Few CEOs have a strategy for stepping down - to the detriment of the companies they leave behind

Hapless successors are often left to pick up the pieces of a disaster left by the outgoing CEO, argues Baroness Kingsmill.

by Denise Kingsmill
Last Updated: 05 Apr 2016

'Always leave 'em wanting more,' said my Australian girlfriend as she waved from the departure lounge on her way back to Sydney, leaving behind several adoring boyfriends who undoubtedly will go to their graves thinking she was the love of their lives.

On reflection, I think that this showbiz quote could be the mantra of all CEOs managing their exit from the companies they lead. The only problem is very few of them even begin to contemplate their own departure until it's too late to manage anything but their severance deal.

Far too frequently, events dictate their exodus, taking them and their boards by surprise. But some time it perfectly, bowing out in a blaze of glory for past achievements, leaving their hapless successor to pick up the pieces of the disaster that they may even have created but have neatly avoided by making a strategic exit.

CEOs are likely to be the first to perceive the warning signs of an impending crisis. They may try to distance themselves from the failure in order to preserve their reputation rather than stick it out. CEOs who depart within two years before a crisis or failure are less likely to suffer damage to their career than CEOs who stay.

Resigning enables them to appear as if they were not responsible for it. Terry Leahy, having stubbornly held on to the failing US chain Fresh & Easy, left it to Phil Clarke to close it down and endure the headlines.

Leahy retired from Tesco in 2011 with a pension pot worth £15m and £31m in shares. Analysts talked of a clean succession, but later it became apparent that Clarke had inherited a company in disarray. Leahy's business expansion into the US collapsed when Fresh & Easy filed for bankruptcy in October 2013, costing Tesco £150m.

Influential or 'superstar CEOs' cast a long shadow that can make it much tougher for successors. Leaders such as Steve Jobs or Alex Ferguson become so closely associated with their organisations that it is hard to imagine the future without them. They may also wish to stay for as long as possible, making effective succession planning difficult. Some leaders seem to choose doomed successors, loyal number twos who sink when promoted, or inexperienced leaders anointed by the outgoing chief only to fail ignominiously when compared with the great departed - David Moyes, anyone?

Ferguson had known he would retire since December 2012, although two weeks before the announcement he speculated that he could stay for another two years. After the announcement, shares in Manchester United fell by 4.5%. The club is now worth $98m less than before Ferguson's departure. When Jobs' long-anticipated departure because of ill health took place and his successor, the low-key Tim Cook, took over, the energy seemed to go out of Apple. There have been few breakthrough products because incrementalism has replaced Jobs' radical innovation.

At the end of last year, Steve Ballmer left Microsoft after 13 years at the top. His departure has become a business-school case of how not to do it. Worth around half as much as when he took over, the once mighty Microsoft faces increasing competition from rivals. Ballmer halted innovations that could have taken it into the mobile era, preferring to maximise profits from its dominance in PC operating systems, allowing the likes of Google and Apple to push past.

Many talented people who challenged this strategy left and the pool of potential successors was diminished. CEOs who do not handle challenge well, who see off internal rivals and stay too long, leave a legacy of risk aversion and short-term thinking. The company is then forced to look outside, with all the risk that could entail.

Succession planning is accepted by most global corporates as vital to performance. But only 35% report being prepared for an unexpected departure and have a succession strategy in place. It is often a difficult issue for boards to address with powerful and successful CEOs, but it is essential to do so. A strategy should include identifying two or three people capable of taking over, regularly reviewing the challenges facing the company and planning what to do in an emergency succession.

Generally, the market reacts negatively to CEO departures, especially if they seem unplanned. It can take time for a company to recover, particularly when the reason is not disclosed and a successor has not been identified. When leaders leave it is unsettling for the organisation, but the worst effects can be mitigated by planning and good communication.

Let's see how Justin King's long-trumpeted departure from Sainsbury's works out. So far, he has not addressed the dual challenges of the discounters and the internet, he has damned his successor with faint praise, as a 'mini-me' - 'he's been on the same journey as me for nine years' - and has failed to be clear about why he's leaving and what he is going to do. Classic mistakes.

Baroness Kingsmill is a non-executive director of various British, European and US boards. She can be contacted on editorial@managementtoday.com.

Follow her on Twitter: @denisekingsmill.

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