Passing the baton: Who succeeds the icon?

The withdrawal of Bill Gates from his full-time role in the Microsoft empire he created raises the specific question of how — and even whether — an icon can be replaced. Gates' move also highlights the general question of how best to handle management succession. Opinions among experts at the W. P. Carey School of Business vary widely, and not everyone is sure that a company should even try to replace an icon. They agree, however, that a smart corporate culture ensures that progress survives management transitions.

The gradual, well-planned withdrawal of Bill Gates from his full-time role in the Microsoft empire he created raises the specific question of how — and even whether — an icon can be replaced. Gates' move highlights the general question of how best to handle management succession. Opinions among experts at the W. P. Carey School of Business vary widely, and not everyone is sure that a company should even try to replace an icon.

They agree, however, that a smart corporate culture ensures that progress survives management transitions. Gates, who co-founded Microsoft in 1975 with Paul Allen, was CEO and chairman until 2000, when Steve Ballmer took over the CEO role. Gates will shift to a part-time role at the company by July 2008, when he will remain chairman and technical adviser while working full time with the Bill and Melinda Gates Foundation, which promotes education and health care worldwide.

Replace an icon?

Can a corporation realistically expect to "replace" a genuine icon? "Absolutely, yes," says management Professor Angelo Kinicki, citing transitions at General Electric and Southwest Airlines. When GE's Reginald Jones retired as CEO in 1981, he was considered a legend, Kinicki says.

But his successor, Jack Welch, steered GE into new, prosperous waters and became a legend himself, only to be succeeded in 2001 by Jeff Immelt, who has won praise by leading GE through changing times with such skill that Fortune magazine in February named GE its most admired company for the sixth time in the past 10 years.

At Southwest, Kinicki notes, Herb Kelleher, co-founder, chairman, president, and CEO, created such a positive "Culture of Commitment" that the airline has not only made money for decades in a very tough business, but has continued to thrive since Kelleher stepped down in June 2001 from his day-to-day responsibilities as CEO.

He still serves on the board of directors. Colleen Barrett, a secretary at the law firm that helped Southwest Airlines form in 1971, became president and chief operating officer 30 years later, three months before the Sept. 11 attacks. In 2005, Southwest enjoyed its 33rd straight year of profitability. "They've gone on just fine because good leaders put in place good processes and systems that go on without them," Kinicki says of both companies.

"That's why someone else can come in and be successful. They come in and build off the success and good things that already are there. New leaders can change the culture but at Southwest, the new leaders have not changed the culture." Albert Cannella, professor of management and management chair at the W. P. Carey School, says icons often cannot be "replaced" in a strict sense of the word. "That doesn't mean it won't ever happen, but it is unrealistic," Cannella says.

"Everyone in the company has a vision or mindset regarding what the corporate leader — or perhaps an ideal corporate leader — is like, and the new leader will never be able to live up to that," Cannella says. "I think it is best when the new leader recognizes that, and doesn't try to take the old leader's place in all respects. Over time, the successor can, and often does, find his or her own identity and do just fine. Others crash and burn, though."

Depth on the bench

In organizations with cultures that encourage employee development, candidates capable of succeeding the departing leader are likely to be waiting in-house, or nearby. "Not in every case, but in a lot of these companies, leaders are involved in developing good staff and creating succession-planning processes," Kinicki says. "If they do that well, there are good people waiting in the wings."

A narcissistic, controlling leader leaves a void, and it is better when the leader builds a good team environment. Cannella says it is devastating for companies when leaders don't leave behind people who are capable of replacing them. "Often, there are not capable candidates waiting in the wings," Cannella says.

"There are several reasons for this. The most prominent is that the old leader couldn't stand any thought of competition in the leadership arena, and so never developed any capable successors. However, sometimes the departing leader has done a good job of developing management talent. Certainly in the Gates case, he turned over the reins to others quite some time ago. Many of these iconic leaders, though, can't stand to step down, a sure signal of someone who can't share authority and/or power with anyone else."

There also can be a process of "passing the baton" as a firm uses the titles of chairman, CEO and president as part of their succession plans, according to "Leadership Structure: Separating the CEO and Chairman of the Board," a 1997 study co-authored by Jeffery L. Coles, professor of finance at the W. P. Carey School.

According to Coles' study: "This process has the former CEO, who recently relinquished the CEO title to the heir apparent (passed the baton), retain the chairman title during a probationary period in order to allow the board to monitor the new CEO in action. The probationary period also provides an opportunity for the old CEO to pass on relevant information to the new CEO." Should the new CEO drop the baton, the groundwork is laid to oust him or her.

The baton process, the study says, has an added benefit: "The process also eases the transition from active duty to retirement for an aging CEO and thus makes it less likely that the CEO will attempt to hold on to his position too long." When the leader is an icon but also an autocrat, replacing him or her can be tricky, Cannella points out. "Lee Iacocca is an example here," Cannella says. "Widely hailed as Chrysler's savior after he engineered the bailout in 1978, he overstayed his welcome.

When he announced he would not be stepping down at age 65, his successor left the company. In the long term, Chrysler didn't survive as an independent public company. I'm not blaming Iacocca entirely for that, but he played a key role." Even when cultural values are encouraged to ensure development of in-house talent good executives sometimes are passed over.

Sometimes because those efforts are so strong, these high-potential leaders end up with other companies that may be short on leadership talent or that need to bring in outsiders with knowledge of areas into which the company wants to expand, Kinicki says. GE has been such a good "internal talent-building machine" that it has lost good people to other companies; meanwhile Immelt has reserved the option to hire outside talent for their special knowledge in areas into which GE has moved. "The key cultural value here, though, is respect for others and a genuine desire to develop the talents in others to the fullest," Cannella says.

He adds, however, that when the departing icon also founded the company, such respect may be lacking in that institution. "Again, this isn't common among founders, but it certainly does exist. When the founder cares more about developing others than he does about retaining his own authority and keeping his own status as a 'deity,' there will often be good talent available in the company, and it will be exercising itself and developing itself all along," Cannela says. "The founder's passing won't be such a big deal in cases like this. The Gates case is fairly representative of a leader who didn't let his ego run his life — or his company."

Bottom Line:

• Good leaders put in place good processes and systems that go on without them.
• A narcissistic, controlling leader leaves a void; it's better when the leader builds a good team environment.
• A leader may pass the baton to a new CEO, but retain the chairman title during a probationary period in order to allow the board to monitor the new CEO in action.
• The key cultural value is respect for others and a genuine desire to develop the talents in others to the fullest.