The value of CEO succession at founder-led companies

The value of CEO succession at founder-led companies

Few founders stay with their companies for the duration. According to research conducted by Harvard business professor Noam Wasserman, 50% of founders lasted less than four years and fewer than 25% of founders led their companies’ initial public offerings. While CEOs like Bill Gates, Jeff Bezos, and Steve Jobs are justifiably lauded for leading the ventures they started to extraordinary levels of success, they are the exceptions to the rule.

Selecting a CEO to replace the founder of a company when the time comes presents special challenges. Entrepreneurs typically have a vision for a product or service that offers unique value to the marketplace and they are passionately committed to building a successful company. Moreover, entrepreneurs often bring a creative spark and powerful sense of purpose to the workplace every day, which inspires and motivates the employees. For both the founder and the Board of Directors, the decision to move on must be handled with finesse to avoid disrupting the organization and to ensure that needed changes are made.

It’s incumbent on the board to address the issue of CEO succession with founder at the outset of their relationship and to identify the circumstances when appointing a new CEO will be in the best interests of the company. By developing an effective partnership with the founder from the outset, the Board has the best chance of reaching an amicable agreement with the founder to ensure a smooth transition to a new CEO and possibly creating a new organizational role for the founder. Failure to broach the succession question early on may lead to misunderstandings with the founder when the Board determines a leadership change is necessary.

When the time comes to transition to a new CEO the Board should address the following issues:

-What role will the founder play in the transition to a new CEO and what role, if any, will the founder have in the organization moving forward?

-What elements of the organization need to be preserved and what elements need to change in order to grow the organization?

-What skill sets and experiences will be required of the new CEO?

-How can the transition to a new CEO be managed to minimize organizational disruption and ensure the retention of key employees?

While the founder to CEO transition is rarely a seamless process, there are success stories:

-Estee Lauder appointed Fabrizio Freda as CEO, replacing William Lauder, a member of the founding family, who remained with the company as executive chairman. The two executives have worked together extremely well for several years, producing a more than 600% increase in the company’s stock price.

-TOMS Shoes founder Blake Mycoskie voluntarily stepped down as CEO and he and the board agreed to appoint Jim Alling as the new CEO, Mycoskie acknowledged that running a large company was not his strength. He stayed with TOMS as “chief shoe giver,” and is largely involved in advancing the company’s social mission.

-eBay founder Pierre Omidyar stepped aside completely and devoted himself to philanthropic interests when Meg Whitman was brought in as CEO in 1998. Under Whitman’s leadership, eBay grew at a very rapid pace for the next several years.

Each founder to CEO transition is different. Understanding the complexity of the situation and managing the transition thoughtfully is critical for an organization to evolve from start-up to a viable and sustainable organization.