The question of whether a departing CEO should be involved in identifying his or her successor has been duly explored in this magazine, with the overwhelming verdict being that a veteran CEO's institutional knowledge and familiarity with the job can be incredibly useful, as long as they are able to keep their ego in check when considering the best person for the job.
However, in a vacuum, this scenario assumes that the CEO will help place a successful new leader into the vaunted corner office and then they will ride off into the sunset to enjoy a well-earned retirement, although one possibly filled with board appointments that help not only fill the time, but aid companies in achieving their most optimal performance. But what of the company whose lead chair the departing CEO is vacating? Should an immediate past CEO take a seat on the board of the company whose reins they are supposed to be releasing? According to Betsy Atkins, chairman of the Google Cloud advisory board and director of Gopuff, Wynn Las Vegas and Volvo Car Group, a decision in the affirmative is a recipe for not quite disaster, but certainly less than ideal practices.
“I do not believe it is a best practice for the departing public company CEO to remain on the board once their tenure is completed,” says Atkins, who is CEO of Bajacorp. “When the former CEO remains, it confuses the organization because they are not clear on who is really in charge.”
Atkins notes that boards will often strike a compromise with the departing CEO by establishing a one-year transition period where the former top dog will have a seat among the directors. But this is a solution that Atkins still advises against, saying “I think this is often still a challenging situation for the new CEO to establish their own leadership style, voice and rest of the culture for the company's next phase.”
Tom Petro, director and chair of the risk management and trust committees of Univest and former president and CEO of Fox Chase Bank, believes that the answer to whether a departing CEO should remain on the company board is “generally no,” but he does see reasons for exceptions.
“There are well-founded exceptions such as industries with complex regulatory requirements like banking, utilities and health care, where the departing CEO's deep institutional knowledge and experience can be invaluable to the company and new leader,” says Petro, who also serves on the boards of Fintegra, Derstine's Inc. and USA Nordic Sport and is managing general partner of 1867 Capital Partners. “In special circumstances, such as a company or industry undergoing rapid transformation, the departing CEO's understanding of past strategies and history can provide valuable continuity during periods of rapid change.”
But about that “generally no?”
Says Petro, “There are a host of compelling arguments why the departing CEO should step off the board. For one, a complete departure allows the new CEO autonomy and complete ownership of company decisions. A clean break allows the incoming CEO to fully assume their leadership role without any perceived interference or shadow from their predecessor. The departing CEO's continuing presence and vested interests in past strategies can hinder and impede innovation or exploration of alternate strategies and approaches.” He also believes that the departing CEO's ties to the management team can drastically impede the ongoing independence of the board.
Andre Bouchard, a partner with Paul Weiss Rifkind Wharton & Garrison LLP, former chancellor of the Delaware Court of Chancery and a member of the Directors & Boards Editorial Advisory Board, believes the decision depends on the circumstances of the incoming CEO. In the case of a successor being brought in from outside of the company, he sees value in keeping a seat for the departing CEO for a “reasonable period of time.” However, he sees less need for the buffer time if the incoming CEO is an internal promotion.
“If proper succession planning has been in place, there already should have been a keen understanding of the company's culture, strategy, personnel and operations.”
However, he stresses that in either scenario “the state of the company and the personality, ambitions and other characteristics of both the departing and incoming CEOs have to be taken into account in determining whether the relationship between the two is likely to be productive or not.”
The CEO Safety Net
Clearly, Atkins is not a proponent of keeping the departing CEO on the board after their tenure has concluded, but she does recognize that there are benefits that lead companies to making that decision. She sees the main advantage of keeping a departing CEO on the board to be their status as a sort of CEO safety net. For instance, while many believe that Bob Iger's continuing presence on the board of The Walt Disney Company served as a deterrence to the success of his successor, Bob Chapek, Atkins can see why Iger's availability on the board was appealing to the company, with Iger ready to “parachute back in to take over company leadership” in the case of corporate missteps.
Aside from the expected mentoring of the new CEO, Atkins also believes that the departing CEO's role on the board can be to assume some of the time-consuming tasks of “managing the board.”
“Freeing the CEO from keeping all the directors informed, aligned, engaged and contributing is something the new CEO can ostensibly offload,” says Atkins.
To Bouchard, the departing CEO's presence on the board not only can be for the new CEO's benefit, but can console many of the company's stakeholders.
“Assuming the company is performing well, two key benefits of keeping a departing CEO on the board are creating a sense of continuity for shareholders, the public markets and employees of the company and to serve as a uniquely valuable resource to the new CEO on how things actually get done at the company, which is particularly valuable for an external candidate.”
