meet with Palmer at the Nelson airport. Fascinated with the transformation of Air New Zealand and impressed by the chairman, Luxon left that meeting puzzled. ‘It was not quite clear to me at that point whether there was actually a job at Air New Zealand. I was in the process of moving from Toronto to New York and we were going through schools, houses, and job transition,’ he stated. Yet the idea of returning to New Zealand took hold; Luxon had found a fit between his values and the chairman’s, relishing an opportunity to model good corporate leadership in his native country.
Informed by the success of the succession process the board had implemented with Norris in Fyfe’s appointment, Fyfe, with the board’s support, drew upon established board practice and identified and developed talented potential leaders as specified in his KPIs. Once again, the board adopted the attitude that effective leaders learn ‘on the job’, and provided Luxon with the opportunity to prove himself. To this end, in 2011, Luxon became group general manager for the international division of Air New Zealand. With the understanding that the role of CEO was not preordained, Luxon took the job but nurtured the hope that he would be a candidate for the top job.
Developing and field testing internal candidates
Luxon arrived in New Zealand in May 2011 to take up his new role. Luxon drew on his international experience with start-ups, turnarounds, and realignments gained through job rotations within Unilever. He was quick to acquire an understanding of ‘the whole airline business and gain a sense of the agenda along with the challenges’ faced by Air New Zealand. To facilitate Luxon’s transition, Norm Thompson, a 46-year ‘veteran’ of the executive management team accompanied the new general manager. Between June and August, they made their way to all the ports and markets, looking at all of the different functions. Luxon met with employees on the front line as well as with management. By the beginning of August, Thompson, who had been doing double duty, stepped away. Luxon was now solely responsible for turning around the international division at a time when it was losing $2 million a week.Footnote 4 Luxon’s focus paid off. The restructured long-haul services returned to the black for the first time in 5 years.
After these initial successes and with 8-months’ experience gained at Air New Zealand, Luxon was well positioned as an inside candidate when Fyfe formally announced his resignation in late January 2012. Palmer met with Luxon and confirmed he was a candidate for the position. He joined a pool of two other internal candidates that Fyfe had identified in the 6 months before the individual interviews. All candidates received feedback on the areas needing enhancement and were mentored so that they could potentially succeed as CEO. Like Norris before him, Fyfe had identified and mentored potential CEOs for consideration by the board.
THE BOARD’S FORMAL PROCESS
The faces around the boardroom table had been relatively consistent for the past 7 years while Fyfe transformed the airline and its culture. In contrast to the board stability during the CEO selection process for Norris and Fyfe, a number of changes happened as directors reached the preferred 9-year term limit. Because the board initially emerged from a ‘blank sheet of paper’ in 2002, some directors were set to step down simultaneously. To refresh competencies and fill in gaps in expertise, Palmer provided a strong lead to the board by choosing prospective independent directors. The five new directors, approved by the shareholding Minister and formally appointed at shareholder meetings between 2006 and 2013, boosted competencies in finance, accounting, marketing, strategy, and tourism. In alignment with the airline’s trans-Tasman strategy, an Australian became a director. All others were New Zealanders, consistent with the board’s constitution. This considered process of selection again demonstrated leadership: an awareness of the benefit of diversity of talent on a high performing board and the need to bring in directors in response to the organisational and business needs of the airline at the time.
The fresh appointments to the board reflected the journey of the airline. The success achieved to-date attracted directors intent on continuing the entrepreneurial spirit of sustainable business growth and value creation. As in previous appointments to the board, the new directors delivered a range of expertise gained outside of the airline industry. A formal independence between directors and managers was maintained following the resignation of Norris, although the constitution permitted the appointment of a managing director. Consistent with the board’s initial composition, all directors were independent non-executive directors; the government chose none of them. Collectively, these features added expertise, youth, and internationalism while maintaining a core of financial, marketing, and general business experience.
