Can You Count on Your CEO Successor?

Seonaid Charlesworth Article

Are you placing too big a bet on your successor? Many organizations do. Despite the need to plan for all scenarios, too many organizations wager too much on one person to succeed the CEO. Often with disastrous results.

A case in point is the recent situation at Disney, which has only had two CEOs in the past 30 years. Current CEO Bob Iger was scheduled to step down next year and in preparation, the Disney board groomed an experienced executive named Thomas Staggs to take over.

Staggs seemed to be a great choice. He had been with Disney for 25 years, serving as both CFO and head of Disney’s Parks and Resorts division. Recently, he was promoted to chief operating officer, a clear sign he was the choice to replace Iger.

Then, last month, Staggs resigned unexpectedly.

In response, Disney’s board announced it was taking steps to “broaden the scope of its succession planning process to identify and evaluate a slate of candidates for consideration.” It has cast a pall of uncertainty around Disney that has had implications for the bottom line.

Disney shares fell, and several other key executives jumped ship. Now, there is mounting speculation Iger will be forced to delay his retirement, again. The markets don’t like uncertainty, and that is exactly what happened to Disney.

Being CEO of Disney is a huge job. And it’s no small matter to step in and replace Iger, a chief executive who casts a long shadow. These two factors make this a more difficult succession challenge.

The Disney board is not alone in facing this dilemma. In my experience working with boards on their CEO succession planning, I routinely see favored successors exit or be passed over, events that shake confidence in those organizations.

Why does this happen? In my experience advising boards on CEO succession, there are four common reasons:

  1. External changes make the CEO successor irrelevant. The most common and least discussed reason for CEO succession failure is that the successor’s experience and skills became irrelevant because of changes in competition or market conditions.  Suddenly, the board realizes that the consensus successor is no longer the best person for the job.  In these situations, the board is forced to signal in very public ways that the internal succession plan is no longer relevant. It’s not long before the aspiring CEO finds an opportunity to jump to another company.
  2. The current CEO stays too long. Common in private companies, the CEO (often the founder) announces he or she will retire in 3 to 5 years. And then he announces the same thing two years later.  Sometimes, there are good reasons why retirement is delayed. Perhaps the CEO needs to stay through a crisis to prevent investors from leaving.  Other times, she stays because she’s been doing the top job so long, she can’t imagine doing anything else. Whatever the reason, when a CEO delays retirement, it often disengages potential successors and prompts them to start looking at opportunities outside their current organization.
  3. The board assumed the mere promise of succession was enough to lock in a successor. Boards frequently assume that as long as they continue to dangle the carrot of succession in front of a preferred candidate, he will remain in place, at the ready. Some boards are so confident about this, however, they miss changes affecting successors that weaken their commitment to the succession plan. In some instances, the successor no longer feels challenged by the business.  Or, there is a family or health crisis that requires his attention.  In some instances, successors achieve their financial goals and decide they’re ready for a retirement focused on philanthropic activity. Again, whatever the reason, the promise of succession will never be enough to keep good people in a holding pattern.
  4. The board created a horse race. Unlike racehorses, CEO successors don’t have blinders on. They are routinely presented with interesting opportunities at other companies. And they have few insurmountable barriers to exiting. When boards signal they are expanding their slate of CEO succession candidates, it can spook their best candidate. The board’s intent to create healthy competition and give the market confidence in their future can turn into a fight for succession that the best candidate isn’t up for.  

In all these scenarios, it’s important to remember that the reasons for a successor’s departure reveal much about an organization. The CEO successor’s exit also sends strong messages to other potential succession candidates. It raises a number of troubling questions. Is the board divided? Is the company having trouble keeping up with changing market conditions? Is the role of CEO untenable, so much so that it is impossible to succeed?

It’s important for organizations to ensure that when they undertake succession planning, they don’t wager too heavily on a single person at a single point in time. Wagering too much on a single outcome or treating a succession plan as complete can come back to haunt your board and your business.

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