The Stifling of Identity
As Petro points out, however, while there are benefits to keeping a departing CEO on the board, one of the major disadvantages of that strategy is how it prevents the new CEO from establishing their own leadership style and vision for the company.
“The departing CEO's deep knowledge of the company and industry creates information asymmetry between them and other independent directors and can lead them to become overly reliant on the departing CEO's viewpoints, potentially limiting alternative viewpoints while introducing potential blind spots in the decision-making process.” To Petro, this difficulty becomes especially evident at times where a strategy pivot becomes necessary.
“Companies and boards need to be all in to navigate a pivot successfully. The presence of the departing CEO, with deep emotional connection to the legacy, makes it very hard to put the muscle and force needed into executing the change of direction.”
Atkins agrees, noting that it is very easy for a new CEO to be overshadowed by their predecessor's often larger-than-life persona.
“The former CEO would have created many of the unwritten elements of the company's culture in alignment with their unique personality, strengths, preferences and style.” She cites the example of an extroverted, external-facing CEO who is followed by a more understated internal operations-oriented CEO, saying the latter's “growth in the role is the CEO and their ability to use their unique attributes to evolve the company may be stunted.”
The Rules of Engagement
If a departing CEO is going to retain a spot on the board, Atkins believes they must proactively consider the duties where they will be involved as well as the ones they will avoid. Will the departing CEO continue to actively travel and conduct meetings on behalf of the company? Will they continue to represent the company at external, high-visibility events? These questions have to be considered, and often the best way to do this is to have open, transparent discussions with the successor, the board and the company. According to Atkins, “Some better understood separation of duties tend to be to focus the former CEO on more board governance-oriented topics.”
As part of his service on a bank board, Petro has seen the dynamic of former CEO/new CEO cooperation work swimmingly. Perhaps this is because the practice of the former CEO remaining on as board chair is one “with roots that span a century.” But it may also be because the departing CEO respected clear boundaries, showed strong public and private support of his successor, agreed to limited involvement in decision-making unless help was strictly requested and displayed a willingness to support the CEO's direction and strategies even when it runs counter to the chair's instincts.
“The key is to focus on policy and strategy and avoid getting into the execution details. Walking that fine line is a delicate balancing act and success rests squarely on the departing CEO's actions and behaviors.”
As it relates to those behaviors, regardless of the age of the departing CEO, Bouchard believes their approach should be that of an elder statesman, “meaning someone who does not hover over or behave in a way that would compromise the authority of the new CEO implicitly or explicitly, and who can add historical perspective and insights on occasion to serve as a diplomatic voice of reassurance or caution, as suits the situation.”
Boundaries, Boundaries, Boundaries
So, ultimately, what does it take for a new CEO and a departing CEO remaining on the board to get along? Well, the same thing it takes for two bordering countries to get along: respecting of boundaries. Atkins believes this can only result from a transparent (and continuous) dialogue on the boundaries of the respective positions.
“It is simply a predictable human condition that people have a hard time giving up power. Most former CEOs have not figured out the structure for their life for them to continue to be relevant, high-impact, growing and situated, and, as a consequence, the new CEO, the board and the corporation inevitably suffer through some of the challenging parts of the transition,” says Atkins. “And in my observation, the new CEO tends to swallow a lot of frustration and spends a disproportionate amount of time and psychic energy dealing with the emotional frustrations of a once-beloved boss who is missing their cues to get off the stage.”
“It is up to the board to actively ensure that they are looking for the signals, which will be under the surface, of frustration. The board needs to have a clear conviction on who is the leader and support that person. They can't be fuzzy.”
Petro agrees that the boundaries of the two positions must be negotiated and frequently revisited to ensure they are being honored, and he stresses that, while it is the departing CEO's responsibility to handle his or her power to shape impressions of the new CEO with grace and wisdom, the new CEO can also play a key role in establishing a fruitful working relationship going forward.
“[The incoming leader] should be proactive in seeking guidance, open to communication, but also confident in asserting their own vision and leadership style.”
A Holy Demeanor?
While it can be agreed that the dynamic between a new CEO and a departing CEO remaining on the board can be challenging to manage, it is also not impossible to navigate. As for the traits necessary to thrive in such a relationship, Bouchard, while acknowledging that it is tough to find a successful leader without a strong ego, believes the departing CEO should possess a sense of humility. Meanwhile, he states that the ideal new CEO in this circumstance would have substantial leadership skills and self-confidence, but without the arrogance that can cripple such a relationship.
As for Petro, he believes that to engage in the pas de deux that is the new CEO/former CEO dichotomy, both individuals should be blessed with high emotional intelligence, humility, patience, self-restraint, openness and adaptability.
Of course, as he acknowledges, “These are the personality traits of a saint.”