Hope 2007 is off to a great start for everyone!
In the near term, I will be posting the results of analyses that my co-author (Matt Marx) and I have done of the factors affecting the stability of founding teams. Before then, I have 2 items to post that are related to past topics covered in this blog. This one is related to founder-CEO succession, and the next one will be related to boards of directors. (For past postings and relevant papers/cases on each of these topics, see the “Topics Covered in This Blog (So Far)” post below.)
Regarding founder-CEO succession, I did an interview with a reporter named Tam Harbert and thought that the questions she was asking covered the territory nicely. Below are her questions (in bold) and my responses. (Feel free to critique it or to add your own opinions, insights, and experiences by posting comments about it. If you have other questions that you wish she would have asked, go ahead and post those, too!)
Q: What are the unique issues facing a company whose founder and high-profile CEO is leaving, or at least stepping down from the CEO role?
There are unique issues from both the company’s perspective and from the founder’s perspective. To give you one from each: from the company’s perspective, the biggest issue is often the founder’s centrality to the company. Founders, who have been the heart and soul of the company since the beginning, and have often hired most of the key people, are often much more “central” to the company than are CEOs who arrived post-founding. From the founder’s perspective, founders are usually much more “attached” to their companies than are non-founders, so the disengagement process is often much more jarring for them than for non-founder CEOs.
Q: How should a company time this succession? Wait for the company to be doing exceedingly well? Or, on the other hand, wait for some type of industry transition, or rocky performance by the company, to make the change?
This is part of the reason why my paper on founder-CEO succession is titled “The Paradox of Entrepreneurial Success.” Changing CEOs is always a disruptive process to some extent, but can be particularly disruptive when it’s the founder-CEO who is being replaced. Ideally, the disruption would be minimized by having the change take place when the company is performing well. (Incoming CEOs usually find it easier to transition into such a situation.) However, when things are going well (and fast growth/success is often what causes the need for a change), it can also be much harder for the founder to believe that a CEO change is needed – “hey, I thought I was doing well as CEO!” – and will thus be less inclined to buy-in to such a change.
Q: Is there a particular type of manager that’s best to bring in after the founder? (Should that person have a similar management style, or be completely different?)
A key issue here is that the new CEO is usually being brought in to do things that the founder would not have been able to do. For instance, once the company has finished developing its product – a task which technology-strong founders are often ideally suited to lead – the critical tasks shift to selling the product, a dramatic change that can spark the need for a new CEO who can do that. To the extent that management style is linked to those changes (or that the board actually wants a new-style CEO), the new CEO’s style will often be different. Some of my current research is focusing on “bridge CEOs” – people whose skills fill a gap between what founders can do and what a more permanent CEO will be able to do, and who (from playing the “bridge” role multiple times) gain experience with the particular challenges involved in replacing founders. To the extent that a new style is needed, but that the incoming or bridge CEO has experience dealing with that situation, they’ll probably have a better shot at succeeding.
Q: Can you give me an example of a high-tech company that’s done or is doing a good job at making this transition? And an example of one that is not?
A tech company on which I wrote a case that we teach, and which seems to have made a relatively smooth transition, is Wily Technology. At wily, after having some time to come to terms with the fact that he was being replaced, founder-CEO Lew Cirne was able to make a transition from being a pretty central CEO to carving out a less central but still important “CTO” role for himself after Richard Williams took over as CEO. A key part of that transition was Lew’s being able to craft a solid working relationship with Mr. Williams, which often doesn’t happen as nicely. (FYI: If you want to see them, Lew actually posted to my research blog some of his thoughts on the transition.)
The case that we teach the class after “Wily” might serve as an example of a tech company where the transition didn’t go well. At Precise Software, the founder and the new CEO did not craft a solid working relationship, and the transition did not go well.
In another industry, you could also look at Nike’s recent troubles at the top, where the person Phil Knight hired to replace himself was gone a year later.
Q: At some companies, the founding CEO has not left but rather been named something called “executive chairman.” (This is the case with Carol Bartz at AutoCAD and Bob Swanson at Linear Technology.) Is this a good move? What role should the exec. chairman play and how does a company do this without having the old founder interfere with the CEO?
This is a big difference from large companies that change (non-founder) CEOs, where those CEOs almost always disappear by the time the new CEO arrives.
It is also a very founder-specific issue. Some founders, who may not really have bought in to the need for a change in CEOs, may not be happy with being “sidelined.” For them, being “demoted to chairman” or made the “symbolic CTO” doesn’t sit well, and they are either unhappy-but-staying (not a good situation if they become a disruptive influence) or may decide to leave soon after anyway. To the extent that the founder is happy with the new position – as Lew Cirne seems to have become – finding such a position for the founder enables the founder to stay within the company and to keep contributing to it, thus benefiting both the company and the founder. There can be huge benefits if the founder stays, but if the founder is unhappy with the change, many boards – and incoming CEOs – might conclude that those benefits would be swamped by the costs of having the founder turn into a disruptive force within the company.