Public Companies Highlight Management Succession Issues

Private Companies Have Growing Issues

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Planning for management succession has been a recurring topic on this blog.  Three years ago, we wrote about succession at Berkshire Hathaway and Microsoft. In early 2014, Microsoft named a new CEO (Satya Nadella, a Microsoft insider).  Berkshire Hathaway now has a plan, but Mr. Buffet isn’t telling exactly what that plan is, although it does, apparently, involve transition of his roles to perhaps three insiders.

This week, the succession news at Disney (subscription required) (DIS) is that Robert Iger, chairman and CEO, will stay on for at least an additional year while the Company seeks a replacement.  His new contract runs through mid-2019.  However, the process of selecting a successor began at least in 2015, when an internal candidate was advanced.  This step was a misstep, and the internal candidate departed in April 2016:

Thomas O. Staggs, the favored contender to lead Disney after Robert A. Iger’s retirement, unexpectedly announced his departure on Monday, throwing succession at the world’s largest entertainment company into disarray.

Mr. Staggs, who became the Walt Disney Company’s No. 2 executive last year, beating out another candidate, will step down as chief operating officer on May 6. Disney said that Mr. Staggs, 55, would remain an employee until the fall, serving as “special adviser” to Mr. Iger, who is the company’s chief executive and chairman. In a statement, Mr. Iger called Mr. Staggs “a great friend and trusted colleague.”

Disney has a history of bumpy transitions of power…

The search at Disney is now focused on external candidates for succession to Mr. Iger.

Private Company Management Succession

The point of the introduction is to highlight the critical management succession issue for all companies, both public and private.  Succession is difficult in private companies for a number of reasons, including:

  • The current CEO simply does not want to step down.  This may be because he or she loves the job, because he or she does not have a clue what to do next, is afraid of the unknown, or for a variety of other reasons.
  • There has been no focus on grooming internal successors.
  • Dad (or Mom) doesn’t think that their kid(s) can measure up.
  • Of course, one of the main reasons that private company CEOs resist thinking about transitioning their positions is that they are planning to live forever (not!).

Many years ago, I valued what was then a somewhat tired, but nevertheless, successful business.  The CEO, call him Mr. Never-Let-Go, was well into his 80s when I visited him.  We first met at his home, where we talked about the business while he was attached to his oxygen machine.

After some time, we moved to his office at the business.  Or rather, his driver assisted him to his car and drove him to the office while I drove separately.  We got to the office and Mr. Never-Let-Go sat at his desk, which he did for two or three hours each work day.  During that time, he made every significant decision that was made at the company.

All of the key people in the office were in a bull-pen area, except for his son, who at the time was about 65 years old.  The son, who had the title of president, had an office of his own.  I spent a bit of time with him and his dissatisfaction at the current situation was apparent.

We valued the company according to our engagement letter and issued a final report.  I moved on to other engagements, and Mr. Never-Let-Go faded from my mind.  However, less than a year after I was there, Mr. Never-Let-Go’s son committed suicide, at least in part as result of his dissatisfaction with his life at work.

Within three months, I read of Mr. Never-Let-Go’s death.  Less than six months after his death, the company was sold in a public liquidation.  Any semblance of goodwill was gone.  It didn’t have to be that way…

Concluding Thoughts

Mr. Never-Let-Go was an extreme example of an owner hanging on beyond his useful time for himself or for his business.  However, he is a reminder to us all of the importance of timely management succession.

As baby boomers continue to age, the issue of succession will continue to rise in importance for their companies.

If you want to talk about succession at your business in complete confidence, feel free to give me a call.  I’m not a psychologist, nor am I a management succession expert, whatever that is.  However, I’ve seen a lot of businesses go through management transitions.  And I can provide important perspective for you or your clients.

Be well,

Chris

Reminder

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