Corporate chiefs often stay way past their prime due to their star power, spineless boards and a lack of succession planning.
(Bloomberg) — In 2015, Syracuse University basketball coach Jim Boeheim said he would retire in three years, a decision that the school said brought “certainty to the team and program in the coming years.”
But those years, and a few more, were instead riddled with uncertainty and turmoil, as Boeheim stuck around and kept mum on any potential succession plan. Finally, after a dismal 17-15 season that left the Orangemen — perennial March Madness contenders during Boeheim’s 47-year reign — out of the NCAA tournament, Syracuse last week decided to finally part ways with the 78-year-old, second-winningest college hoops coach ever.
The university’s deference to its famous coach should serve as a warning for corporate boards everywhere that face a similar question: When’s the right time for a CEO to go? It’s a dilemma that’s sent many a board into paralysis, extending the shelf life of a once-great leader far beyond his or her expiration date. Examples abound: AIG’s Hank Greenberg, ousted at age 79 amid a securities-fraud scandal. Viacom’s Sumner Redstone, 92, bowing to shareholder pressure and lawsuits after repeatedly saying he’d never retire. Uber Techologies’ Travis Kalanick, jettisoned after the rideshare company’s culture turned toxic.
During the pandemic, many CEOs stuck around to steer their firms through the unprecedented challenges posed by Covid-19, which boosted the average S&P 500 CEO’s tenure above 10 years (historically it’s five to eight years), according to executive-search firm Spencer Stuart Inc. But now, long after the pandemic panic has eased, a few corporate chiefs have decided that they, and only they, can see their companies through the latest bout of economic uncertainty. Target Corp. CEO Brian Cornell will stay in his job for three more years, past the retailer’s traditional retirement age. Doug McMillon, chief of rival Walmart Inc., will also remain for at least another three years.
While neither CEO is facing pressure to step down, their extended time in charge kicks the can of succession planning down the road a bit, which could cause problems later on. Nearly 40 CEOs in the S&P 500 have tenures of two decades or more, according to Bloomberg data, led by Warren Buffett, who waited until he was a nonagenarian to name his heir apparent at Berkshire Hathaway Inc.
“Some organizations are just really bad at succession planning, and so there is no one else to take over,” said Travis Howell, assistant professor of strategy at the University of California-Irvine’s Paul Merage School of Business. “This is especially true when the CEO is a star, and the board is afraid to even bring up the topic of succession planning for fear of offending the CEO.”
Howell was among the researchers who analyzed whether post-IPO startups led by their founders outperformed those with non-founder CEOs, and determined that founders wore out their welcome just three years after they went public. After that, they actually detract from the firm’s value. Take Andrew Mason, founding CEO of discount site Groupon, who was fired only 18 months after the company went public — and the shares surged in response.
“There is a shelf life to the founder-CEO — and it’s likely shorter than many might hope,” wrote the authors, who also include Chris Bingham and Bradley Hendricks of UNC Kenan-Flagler business school.
Non-founder CEOs, meanwhile, hit a wall around year six, according to Jim Citrin, head of Spencer Stuart’s CEO practice. They, like founder-CEOS, eventually struggle to deliver at the level of earlier years, entering a “a time of prolonged stagnation and mediocre results,” Citrin wrote in a 2019 Harvard Business Review article.
So why do CEOs hang around when they’re doing little good? For starters, they’re the boss. Another reason: “They are a known quantity,” Bingham said. And, finally, they’re often convinced that since their initial vision led to success years ago, it’s the right path for what might be a completely different set of circumstances in the future. Bingham recalls that when PC pioneer Michael Dell returned to lead his namesake company in 2007, he “continued doing the same old thing, even when it was no longer working.” The shares plunged, and he eventually took Dell Computer private.
Boeheim, the Syracuse coach, also resisted change, playing the same 2-3 zone defense for decades. He survived NCAA investigations of team infractions including academic misconduct and accepting free meals and clothes, though the probes led to postseason bans. But when you make $2 million a season and have been around since the Nixon administration, nobody can tell you what to do. It’s the same with hotshot CEOs, who get paid far more, and have large constituencies of boosters and pliant board members behind them.
“Change is hard, let’s face it,” says Paul Argenti, a professor at The Tuck School of Business at Dartmouth. “And these positions, which pay a lot of money, have cronies who are supporting them at all levels.”
–With assistance from Jeff Green.
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