This week, CVS announced that CEO Tom Ryan will be stepping down next year, to be replaced by Larry Merlo, who has led the firm's retail operations in recent years. Now, Merlo becomes President and COO of CVS until May 2011, when he will succeed Ryan as CEO. As part of this transition plan, CVS will create an office of the chairman, which will include Ryan, Merlo and Per Lofberg, the head of the company's pharmacy benefit management business.
CVS deserves credit for what appears to be a well-designed succession process, with a successor who has been groomed for some time, and who will spend the next year making the gradual transition to the CEO role. However, one must wonder a bit about how the three-person Office of the Chairman will function. Several months ago, a CEO at another firm mentioned to me that three people in a top executive group can be problematic because one person often will find himself feeling left out. After all, many informal conversations occur one-on-one. The third person not involved in that conversation automatically feels left out if they discover that important issues were discussed in their absence. The Office of the Chairman at CVS will face this challenge of how to handle the normal informal conversation that it will inevitably occur between two of the three parties. Maintaining as much transparency as possible around one-on-one conversations that occur will be critical. Moreover, insuring that the three parties get together often to share information and opinions openly will be essential.