Aligning desired capabilities with strategy
Although the composition of the board may have changed, the new and seasoned directors shared a commitment to find the right CEO. After all, ‘it was the role of the board to make the CEO look good’, the chairman explained about the dynamic in good board/CEO relationships. ‘We are there for four hours once a month and the CEO is there day in, day out, on an operational level’. With that understanding, the board once again wanted to ensure transparency in the CEO selection process. Collectively, the directors decided the airline needed to enhance its profit-making capability, signalling a shift away from the cultural transformation focus of the past decade. After the directors agreed and committed to the strategic direction, the board recognised they needed a different type of candidate from the incumbent CEO. ‘Understanding the distribution and sales channels and how to get that piece optimised, both in terms of its effectiveness in the marketplace and in terms of the value you got out of it, was quite important’. Directors agreed that it was not ‘an area in the Airline’s history [that] had ever been rigorously challenged and strategically packaged and thought about in a business that only makes two or three percent at the bottom line’.
Creating the CEO profile
The directors were given time to prepare for the selection process. Before any discussion of candidates, the board returned to the same white board exercise they had used in the past, beginning again with a blank slate. The chairman advised them, ‘At the next board meeting we are going to talk about what we require with our new person, so please have a good think about it and we will have a board-only session’. They first agreed that the new CEO was not to be a clone of Rob Fyfe, ‘that was not going to work’. Directors canvassed all angles to determine the attributes and characteristics of the desired CEO. Ultimately, three top essential attributes and nine desirable qualities coalesced from robust discussion. Most board members agreed that the position demanded emotional intelligence and agility. Various directors of the board favoured as essential people skills and team-builder skills coupled with being numbers- and value-driven.
The right CEO required emotional, physical, and mental stamina. This cluster translated into resilience. The board also recognised the importance of the right cultural fit between the airline and its future CEO through the qualities of kiwi spirit and values. A results-focus was described as being deal and alliance savvy. ‘We were actually looking for different people management characteristics to give this harder commercial edge to the business now that the culture and technology had been really well developed’, the board chair explained. Industry and international experience, change management and customer understanding made it onto the list along with high energy, self-awareness, and flexibility. These qualities were ranked as desirable but not essential. ‘In an airline sense globally,’ the chairman pointed out, the profile emerged from ‘very unconventional thinking’. The list of attributes generated by the board was the desirable qualities of a highly effective CEO to lead Air New Zealand through the challenges it may face in the future.
The fresh CEO role profile was not to be geared to any specific individual. Otherwise an internal candidate (Luxon) might have been perceived as having an inside track. ‘We certainly did not write this description around Luxon’s capabilities – that did not come into it.’ The point was to define the qualities of a ‘right’ CEO so as to open the competition up to others who could demonstrate those qualities. It also ensured that, if Luxon did apply, he would have to meet those criteria to be successful.
Although less than a year had passed since the search that had brought Luxon to Air New Zealand, the board resolved that a search for the next CEO exclusively among the existing talent within the company would not suffice. As the chairman pointed out, ‘We agreed that we would go back to the market and do an international scan to see whether we would unearth anything that we had not unearthed in the search that we had previously done’. The same consulting firm was re-engaged with a new brief to scan internationally and domestically.
Scanning widely and benchmarking candidates
The board established a small ad hoc CEO selection subcommittee with Palmer and a director. The aim was to have the best pool of prospective candidates for consideration given that the board was ‘very clear sighted about the sort of person required for the role of CEO of the organisation at that time’. The search firm identified external candidates, and the subcommittee winnowed the list to a select few who best matched the CEO profile.
The board reviewed external prospects against the three internal candidates and set the outsiders aside. Ultimately, board members observed the external applicants ‘were simply not as strong as the internal candidates’ and their focus shifted exclusively to the internal candidates. While board members were well-acquainted with the candidates through their quarterly presentations to the board, visits made by directors to site-specific operations, and participation at strategy sessions, Palmer and Fyfe ensured the board had ‘visibility’ of all inside contenders. Candidates were encouraged to participate in the Audit, Safety, and People Remuneration and Diversity standing committees to gain experience and so that the board ‘could see the development of these guys as well’. This process by the board demonstrated its leadership through their commitment to fairness, transparency, and merit in the selection process as well as their ability to model these attributes for the whole company.
