Leadership failures: The cost of botched successions – Adrian Wooldridge

Botched successions, whether in politics or business, reveal a recurring flaw: a failure to prepare for leadership transitions. Claudius Hildebrand and Robert Stark's The Life Cycle of a CEO explores the costly consequences, from Disney's leadership woes under Bob Iger to broader corporate missteps. The book argues for better succession planning, urging boards to prioritize leadership readiness and CEOs to embrace their role's life cycle. A must-read for leaders facing succession challenges..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here..The seventh BizNews Conference, BNC#7, will be held in Hermanus from March 11 to 13, 2025. The 2025 BizNews Conference is designed to provide an excellent opportunity for members of the BizNews community to interact directly with the keynote speakers, old (and new) friends from previous BNC events, and members of the BizNews team. Register for BNC#7 here. .By Adrian Wooldridge ___STEADY_PAYWALL___.The Democratic Party's defeat in November was the result of, among other things, failed succession planning. An ageing Joe Biden refused to retire after one term; he appointed a vice president who presented a limited threat, having failed to shine in the 2020 primaries; and, when the party elders forced him to withdraw after his catastrophic debate performance, he effectively scuppered the idea of holding a mini-primary by immediately endorsing Kamala Harris..Botched succession is a pervasive problem in human affairs: in autocracies as well as democracies (Vladimir Putin's eventual departure will doubtless lead to a bloody power struggle) but also in the private sector as well as the political world. The one "known known" in the business world is that CEOs will eventually have to hand over to a successor. Yet companies repeatedly make a hash of it..In The Life Cycle of a CEO: The Myths and Truths of How Leaders Succeed, Claudius Hildebrand and Robert Stark present striking data on succession failures. Some of the world's most illustrious companies have had to dump their CEOs after a brief spell at the helm: Leo Apotheker was fired after eleven months as CEO of Hewlett Packard Enterprise Co. (with a golden parachute of $7.2 million in cash and $18 million in company stock) and Bob Chapek was fired after "three years of hell" as CEO of The Walt Disney Co. Tyson Foods Inc. replaced four CEOs in 2016-23 while the video-gaming retailer GameStop Corp. cycled through five CEOs in 2018-23..A 2019 survey of 222 C-suite executives around the world found that 76% reported that there was not a leader within the company who was ready to take over as CEO and 60% said that the company lacked a succession plan. A 2021 study by David Larcker and Brian Tayan, of Stanford University, revealed that 22% of CEO appointments in 2017-21 were "interim" (placeholders while the boards searched for a permanent successor). Poor succession planning is expensive as well as messy: A study of CEO transitions at the world's 2,500 largest public companies determined that the average cost of poor succession planning (defined as having to sack the CEO) was $1.8 billion per company..Read more: Coalition government won't fix past failures: SA private sector to play a bigger role in service delivery.The most obvious failed transitions are the result of forced departures: The proportion of "resignations under pressure" among S&P 500 companies rose from 7% in 2022 to 16% in 2023. But some of the most troublesome are the result of the opposite problem: relatively successful CEOs who cling onto power and fail to groom a suitable successor. The longer CEOs stay in place, the more fully they inhabit their jobs. It's not just that they relish all the attention (and money). It's that they can't think of themselves as being anything other than the CEO, their every minute scheduled, their every move monitored..Even responsible CEOs can put off thinking about retirement — there is just one more project to finish, one more transformation to oversee, one more cover story to pose for. The less responsible ones subvert the succession process, either consciously or unconsciously, by blocking the search for a successor or undermining possible replacements..The story of Disney's struggle to find a successor to Bob Iger as CEO is particularly tortured. The company groomed Thomas Staggs for the job, making him COO, only to change its mind, partly at Iger's urging. Then Iger, who had repeatedly delayed his announced date for retirement, impetuously announced that he was stepping down immediately in February 2020 and persuaded the board to appoint Chapek as his successor despite Chapek's lack of experience in the company's core business of developing creative content. Chapek's condition of employment suggested a problem — he would serve as both CEO and CEO-in-training and, along with his office, Iger would retain creative control as executive chair of the board. Sure enough Chapek was out within three years and Iger is still running the company — yet another "boomerang CEO" theoretically saving the day after their hand-picked successor ran things