Tim Cook CEO Apple

Apple CEO Tim Cook addresses employees during a celebration of Steve Jobs' life.

Leadership & Strategy: Life after Steve Jobs: CEO Succession

Replacing a CEO is more than hiring a new executive; it's about choosing a new face for the company.

Steve Jobs was Apple.

His name was, is, as synonymous with the brand as the tech giant's signature products: the iPhone, iPad and iPod.

When Jobs, faced with declining health, resigned in August 2011 as CEO, the company moved swiftly, immediately naming then-COO Tim Cook to the top position.

At the time, Jobs recommended that the board move ahead with its succession plan, which called for Cook as CEO.

While there has been criticism that Apple isn't as inspired as it was with Jobs at the helm, the numbers paint a different story. The company's annual revenue has increased by 58%, while its profits have grown 40%.

Cook, while not the celebrated visionary Jobs was, has successfully led the company for the past 2-½ years, spearheading new product launches and improving the bottom line.

Most importantly, he has led in a time when the world's doubt was turned on Apple. Could the company survive without Jobs? Would its innovation pipeline run dry?

Apple understood how deeply integrated Jobs' name, his persona, was into the public perception of the company. And its board prepared so it could act swiftly when the day came that Jobs would no longer be in the driver's seat, so it could stave off the questioning and present a unified, strong front to its fans and critics.

But not all companies are as ready.

The Seven Myths

Only about 54% of companies have a successor-in-waiting, and about 34% estimate it will take 90 days to name a successor, according to David Larcker and Brian Tayan of the Corporate Governance Research Initiative at the Stanford Graduate School of Business and Stephen Miles of The Miles Group, an executive consulting firm. They are the authors of "Seven Myths of CEO Succession."

1. Companies know who the next CEO will be.
In fact, nearly 40% of companies don't have an internal candidate prepared to step in as CEO, Larcker says.
"The longer the succession period from one CEO to the next, the worse the company will perform relative to its peers," says Larcker.


2.There is one best model for succession.
The company's position determines whether an internal or external candidate would be the right fit, Miles says.

"A company may need an external recruit to lead a turnaround, for instance, or may have the capability to groom multiple internal executives over a period of time to allow the most promising one to shine through. One size does not fit all," he says.


3.The CEO should pick a successor.
Larcker says boards need to focus on the future direction of the company when choosing a new CEO and not simply choose the departing CEO's favorite.


4. Succession is primarily a risk management issue.
"Succession planning is as much success-oriented as it is risk-oriented," says Miles, arguing that the priority is to build shareholder value.


5. Boards know how to evaluate CEO talent.
CEO performance evaluations often place more weight on financial performance than nonfinancial metrics, which can be equally important to the long-term success of organizations, Larcker said.


6. Boards prefer internal candidates.
While about 75% of new CEOs are internal candidates, external candidates often hold a strong allure.

"There is a still-prevalent bias against promoting the insider junior executive to the top spot one day," Miles says. "So, while the myth may end up mostly true in the end, there is often a long journey of getting the board to that decision."


7. Boards want a female or minority CEO.
While boards often claim to want diversity to be a major factor in a successor decision, female and ethnic minorities still make up a small percentage of actual CEOs, Larcker says.

For more tips on CEO succession, visit iw.com/ceo-succession.


"We continue to see that boards select CEOs with leadership styles they perceive to be similar to their own, and the fact is that boards today are still highly non-diverse when it comes to gender and ethnic backgrounds."
 

 

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