Taking Over at the Wheel

Appointment of new CEOs has now become a non-event

Published: Jun 5, 2009

When an era of change is ushered in any organisation, a massive fanfare usually follows. But not anymore. Transitions are smooth and the employees pass it on as a non event. A look at how Microsoft and Intel did it.

Microsoft: The ‘relay succession’ plan
When Bill Gates relinquished charge, there was little disruption at Microsoft. That was most unlike companies with iconic founders, which usually have a hard time finding a replacement and maintaining continuity. “By the time Steve Ballmer became the CEO, it was almost a non-event,” says Stephen P. Mader, vice-chairman and managing director of the Global Board Practice at Korn Ferry. Microsoft adopted what HR wonks like to call a “relay succession”.
Gates had several lieutenants in his organization when his succession was being considered. What he did was simple: he engaged the board, assigned roles, and moved people around in roles. All this was reviewed through a formal process. It was only after all this was done that Ballmer was elevated to the role of COO. “When he became COO, that proposition had been tested for a considerable period of time,” says Mader.

Ballmer donned the COO’s hat for a number of years, during which time he was groomed for the top job. Gates and the board gradually expanded Ballmer’s responsibilities - every now and then, he would add another domain, another task, another area of responsibility. “If you look at the COO’s role in Microsoft today, it is much more constrained – it is not the same breadth of responsibility,” says Mader.

The other thing they did was gradually make Ballmer more visible to the outside world, especially through exchanges in the financial community. Says Mader, “Ballmer ascended at a rather precarious time. Till that time, Microsoft had been a growth stock with no dividend and expected dramatic increases in earnings every quarter. When Ballmer was taking over, Microsoft was remaking its image as a security – it began to declare dividends and took on aspects of a value stock rather than a growth stock.” Ballmer had to address Wall Street at this juncture and this was some sort of a stress test for him.
That said, the relay method allows the board to test several leaders over time. Says Mader, “It was a very visual, very tangible and tested strategy. Ballmer had the opportunity to prove himself and stumble along the way for a good length of time till the deal was closed – he was tested in the seat, tested in his relationships with others.”

Intel: Grooming for the lead
The tagline of ‘Intel Inside’ might have just acquired a whole new meaning. Intel firmly believes in grooming insiders for the CEO’s position. In its 40-year history, Intel has never had to look outside the company for its next CEO. Just take a look at the list of CEOs down the years – from Andy Grove to Paul Otellini.

The credit for running a well-oiled succession planning system goes to the board, which plans at least 5-10 years in advance. At the start of each year, the board receives a ranking of a handful of senior managers and it spends the bulk of its time working on that list. The board is responsible for supervising the training and career enhancement of the senior deck.

Much like Microsoft, Intel also believes in a gradual transition. Says Mader, “Early on, someone comes to the front as a pre designated successor – and that happens a year or two before transition. Ascendancy itself is a non event. When Barrett was turning over to Paul and deciding who would replace him, it was internal and quiet run-off.” This is a precedent set by the founders Gordon Moore and Robert Noyce. Once it was known that Andy Grove would take over as CEO from Moore, the transition was marked by a gradually expansion in Grove’s responsibilities. The same thing happened when Grove handed over the baton to Craig Barrett.

At the heart of Intel’s succession planning process is a strategy called “two in the box”. This is a system in which two people share responsibilities for a given division. What this does is simple: if one person lacks critical skills in a certain area, the other person makes up for it. This helps executives hone their skills and also understand new domains.

The outgoing CEO usually becomes a board member. Or what Jeffery Sonnenfeld, Senior Associate Dean for Executive Programs & Lester Crown Professor in the Practice of Management at Yale School of Management, likes to term as “ambassadors” or corporate statesmen who groom a known protégé and then pass the baton, but after that, they assignments stay on the board. “(This can be) great for continuity of command,” says Sonnenfeld, “(but it) can be an awkward continued presence, a shadow over the successor.”

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