Managing the internal competition
All internal candidates completed the assessment administered by the selection firm. Subsequently, one of the candidates withdrew. Two candidates, including Luxon, remained in the running. Managing potentially destructive competition between them was essential. This time was an economically difficult period for the airline and it could ill-afford unwanted tensions within the business. The carrier earlier that year had announced plans to reduce its staff of 11,500 by 440 after recording a 71% plunge in half-year profit. The airline cited a weak global economy and the high cost of jet fuel (Perry, 2012).
In this context, the two contenders sat down and talked about how they wanted to carry themselves through the process. Luxon pointed out, ‘transitions are really dangerous times… we had to keep business as usual. It was not personal; whatever the board decided would be their call and what that would mean for each of us, we would deal with that down the road’. By placing the needs of the airline first and personal considerations second, both candidates demonstrated leadership.
Considering the candidates
Both candidates made a presentation to the full board, explaining why they wanted the job and what they would do if they got it. Each defined the vision and growth strategy for the airline. The board convened in a meeting room at an offsite office complex. It was a full day for the board; the morning dedicated to one candidate and the afternoon to another. Following each presentation, individual board members posed questions about the value drivers needing to be sharpened, changed, and created for the next phase of the airline’s growth. Luxon pointed out, ‘The business did need to move forward; it could not just keep looking in the rear vision mirror saying, “Aren’t we great?” It needed to actually look out of the front windscreen and think about a vision for where we were trying to get to and how much better we could be’. Along with exploring the business imperative, the board also sought assurance that each candidate understood the culture and values that needed to be maintained. As one director explained, the airline had differentiated its business through ‘nimbleness, agility and kiwi-ness’. During the break between the two presentations, the directors were discouraged from talking with each other about the presentations. Each director was to make an initial personal decision about who was the ideal candidate.
Selecting the successor
The board reconvened later that same day. Three short questions were posed by the chairman. Palmer went around the table and asked each director, ‘Are either of the candidates worthy of appointment, yes or no?’ All confirmed ‘Yes, we have an appointable candidate’. He followed up with his second question, ‘Is there a preferred candidate, yes or no?’ There was an unequivocal affirmative response from the directors. Finally, he proceeded around the table one last time and asked each director for the name of their preferred candidate. It was Luxon.
Unencumbered by the need to finalise reference checks because Luxon was an inside-outsider, the board moved swiftly to finalise the appointment. A few days later, on a Sunday evening via conference call, the board confirmed its decision. The chairman contacted Luxon and offered him the position of CEO of Air New Zealand.
Presenting a transition recommendation
At a subsequent meeting, the board discussed the timing of Fyfe’s departure and the nature of the ‘passing of the baton’ to Luxon. The chairman proposed a 6-month transition. The board was not unanimous about the 6 months: it was ‘quite a tense subject around the board as to how it should be run’ explained one director.
Given the tremendous confidence the board had in selecting Luxon as the next CEO, several directors queried the rationale for the delay. These directors were uneasy about the effect within the company and the implications for governance by the board. They were keen to avoid confusion and political gamesmanship with an incumbent and a named successor. They preferred a clean sharp break so that ‘there was no confusion about the line of command for people’. It risked fostering uncertainty, rumours, and politicisation of employees with loyalty to the outgoing CEO while the new CEO-designate led a corporate restructuring process.
These directors also thought about the role of the chairman in this transition. According to one director, the nature of the risk required Palmer to ‘keep his nose right in there to make sure it was not creating issues below’. Such operational involvement ran counter to the clearly defined roles for the board and management.
Other directors had no reservations about the transition period. One director described the proposal as ‘conventionally unconventional’. As directors, they were familiar with the personalities of the outgoing and incoming CEO and believed the two would make it work. Fyfe was an ardent advocate for Luxon and agreed it was important for the incoming CEO to get a bigger view of the business. According to Palmer, ‘You can only run that process with certain people characteristics, so you need to be sure that the chemistry between the two and the personalities allow that to happen effectively and one or the other is not going to react badly in that process’. Following two meetings of vigorous and open debate about the transition, the board was ready to move forward. To mollify the concerns of some, Palmer made it clear there was only one CEO: the incumbent Fyfe. As one director stated, ‘We had only one CEO and we were absolutely adamant about that’. Accountability for business performance and delivery of the KPIs resided with Fyfe during the transition. The board met monthly with Fyfe. They also met with Luxon on specific projects, including his plan for restructuring the company. The acceptance of dissent within the board, constructively handled, and the ability to grow from it, showed the leadership strength of both the chairman and the board itself.
