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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Succession is serious business. One does not need to look to the sorry fiction of Waystar Royco to see that all too often, the crowning of a new chief means bitter infighting and the runners-up leaving for pastures greener with blood in their mouths.
Unseemly bust-ups do not just damage egos. A Harvard Business Review analysis from 2021 estimated that bad chief executive and C-suite successions wiped out $1tn in market value from the S&P 1500 a year. Chief executives and boards have as much duty to plan for the future as to grow companies in the present.
For starters, the issue of succession is not something that requires chief executives to be well bedded-in. James Gorman, Morgan Stanley’s outgoing chief executive, reportedly presented the board with a succession plan three weeks into what would be a nearly 14-year tenure. Ideally chief executives’ terms can be measured in years, but this cannot be taken for granted: HSBC’s John Flint made it 18 months before being ousted by the board.
The recent trend of chief executives imploding is another factor. NatWest’s former chief executive Alison Rose, who received her damehood at the start of the year, was gone before August after inaccurately briefing a BBC journalist on why Nigel Farage’s accounts were closed. Bernard Looney’s 32-year career at BP dried up in a matter of days after the board received details of new allegations about relationships with staff that he failed to disclose.
Keeping other candidates from departing is another vital part of the equation. The power struggle between Goldman Sachs’s David Solomon and Harvey Schwartz saw the one-time DJ win and his rival retire. Morgan Stanley had its own fair share of drama in the 2000s when John Mack left after a power struggle with Philip Purcell, only to return four years later to replace him. The bank appears to have learnt from that less than glorious history when it chose Ted Pick as chief executive: both of the other candidates, Andy Saperstein and Dan Simkowitz, have been remunerated with increased roles and millions in restricted stock.
The dangers of the rock star chief executive have been laid bare by Disney’s succession struggles. Bob Iger’s first 15 years at the House of Mouse involved five contract extensions, which some investors worry led to the departure of frustrated would-be successors. Iger returned to the driving seat to replace his handpicked candidate Bob Chapek in November 2022. With Iger’s contract extended until 2026 in July, finding the right suitor looks more important and more difficult than ever. Boards have to hold chief executives to account on succession planning if they want a happily ever after.
Even well-managed successions have lessons for improvement. Running an internal process can maintain continuity, but this is not necessarily beneficial in an era of uncertainty. Outsiders can provide much-needed perspective: Sergio Marchionne, who helped drive Fiat away from potential bankruptcy, was qualified as an accountant and lawyer; his external status allowed him to take the hard steps needed to turn the automaker around.
New technology might, one day, make all of these discussions redundant. Back in 2017, Alibaba co-founder Jack Ma predicted that in 30 years, an AI chief executive could grace the cover of Time. Unaffected by petty rivalries or physical decay, the robo-executive might only need upgrades rather than replacement. Some companies are already trying to make that happen: last August, Hong Kong-listed NetDragon Websoft made an “an AI-powered virtual humanoid robot” the chief executive of a subsidiary. But these are the exception, not the rule. Boards would be better off considering how to manage flesh and blood successors rather than hoping digital overlords are being dreamt up in computer labs.
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