Why CEO Transitions Can Be Trouble
"If it ain't broke, don't fix it," is a cliche for a reason. But sometimes incoming CEOs fail to grasp the meaning of the phrase.
In a compelling article for strategy + business, author James O'Toole, a senior fellow in business ethics at Santa Clara University’s Markkula Center for Applied Ethics, argues that "new CEOs often abandon successful strategies, programs, and even organizational missions." His examples, summarized below, will make you think twice about how to lead during a CEO succession.
An All-Star Team of Unsuccessful Successors
Business history is littered with examples of thorny successions. O'Toole cites three of them:
- James Cash Penney "watched from the boardroom as one CEO after another gradually dismantled the principles and practices that had made JC Penney the nation's fastest-growing mass retailer," he writes.
- Former Corning CEO Jamie Houghton returned to Corning "when it was clear his successors had lost sight of the profitable path he had pioneered."
- Howard Schultz famously returned as Starbucks CEO after the company slumped. In his book, Onward, he said he felt that Starbucks had abandoned its core values.
Here's How It Should Be Done...
What does all of this mean for today's leaders, when overseeing or participating in a CEO succession? Two lessons come to mind.
1. Disregard what you may have heard about making changes in the first 100 days. Though conventional wisdom suggests that rapid change is important, research on executive transitions published in the MIT Sloan Management Review indicates otherwise. "For example, both [Lou] Gerstner at IBM and [Jim] McNerney at 3M (and Boeing) chose not to make many changes in strategy in the early part of their tenures," observe the authors. "This patient approach not only gave them the time to gain expertise about several aspects of their businesses but also helped them gain the power base and social and political capital to make massive changes a few years later."
2. A board of directors should manage the transition process. "Most organizations have no established ways of socializing new outsider CEOs," note the authors. In their view, the ideal board-led transition process will help new CEOs grasp the need to build internal networks and a support for early decisions--especially decisions that depart from the previous CEO's way of doing things.