Designing and implementing the transition
The extended transition period allowed Luxon to continue to gather data and develop a new organisational structure. Having persuasively shared his strategy for achieving profit with the board at his interview, Luxon initiated the restructuring of the airline as CEO-designate with the support of Fyfe. He moved the airline from a divisional structure previously implemented by Fyfe to a functional structure. It was the first major restructuring of the company in 7 years. While he used the restructuring to gain the opportunities of scale and synergies, he also set out to develop his senior executive team. Luxon had had contact with all management in his previous role and discussed his recommendations for change with the incumbent CEO. This included a position on the executive management team for the other CEO candidate. Luxon also brought a Chief People Officer from outside of the industry along with a dozen general managers from overseas to round out his executive team and form the top 80 leaders for the airline.
During the transition, Fyfe and Luxon met with Air New Zealand partner organisations, such as the CEOs of Star Alliance, and began to transition Fyfe’s relationships to the incoming CEO. With the internal restructuring completed and new executive team appointments made within the first 5 months by the CEO-designate, ‘the day Luxon started as CEO he was going 100%’. According to the chairman, ‘Businesses lose traction, sometimes lose focus, and in many cases lose value in the transition of CEO because there is a hiatus while the new CEO either changes things or comes up to speed. Both can be very damaging. I think the way we did it has shown that there would have been concern in the market and in the public of saying, ‘How are you going to replace Rob Fyfe, very high profile, very successful CEO?’ Well, the reality is the business never missed a beat’.
By 2013, Air New Zealand began to realise the returns on an investment and strategy that has been several years in the making by initiating its 5 year ‘Go Beyond Plan’. As an industry analyst explained, ‘With an eye to a virtuous circle of continuous cost cutting and improving sales performance driving reinvestment, combined with few apparent head winds, Air New Zealand should however be well placed to deliver on its objective of doubling its 10-year average underlying earnings—and with it further driving a share price that for the time being still looks cheap’ (CAPA, 2013, June 16). This constant willingness to adjust and alter its vision and operations to respond to external circumstances showed the leadership capability of the whole board and CEO.
CELEBRATING 75 YEARS OF AVIATION AND CEO SUCCESSION
CEO succession is about the future. A director pointed out, ‘while we have been successful in appointing three great CEOs, we made our own success. With Norris we got a little lucky probably. But in the case of Fyfe and in the case of Luxon we made our own luck; that is not to say we could not have got it wrong but we did not because we had taken a lot of time to think clearly about the skill sets and attributes that we wanted for the CEO at that point in the Airline’s evolution’. The chairman echoed succession planning as a competitive advantage for the company. According to Palmer, a wise board appoints ‘the right person, not the best person, and gives them the tools and the capability to deliver what they promised’.
The challenge for the board in the future will be to ensure the planned, repeatable, and regular process of CEO succession continues to be undertaken by the board to identify and develop the next CEO, regardless if the candidate is an outside-insider, an internal prospect, or an external applicant.
DISCUSSION
In the case study we wanted to highlight the ways in which the board can provide leadership in the CEO succession process and to reveal this by showing some of the activities that the board performs when searching for a new CEO. The case study, featuring three consecutive CEO succession processes in Air New Zealand, demonstrates the dynamic interaction of a panoply of individual, organisational and contextual variables. While the CEO succession strategies sought out three very different CEOs, we have identified the following six underlying mechanisms that were significant in all three scenarios.
First, the board intentionally designed the CEO succession process. The outgoing CEO had a central and instrumental role in the process, but it was the board who carefully crafted and concluded each CEO succession exercise. The work of a board was an intentional and goal-directed activity that required ‘the exercise of judgment and discretion in making decisions’ (McMorland & Eraković, Reference Minichilli, Zattoni and Zona2013: 181). The appointment of a formal nominating and search committee, and the establishment of the outgoing CEO’s responsibility for a timely and active engagement in succession activities, as demonstrated in our case study, are just two examples of the critical practices that boards need to establish.