off the rails. (Disney says it will name Iger's successor in early 2026, before his contract runs out at the end of the year.).What can be done to prevent botched successions? One solution is to put a hard limit on your time in the top job — say ten years. Yet Adi Ignatius, the editor of the Harvard Business Review, concluded that one of the most notable characteristics of the leaders selected for its annual CEO 100 listing of top performers was their "remarkable longevity," having held their jobs for an average of 15 years. Hildebrand and Stark argue that the problem with this is that some CEOs are "marathon runners" whose work only comes to fruition after more than a decade in office..They give the example of David Cote, who, as CEO of Honeywell International Inc. for 15 years, "achieved one of the most impressive turnarounds of any CEO in the twenty-first century," fixing a company that was widely deemed to be "unfixable" and increasing its share price by 245%. He was only hitting his stride at the ten-year mark and had a great deal of value-creation left in him. In a world that constantly complains about short-termism, it seems perverse to create an artificial barrier to long-term planning..Read more: SA on international stage: Ramaphosa's ill-fated peace mission, a desperate distraction amidst scandals and failures.A more comprehensive solution is to buff up the machinery of succession planning. Require boards to take succession planning much more seriously, for example, by appointing a lead director with responsibility for standing up to the CEO and looking for a successor. Build succession-planning into the core of the company so that there is always a deep bench of talent awaiting. And — this is Hildebrand and Stark's big idea — encourage CEOs to think of their careers in terms of life cycles, with a beginning, a middle and an end..These are all sensible ideas but far from foolproof. The Sarbanes-Oxley legislation of 2002 made boards officially responsible for succession planning, but too many still take their responsibilities remarkably lightly. Most of the board members who appointed Apotheker to his job at Hewlett Packard had not even spoken to him on the phone let alone met him personally. The Procter & Gamble Co. and General Electric Co. were both widely praised as America's most successful talent machines. But Procter & Gamble had to recall A.G. Lafley after the successor the company had nurtured, Bob McDonald, proved a disappointment and General Electric progressively fell apart after Jack Welch's departure..Powerful CEOs will almost always be able to outwit their boards if they want to: Boards consist of part-timers who have many, often too many, irons in the fire and inevitably lack the CEO's grasp of detail. They may also pride themselves on their ability to defy life cycles rather than embrace them: You get to the top by bending the world to your will rather than doing the conventional thing. The growing habit of appointing outgoing CEOs as executive chairs, "to smooth the transition," something that takes place in 41% of S&P 500 company transitions, may also achieve the opposite effect, making it easier for ex-CEOs to outstay their welcome and second-guess their successors..A satisfactory solution to the succession problem must consider the human side of the process as well as the institutional side. Boards need to consider the clinginess of the potential CEO when they first make their appointments. Are they well-rounded people with an extensive hinterland? Or are they people who are likely to let the job become the self? They also need to appeal to the vanity of the CEO when it comes to retirement. Do they want to go down in history as somebody who outlived their welcome? Or do they want to leave at the top of their game?.Here Joe Biden might be wheeled out as a useful example for future CEOs. Had he decided from the first to serve for only one term, he would be remembered as a successful president who passed important legislation at home and stood up to Russian expansionism abroad. A better president than the flashier Barack Obama might well have been the consensus. He might also have presided over a succession to yet another Democratic president with a carefully run primary season that would have weeded out weak candidates like Harris and selected somebody with a broad appeal. (For all the talk about the profound forces that brought Trump to office, his victory was a relatively narrow one.) But thanks to his stubborn refusal to acknowledge the process of ageing, he will only be remembered as a president who botched the succession and ushered in the second age of Trump..It is a story worth telling to any CEO who shows signs of staying on beyond their sell-by-date. Perhaps Disney could even turn it into a film..Read also:.SA growth hobbled by Eskom and Transnet failures🔒 Productive knowledge workers are fueled by curiosity: Adrian WooldridgeState capitalism surges: Governments now major players in global economy – Adrian Wooldridge.© 2024 Bloomberg L.P.

Leadership failures: The cost of botched successions – Adrian Wooldridge

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