Booz & Company has been tracking CEO succession for over a decade, and there are some clear lessons from their studies. Their latest report says,
In 2012, 15 percent of CEOs left office, up from 14.2 percent in 2011. This is the second-highest rate of CEO successions in the history of our study. The new leaders who came into the office were, for the most part, familiar faces: companies promoted people from within 71 percent of the time; a quarter of incoming CEOs had worked at the same company for their entire career; 81 percent of new CEOs had the same nationality as the company’s headquarters; and 95 percent were men.
Succession planning is complicated process. The CEOs’ role is the most complex job in the organisation. So organisations need to start finding a successor to any top job as soon as the new incumbent starts. Interestingly, nearly 80% of CEOs of S&P; 500 companies have been ousted before retirement.
Many large corporations are caught unawares about finding a successor to the top job. Consider the statistics: 43% of publicly traded companies don’t have a formal succession plan. 61% don’t have a CEO replacement plan. 61% have no internal candidate development planning.
Procter & Gamble had to recall Lafley from retirement to steer the company till a new CEO was found. And P&G; is known for its planned approach to succession.
Last week, Microsoft CEO Steve Ballmer announced that he would retire in 2014, and successor is in sight. Businessweek reacted by writing, “Microsoft CEO Steve Ballmer to Retire. What Happens Next Won’t Be Pretty”. I agree.
There is no defined successor to Ballmer, only speculation. Several lists of possible candidates are floating around. Bill Gates is part of the succession planning committee. Gates left in 2000 to focus on philanthropy. The possibility of his return to Microsoft as CEO is a non starter.
Ballmer had said for years that he would retire by 2017. With his thirteen year stint at the helm, the company had plenty of time to identify and groom a replacement. Being unprepared is not an acceptable stance.
It won’t be an easy job to take. Apart from Xbox, Microsoft has never really marketed an idea to consumers. (See http://www.youtube.com/watch?v=G9HfdSp2E2A)
Ballmer’s successor will have the tall task of reinventing Microsoft. The new CEO will however need to reassure the 100,000 employees that it is doable. The toughest bit will be to build a culture that tunes the leaders in to the employees and teached them how to listen to consumers.
The second task will be harder. After all, Windows was built without any user input. It just came preinstalled without a choice. Then Office became ubiquitous in every organisation. When Microsoft missed the mobile revolution, the company went into denial instead of joining the revolution.
You could accuse Steve Jobs too of ignoring customers when he had said, “A lot of times, people don’t know what they want until you show it to them.” That approach works when the product is beyond the customer’s imagination, such as game changing concepts like the Mac, iPhone, iPad or iTunes. For others, the customer’s opinion can’t be ignored.
Success and market share cause deafness the most in organisations. The same Microsoft must now to go to the customer as the new CEO charts out a fresh path. By making it clear that Tim Cook would succeed Jobs, Apple ensured smooth succession.
This would be one lesson Microsoft could learn from Apple.
(Originally published here.)