Second, the consideration of the business strategy was the most important input condition in designing the CEO succession process by the board. The initial discussions concerning the desirable characteristics of a new CEO were firmly aligned to the board’s vision of the Air New Zealand business and the factors affecting company performance. By matching their vision of the company’s future with a potential, appropriate CEO, the board employed an innovative approach that brought in outside talent (Zhang & Rajagopalan, Reference Westphal and Zajac2006) and gave them the opportunity to demonstrate their leadership capabilities. The board anticipated the potential problem of ‘cultural fit’ for a conventional outside-in CEO who might not necessarily have the ‘right feel for the company’. With the ‘exploratory’, pre-CEO experience the board offered the incoming CEO the opportunity to learn and acquire company-specific skills and knowledge.
Third, the case study showed that the whole process was participative. In all three scenarios, all directors actively participated early on in designing the process, determining desirable CEO characteristics, identifying and mentoring people inside the business, evaluating capabilities of external candidates, and deciding the appointment. As convenor of the board, the chair had the specific role of providing a ‘container’ for skilful, intentional dialogue and debates at the board meetings. Our case demonstrated that participative relationships, embedded in team-work, flexibility, learning, robust discussions, and information-sharing, were critical to fruitful board functioning in the CEO succession process.
Fourth, the chair of the board in this case study was both an accomplished authentic leader (Avolio & Gardner, Reference Avolio and Gardner2005; Jackson & Parry, Reference Jackson and Parry2018) who remained in the role for a relatively long period bringing much needed continuity in process as well as constancy of purpose. He brought clarity to the CEO selection process by developing processes and procedures that allowed structured interactions at board meetings and enabled directors to creatively and constructively share differences. In a value-creating board (Huse, Reference Huse2008) the chair must carry out a number of tasks: building trustful relationships among board members and with the CEO; supporting the board members to become effective team members; encouraging open communications within and outside the boardroom; facilitating robust discussions at the meetings; and actively developing and refining governance structures and processes. To be able to perform these tasks in support of an effective board, the chair needs to be enthusiastic, highly capable in managing processes, possess a high level of integrity, be highly respected, and be thorough in preparing meetings.
Fifth, the diverse combination of entrepreneurial orientation, knowledge, skills, experience (gained outside of the industry), and the ‘chemistry’ fit was a defining feature of the board composition throughout the entire period of selection. In common with the board chairman, directors were all independent appointments. The Air New Zealand directors’ experiences in companies and industries outside of the airline industry, their range of knowledge and skills, their motivation and, in particular, their entrepreneurial drive, all contributed substantially to the board’s decision-making. The board was creative and courageous in finding solutions to major strategic problems. The board’s collective ability to exercise sound judgement in these situations came from each individual director’s deep knowledge and understanding of their duties. As a result, the board becomes an asset that created value and a comparative advantage for the organisation (Chait, Ryan, and Taylor Reference Chait, Ryan and Taylor2005).
Finally, the government, as substantial shareholder, opted not to appoint its own directors, and did not influence any of the board’s decisions on the new CEO appointments. All three CEO succession processes were undertaken independently of any consultation with the shareholding Ministry. Given the government’ substantial block ownership, we would expect that the government would want to exercise its monitoring rights to influence decisions on the board. The government, however, did not appear to distort governance processes in the pursuit of its own special nonfinancial objectives. Like other investors, the government has a focus on value creation and mitigating market risk and can effectively realise these objectives in the absence of direct involvement with board decision-making (Thomsen & Pedersen, Reference Shen and Cannella2011; Pargendler, Reference Pargendler2012). The board is an ultimate defender of the company’s mission (Useem, Reference Stiles and Taylor2006) and its decision-making should be autonomous (and well-informed) even when the decision, such as the selection of new CEO, has important consequences for the company.
