This is an issue we don't often deal with on MNB, but stories last week that referenced the return of Bob Iger as the Disney CEO - much like Howard Schultz returned as Starbucks' CEO - raised some questions in the mind of MNB reader Mike Bach about accountability and succession:
You often indicate you want to hear what’s on our mind. Please accept this musing in that spirit.
By Monday, we’ll all be wondering about the Holiday weekend sale and what it says about consumer spending, retailer inventories and possible discounts retailers will need to add in order to achieve 4Q results. All good topics which your community will look to MNB for reporting and guidance. And, certainly more important to most of your readers than the succession topic. I get that.
What’s on my mind relates to failures by Board of Directors on Succession Planning at some pretty iconic brands. Because I mentor companies (both CEO’s and Board Chairs) on this topic, it's more than a passing interest. The most recent example is Disney. Anyone following the storyline is aware how quickly the Board replaced Chapek by returning Iger to the role. My sense is that Board Chair Arnold perceptively recognized that questions would be asked about succession and they did gave minimal air cover to this topic by indicating that Iger has as his to-do to ensure a successor is in place during his second CEO tenure.
But, that doesn’t address why this had to occur in the first place. Chapek was Iger’s nominated successor. The Board approved the recommendation. And, Chapek failed. Failed early and often, it seems. Excuses will be written around the storyline that he encountered issues that couldn’t be foreseen. That said, character matters. The stripes on a zebra don’t change very quickly.
And, this isn’t a one-off story. CEO roles are some of the shortest tenure executive roles today. Not for Igor, though, having spent a decade and a half at the helm.
Not that long ago, P&G promoted Bob McDonald to replace AG Lafley as CEO. For those of us old enough to remember, AG executed a wonderful, wide-reaching marketing campaign touting his role in mentoring McDonald as his successor. The P&G Board of Directors approved that recommendation. McDonald served in the role for 4 years, but when McDonald failed, the Board asked AG to step back in as CEO. In fairness, it seems that Lafley got his succession right the second time. P&G is a company that is iconic in promotion from within.
In my mind, several questions emerge that provide a good learning environment for Boards everywhere to not be embarrassed in making a similar mistake:
• What were the characteristics on which the successor failed and how are those learnings being incorporated into CEO Succession Plans?
• How are possible CEO successors being road tested during their mentorship period?
• What role is the Board (and more specifically the Nominating Committee) playing in “double checking” the CEO’s report-outs on possible CEO successors?
Boards play in a precarious place, one which is often labelled as “eyes in, fingers out”. CEO’s often get testy when they feel Boards meddle in operational matters. However, when Board of Directors are being paid at or above $100,000 annually for meetings and subcommittee meeting leadership and attendance, it's fair to say that more due diligence should be expected of them on CEO leadership. It is one of the most important tasks Boards own.
Based on the information in the press, it feels to me that Chairwoman Arnold leads a Board that has failed on its obligation to Disney shareholders. But, it takes an interesting reader to come to this conclusion because the press, and it seems the institutional investor shareholders, aren’t asking questions that can keep Boards focused on a key outcome expected of them.
I have a few thoughts about this, though I should point out for transparency's sake that I've never been a board member … it actually is something I would've liked to have done in my career, in the right role for the right company.
My reading about the Disney situation hasn't been exhaustive, but I have read quite a bit, and it seems to me that there is general agreement that Iger failed in his choice of successor; I think your point, that the board should've done more due diligence and should take more responsibility, is a fair one.
I also think there are different kinds of board members; I'm sure there are some out there who, while they don't get involved in operations, spend a lot of time getting a granular feel for the company so they can ask good, informed questions in every situation.
There is a new book out by William D. Cohan entitled, “Power Failure: The Rise and Fall of an American Icon," about GE and Jack Welch. I haven't read it yet, but an excerpt in the New York Times is relevant to our discussion:
"Jack Welch, one of the most celebrated corporate chieftains of his time, spent the last few years of his life profoundly regretting what he believed was the most important decision of his career: his choice of successor.
"This angry admission came flying at me before I could even sit down to join Mr. Welch, who was the chairman and C.E.O. of General Electric from 1981 to 2001, for lunch at a Nantucket golf club in August 2018. For all of his much-celebrated prowess, he believed he had made what may be one of the most common management mistakes around: falling for a candidate’s charm and political skills rather than choosing the person who was likeliest to do the best job. Choosing the wrong C.E.O. was a theme Mr. Welch returned to often during our many conversations before his death in March 2020, at 84.
"He felt responsible. He felt guilty. He wanted me to know that he made a major mistake."
It also is important to understand that there are different kinds of scenarios that lead to succession issues. Take Apple, where the board actually threw one of the greatest - and most successful corporate Hail Mary passes in history when it brought back Steve Jobs more than a decade after he was forced out in favor of John Sculley, who was unable to transfer his success in selling soft drinks to the personal computer business.
I also think that it is important to remember - painful as it may be - that boards are made up of human beings, in these cases hiring/promoting other human beings to run companies made up of other human beings. And circumstances do change - in Disney's case, it is a company where much of its revenue is generated from businesses that bring people together, and an unexpected pandemic hit it hard.
For me, I'd argue that in the current climate, it is critical to have a CEO who has an strong EQ as well as IQ, who is capable of creating s culture of caring within the organization that will help people get through hard times as well as celebrate the good times. Chapek did not seem like that guy, but maybe Disney felt that it needed someone who would be completely different from the charismatic, EQ/IQ-rich Iger. (I suspect the board will not make that mistake again.). I also think that they went with an operations guy who did not appreciate the fact that creative people require a different sort of leadership than other people - this became a liability as Chapek was tone-deaf in. a number of his decisions.
In the end, I think your points are valid, and worthy of thought in any organization where succession is an issue.Which is to say, pretty much any organization.