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Leadership
Do you know when to quit?
It’s hard to say goodbye. Michael Watkins, Professor of Leadership and Organizational Change at IMD, explains why too many chief executives hang on and how to manage a smooth transition.
Leaders like Netflix’s former chief executive Reed Hastings or New Zealand’s former prime minister Jacinda Ardern are rare. They knew when it was time to hang up their hats. Both stepped down voluntarily in January 2023.
There is certainly an element of truth to the cartoon image of an aged founder of a company in a wheelchair mounted with an oxygen cylinder. Far too many chief executives hang on long past the time when they should have retired. The same is true of politicians, with U.S. President Joe Biden being a classic example. Concerns about Biden’s age and memory have become major issues in the 2024 Presidential campaign and could even contribute to a Donald Trump victory in November.
The reasons why this can be damaging to organizations (and nations) are well known. There is a recognized degradation of cognition and vitality as you get older, certainly as you pass the age of 75, from a strategic point of view, it is not a good idea to have the same leader in place for a long time, and it can be demotivating for potential successors to have a chief executive who hangs on forever.
Some organizations get around this with the equivalent of term limits. This does force a reckoning and provides a framework within which a retirement transition happens.
Antoine de Saint-Affrique, chief executive of French food products corporation Danone, told IMD President Jean-François Manzoni last year that when he became CEO of Barry Callebaut he informed the board he would stay in the position for a maximum of seven years. This was to avoid becoming stale and to create room for budding talents to emerge and thrive within the organization.
Others have a tried and tested system for succession. Historically, for example, US pharmaceutical and medical technologies corporation Johnson & Johnson and retail chain Costco have done good jobs. The transition in both companies has been carefully managed and flagged both internally and externally.
But for organizations that don’t have a process in place, it is crucial to understand why it is that chief executives are loath to retire.
Chief executives are often compared to athletes at the top of their game
The very same driven and tenacious personality traits that make them great leaders are the same ones that make it hard for them to realize when they need to quit.
There is a significant difference between cognitive readiness to leave and emotional readiness to leave
It is comparatively easy for a chief executive to say that they are going to go, but then as the reality of leaving is confronted, the emotional turmoil of departure rises.
Retiring is a step on the road to death
The recognition that retirement commonly marks the beginning of the final phase of one’s life brings up many existential questions for chief executives which are difficult to process.
The difficulty of the “now what?” question
Chief executives often struggle with what it is that they want to do next, with something that gives their life some meaning. Do they want to teach? Should they continue to make their presence felt on boards? Do they have plans to write? Having a destination after retirement is crucial otherwise it delays the process of retirement itself.
As a chief executive, you are essentially being waited on hand and foot
There is generally a whole team dedicated to making sure you are looked after, that brings you coffee when you want it, and takes care of your needs. Even though you might still have an assistant when you retire, that deep support network evaporates.
If you’re a chief executive, typically you’ve been totally devoted to that job for many years
This means that the other people in your life have generally gone on to do other things and construct lives of their own. There is often a dawning realization that they are not necessarily happy to have you back home again.
“From a strategic point of view, it is not a good idea to have the same leader in place for a long time.”
Acknowledging and understanding the reason for the reluctance to resign, it is still possible for an organization to transition from one chief executive to another with everyone’s dignity intact, while still assured of the leadership that it needs.
1
Ideally two years before retirement, the board should have a strong view of who the top two or three candidates are to succeed the chief executive to give the organization time to test and polish them to see who the best fit is. It is being embraced now in the world of banking – better known for its bloody coups. In May 2023, Morgan Stanley chief executive James Gorman anointed head of investment banking Ted Pick as his successor eight months before he stepped down on 1 January 2024, and at the end of November that year, Swiss bank UBS said that it was planning to draw up a shortlist to succeed chief executive Sergio Ermotti within the next few years.
2
It’s not good for a company to have an outgoing chief executive running everything from board meetings and leadership team meetings to making analyst calls until the bitter end. It is far better to negotiate and establish milestones for a progressive transition of power. The classic playbook for this is the way that Jeff Immelt succeeded Jack Welch at General Electric. Welch began to delegate more and more responsibility to Immelt in the years leading up to his retirement. The new chief executive also needs to be ready and have a sense of their own destination. With a couple of months to go, the new chief executive should be running the board and running the leadership meetings. The board needs to create a framework to help the process.
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It makes sense for an organization to pay as much attention to the outgoing chief executive’s legacy and celebration of their accomplishments as it does to the incoming leader’s transition. When Andy Grove, the co-founder of Intel, retired in 1998, the computer chip manufacturer celebrated with a week of events leading up to a goodbye party. If there is an appropriate recognition of their accomplishments, it helps the former chief executive make the transition more easily.
Although many chief executives hesitate to retire, to ensure a smooth leadership transition boards should recognize the challenges they face – from emotional readiness to the “now what?” question. By proactively managing the process, organizations can honor the legacy of their departing leaders while paving the way for a successful new chapter under a new leader.
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