Who will be the next CEO of Merrill Lynch? Of Citigroup? Isn’t it astonishing that these mighty companies have no plan in place? According to a senior Citigroup insider, who asked not to be identified: “I always thought the board was remiss in not having a clear succession plan. The board felt that in a crisis they could turn to Bob Rubin, and indeed they did.” They turned to Mr. Rubin when CEO Charles Prince “did the right thing and offered his resignation, after hearing about the write-offs,” the insider said. The timeline apparently included long-time sponsor Sanford Weill finally severing his support of Mr. Prince.

Ironically, one long-time Citigroup employee tells us that the company is not only doing a search for the CEO slot, but “is also now interviewing for a head of the leadership development program, which they haven’t really had for six years.”

This time around, the boards of Citigroup and Merrill Lynch will be selecting new leaders without input from the existing CEOs, which may prove a blessing, and also a challenge. The boards are looking for individuals capable of addressing the companies’ most dire problems. Because both are struggling with giant losses in their CDO portfolios, an emphatically specialized business, that narrows the field greatly.

According to several people close to the situation, the leading internal candidate to succeed Mr. Prince as head of Citigroup is Vikram Pandit, who runs the bank’s Institutional Clients Group, comprising the company’s markets and banking businesses and alternative investments activities. He joined the firm earlier this year when Citi bought his $5 billion hedge fund, Old Lane. Mr. Pandit was formerly head of Morgan Stanley’s institutional securities and investment banking business, and so comes equipped to deal with the Salomon Smith Barney crowd, which evidently opposed the promotion of Mr. Prince from day one.

“Chuck had been under fire for a long time, in some ways unfairly,” a source says. “He did a lot of things right, like making some good acquisitions. He didn’t reshape his management team as quickly as he should have and he was unlucky in that he relied too much on the people already running Salomon. They tend to blow the place up every few years, playing with the house’s money.”

The lack of in-house experience could be a plus for Mr. Pandit, as he has not engaged in the kind of internecine warfare that has come to characterize Citigroup’s frequent management shuffles. Searching for a neutral party could also lead the board to look outside the company. Names frequently mentioned as possible hires at both Merrill and Citigroup are the head of the New York Stock Exchange, John Thain, and CEO John Mack of Morgan Stanley, both of whom have reportedly rebuffed overtures; AIG’s chairman, Robert Willumstad, and the CEO of BlackRock, Larry Fink.

Mr. Willumstad is enthusiastically endorsed by some at Citigroup. Most of his career was spent coming up through the ranks of the company. Currently acting as nonexecutive chairman of AIG, he formerly served as Citigroup’s president and COO. He stepped down in 2005 after Mr. Prince became CEO.

Mr. Willumstad has had extensive operating experience with the firm, which is appealing to those who think the unwieldy company needs serious reshaping. “If the game plan is to reconfigure the business, he would be a good choice” a former Citigroup executive says. “He is loved by everyone at the company, including the downtown crowd,” meaning the investment banking group.

Bringing back a popular former executive is not unprecedented. John Mack was hired to be CEO of his old firm, Morgan Stanley, after a turbulent and divisive period. By all accounts, his return has helped restore the morale of the firm and improved performance.

Merrill Lynch’s case, it is generally expected that the next CEO will come from outside the company. Mr. Fink is considered the most likely candidate, though it is not a done deal. Apparently he has not formally been offered the job, but has met with the board. According to close friends, his heart — and his net worth — are still at BlackRock, which he founded. The board of BlackRock is evidently not enthusiastic about his possible departure, because his own succession is not entirely clear.

Mr. Fink’s assets are his deep knowledge of risk management, and his strong ties to certain key players at Merrill. Also, he has come to be well known and well regarded by many within the brokerage organization. The two companies became intertwined when Merrill sold its investment management arm to BlackRock last year in exchange for a little more than half the company.

BlackRock’s acquisition of MLIM, the asset management arm of Merrill, alarmed many in the money management firm who were concerned that the BlackRock folks knew little about the equities business. One senior person at the company now describes Mr. Fink in positive terms: “Clients love him; he exudes enthusiasm about the business that he’s built, while making it very clear that he’s in charge. He’s engaging about the global picture. Does he have a big ego? You bet.”

Under BlackRock’s umbrella, the old MLIM has had an outstanding year, adding more than $100 billion in new funds under management. Normally, the period following an acquisition can be challenging, as workers are distracted and performance sometimes falls short of expectations.

One shortcoming in Mr. Fink’s CV, according to a Merrill insider, is that “he has no experience running large groups of people.” However, this problem is more than balanced by Mr. Fink’s relationship with Gregory Fleming, currently acting as co-president and co-chief operating officer with Ahmass Fakahany.

“Larry is Greg Fleming’s ‘godfather'” this source says. “He did the deal when BlackRock went public. They can finish each other’s sentences.”

The crisis facing both Citigroup and Merrill Lynch should never have come about, according to the founder of an eponymous executive search firm and long-time staffer of boardrooms, Russell Reynolds. “Boards are becoming ineffective as a force,” he says. “The next phase of governance is that the decision will go more directly to the shareholders.”

While most people in the corporate world would argue that the shareholders are already in charge of the process through their election of the board members, the reality is that sitting CEOs are normally responsible for making sure there is someone to step in if necessary.

This is a problem. According to Mr. Reynolds, “Many CEOs surround themselves with people who can’t succeed them. If there is a blowup, the firm is effectively defoliated of candidates.” A senior human resources executive who asked not to be identified says it more emphatically: “CEOs are typically not too keen on having a readily available successor.”

This was certainly the case at Citigroup and Merrill Lynch.

As a search executive says: “There’s so much fixation on managing the moment, executives don’t focus on long-term issues like succession planning.”

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