Regarding outcomes, the longitudinal story of CEO succession in Air New Zealand supports what most of the literature suggests – that CEO candidates groomed internally enable smoother leadership transition and secure the continuity of the business (Clutterbuck, Reference Clutterbuck1998; Lorsch & Khurana, Reference Machold and Farquhar1999; Collins, Reference Collins2001; Rhim, Peluchette, & Song, Reference Zhang and Rajagopalan2006; Zhang & Rajagopalan, Reference Westphal and Zajac2006; Rejchrt & Higgs, Reference Zhang and Rajagopalan2014). Interestingly, the last two CEOs would not be conventionally classified as true internal candidates. They came to Air New Zealand from overseas companies and different industries and were groomed into the role for a relatively short period of time (~1 year). In the final stage of the process they competed for the position with authentic internal candidates and external contenders. This approach of an outsider-inside was supported by board’s strong belief that ‘the chances of a successful introduction of a new CEO are only 50/50 if the person is parachuted from the outside’.
CONCLUSION
The case study reveals the ability of a board to create the robust process of the CEO succession which was part of the company’s competitive response through time. The role of the board of directors generally and the chair specifically appears to be broader than reducing agency cost. Our case shows that the board members’ strong motivation to save the national flag carrier and emotional attachment to the organisation created an obligation to care about the organisation’s well-being beyond the agency arrangements. The chair’s ability to develop trustful relationships between all governance actors and create a ‘positive participative climate’ (Guerrero, Lapalme, & Séguin, Reference Guerrero, Lapalme and Séguin2014) additionally facilitated the effective functioning of the board.
The case study illustrates the importance of collaborative relationships between the CEO and the board; open and informed communications within the boardroom; the chair’s strategic leadership role and the hands-off relationships of the majority shareholder. The leadership exercised by the board of directors suggests that engaging in behaviours that balance both oversight and value creation provides a fruitful avenue for furthering our understanding of board effectiveness (Erakovic & Jackson, Reference Erakovic and Jackson2012).
EXHIBITS
Exhibit 1: Aviation industry in New Zealand
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∙ Airlines registered in New Zealand carry 12 million passengers and 120 thousand tonnes of freight to, from and within New Zealand (Oxford Economics, 2011).
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∙ Airlines registered in New Zealand directly employ 13,000 people locally and through their supply chains support an additional 23,000 jobs. A further 24,000 jobs are supported through the household spending of those employed by airlines and their supply chain (Oxford Economics, 2011).
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∙ Airlines contribute $5.8 billion NZD to the economy (Oxford Economics, 2011).
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∙ Air New Zealand operates a network of 51 destinations, half of them domestic routes. London Heathrow is the furthest point operated from the carrier’s Auckland base and the only long-haul destination beyond the Pacific (CAPA, 2013).
Exhibit 2: Global context – recent industry evolution (2000–2013)
More than a decade of change substantially transformed aviation. Airlines were now leaner, greener, safer, and stronger than any time in their history (Bisignani, 2011). A globalising world provided the incentive; the industry grew rapidly to meet the need. The industry added new customers, new competitors, new connections, and additional frequencies. Between 2001 and 2011, annual freight shipments expanded by 17 million tonnes to 46 million. In the same period, air travel became accessible to a billion more travellers a year: 2.8 billion people were expected to fly in 2011 (Bisignani, 2011).
Costs fell significantly as enabling technologies improved and efficiencies were gained through more sophisticated operational management. Direct value was created for consumers, employees, and some suppliers. Indirect value for the broader economy delivered catalytic benefits to the overall economic growth of nations, including international trade and tourism. The decade also saw industry revenues double to $598 billion (Bisignani, 2011). But industry profits were much less impressive. In 2010, the best year of the last decade, the industry’s $18 billion profit was equal to a slim margin of just 3.2%, despite many new efficiencies (Bisignani, 2011). This has not been for a lack of initiatives: operational costs were streamlined through outsourced maintenance and ground handling services considered noncore dropped, more sophisticated management was implemented, aircraft utilisation rates dramatically increased, added additional revenue streams were introduced, wide-ranging customer loyalty programs were employed, and alliances with global reach established (Porter & Pearce, 2011).
Partial deregulation created fierce competition among the airlines but without commensurate ‘normal’ freedom to do business.Footnote 5 Governments recognised air transport as vital infrastructure and continued to ‘own’ their airspace and regulate it heavily. Prohibitions on full cross-border mergers between airlines prevented complete integration of airline services, but where granted by governments, alliances allowed cooperation and integration (Pearce & Doernhoefer, 2011). By the middle of 2011, the three major alliances (Star Alliance,Footnote 6 SkyTeam, and Oneworld) coordinated travel globally and provided over 80% of capacity across the Atlantic and Pacific and just under 80% between Europe and Asia (Pearce & Doernhoefer, 2011).
