South Africa has had, and continues to have, some iconic CEOs that have led their companies to major success. Patrice Motsepe (from African Rainbow Minerals), Roger Baxter (from the Minerals Council of South Africa), Cynthia Carol and Mark Cutifani (from Anglo American), and Maria Ramos (from ABSA) spring to mind.
What happens when an iconic CEO leaves a company? Nothing lasts forever and the void left by a charismatic leader can often be very telling.
I recently read an article on the Harvard Business Review website which discusses this in a bit more detail.
The dark side of iconic CEO transitions
The HBR article points out that, often, longstanding CEOs are visionaries who have delivered superior performance and have steered their companies through ambitious transformations. Recently, companies including Target, Caterpillar, and Boeing have raised their CEO retirement age to keep iconic CEOs in place.
However, the great paradox of iconic CEO transitions is this: The longer an incumbent CEO’s tenure, the more challenging and riskier the transition. Successors of longstanding CEOs typically have shorter tenures and worse financial performance, and they’re often forced out. With all of the investments in time and money and with experienced boards and CEOs at the helm, why are companies unprepared or why do they make the wrong choice when it comes to succession?
The article adds that, in reality, the root causes of succession failures can be traced back to seemingly innocuous habits that over time add up to a dangerous and painful crisis.
Photo By: Anglo American
Deferring to the incumbent CEO too much
The article points out that, over their many years at the helm, longstanding CEOs hand-pick their board and develop credibility by achieving strong results and deep relationships. As a result, boards become accustomed to following the CEO’s lead and don’t challenge them sufficiently when it comes to succession. They either wait too long to start a formal process or leave the process in the hands of the incumbent CEO without asking enough of the uncomfortable questions. Even with the best of intentions, having the incumbent CEO driving the succession process is akin to having the best surgeon performing surgery on themselves — a risky proposition.
One board member confided in us that she’s tried to raise the topic of succession with the independent lead director on numerous occasions, only to be told to “tread lightly,” lest the uncomfortable discussion becomes a distraction or a source of conflict with the revered CEO. Our research indicates that 69% of boards are less ready for succession than they believe.
Assuming the anointed successor is the right choice
The article adds that the necessary counterbalance to a visionary CEO is often a reliable executor who makes the CEO’s big vision come to life. But this trusted lieutenant may lack their own vision, strategic muscle, or ability to inspire internal followership and influence external stakeholders. When they step up to CEO role, they often fall short.
Meanwhile, stronger potential successors may end up leaving the company, because their decisive style ruffles feathers with the incumbent or they’re poached by another company after delivering strong results.
As a result, the handpicked successor might be the last (rather than the best) person standing. Stanford professor David Larcker’s study of the largest companies run by handpicked successors found that most underperformed the S&P 500, including GE after Jeff Immelt took over and Microsoft after Steve Ballmer followed Bill Gates. (Tim Cook at Apple is the exception.) Our research shows that 53% of the time, the “heir apparent” proves to be the wrong choice.
Photo By: Canva
Holding onto the iconic CEO too long
The article points out that iconic CEOs often stay around as board chair or director after a successor is appointed, making it harder for the next CEO to succeed. Nearly 48% of long-serving CEOs either remained as board chair or assumed the role at the time of succession, compared with 28% of shorter-serving CEOs.
Researchers from Peking and Rice Universities found that a new CEO’s early dismissal is 2.42 times more likely when the outgoing CEO remains as board chair. As The Wall Street Journal noted, “Imagine if the former president moved out of the Oval Office but still lived in the White House.”
Being Lulled into a False Sense of Security
The HBR article adds that boards of successful companies that haven’t experienced painful setbacks with CEO succession are more likely to be lulled into a false sense of security. These boards likely discuss succession but lack the rigor and objectivity required to ensure a successful outcome.
Five years ago, a lead director of a major industrial company shared that he had a great degree of comfort with the incumbent CEO’s choice of successor. “We have known [the successor] for 17 years. I feel very comfortable that we are in great shape. We’ve always done it well before — it’s not our first CEO succession.” Unfortunately, two years later this company was back to the drawing board, replacing the chosen “heir apparent” after extremely disappointing performance.