Exhibit 3: Air New Zealand’s vision
We will strive to be number one in every market we serve by creating a workplace where teams are committed to our customers in a distinctively New Zealand way, resulting in superior industry returns.
Source: Air New Zealand (2016).
Exhibit 4: Air New Zealand’s guiding principles
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∙ We will be the customers’ airline of choice when travelling to, from and within New Zealand.
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∙ We will build competitive advantage in all our businesses through the creativity and innovation of our people.
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∙ We will work together as a great team committed to the growth and vitality of our company and New Zealand.
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∙ Our workplaces will be fun, energising and where everyone can make a difference.
Source: Air New Zealand (2016).
Exhibit 5: Timeline for Air New Zealand CEOs
Ralph Norris appointed 13 February 2002–resigned effective 30 August 2005.
Rob Fyfe appointed 14 October 2005–resigned effective 31 December 2012.
Christopher Luxon appointed 1 January 2013–present.
Exhibit 6: Biographies of chief executive officers at time of appointment: 2002–2013
Sir Ralph Norris joined Air New Zealand as Managing Director and Chief Executive Officer in February 2002, having served on the company’s Board of Directors for 3 years.
Formerly he was the Managing Director and Chief Executive Officer of ASB Bank, the Commonwealth Bank’s New Zealand subsidiary, from 1991 and retired from that position in September 2001.
As a former Lynfield College student, Norris joined Mobil Oil as a cadet. He later joined ASB Bank in 1969 in the IT department and performed a number of roles for the bank’s digital upgrade. In 1986, he was appointed as General Manager Information Services and joined the Bank’s executive team. He became the bank’s first Chief Information Officer with the introduction of ATMs.
Rob Fyfe served as the Chief Executive Officer of Air New Zealand from October 2005 to December 2012. He was the airline’s Chief Information Officer, and Group General Manager Airlines, and had been with the company since 2003.
Mr Fyfe was born and raised in New Zealand, and graduated from Canterbury University in Christchurch with a Bachelor of Engineering degree. He started his working career in the Royal New Zealand Air Force in 1979.
Before joining the airline, he held positions in banking in New Zealand and Australia between 1988 and 1997. He returned in 1998 as General Manager, Consumer Markets for New Zealand’s Telecom Corporation. In 2000, Mr Fyfe moved to London to serve as Chief Operating Officer and then Managing Director of ITV Digital.
Christopher Luxon was appointed Group General Manager International Airline at Air New Zealand in May 2011 and took over the role of Chief Executive Officer in January 2013.
Before joining Air New Zealand, he was President and Chief Executive Officer at Unilever Canada. This was one of several senior leadership roles Mr Luxon held during an 18-year career at Unilever where he worked in New Zealand, Australia, Asia, Europe, and North America.
Christopher has a Master of Commerce in Business Administration from the University of Canterbury.
Exhibit 7: Select awards for Air New Zealand: 2003–2013
Exhibit 8: Air New Zealand board of directors: 1998–2013
John Palmer, Chairman (2001–2013, director to 2014)
Roger France (2001–2015)
Sir Ralph Norris (1998–2005)
Sir Ron Carter (1998–2007)
Ken Douglas (2002–2008)
Jane Freeman (2002–2008)
Warren Larsen (2002–2013)
John McDonald (2002–2011)
James Fox (2006–2014)
Paul Bingham (2008–present)
Antony Carter, Chairman effective 2013 (2010–present)
Janice Dawson (2011–present)
Rob Jager (2013–present).
Exhibit 9: Air New Zealand route map
Source: Air New Zealand (2007).
Exhibit 10: Air New Zealand normalised earnings before tax
Source: CAPA (2013, June 16).
Exhibit 11: Determinants of airline industry profitability
Source: Porter and Pearce (2011).
Acknowledgement
The authors would like to acknowledge the financial support of The University of Auckland Business School. This case study is an original work that has not been submitted to nor published anywhere else.
