"That’s Not the Way We Used to Do It”
from
November/December 2002
by Sasha Issenberg
When WorldCom became the subject of a Securities and Exchange Commission probe this year, the company’s stock price began its plunge from a high of $64 to nearly zero—and you didn’t need a McKinsey study to know that CEO Bernie Ebbers’s leadership was no longer needed at the Mississippi telecomgiant. So where did he go? To the board, as chairman emeritus, with amandate to advise the directors.
|
Should a company's former CEO sit on the board? |
|
Surveys Says
|
Though he still holds that title, Ebbers no longer meddles in board business. But the fact that the board ever thought it was a good idea is a troubling example of how easily a powerful CEO can hang on. Even when companies haven’t been buffeted by scandal or business failure on a former CEO’s watch, his or her ongoing board membership is symbolic of much that is wrong with the way boards operate: the intimacy with management, the clubbiness, the lack of independent voices. “Boards should require that the CEO submit a resignation as a matter of course upon retirement,” says a report by the National Association of Corporate Directors’ Blue Ribbon Commission on Director Professionalism.
“You really want to get the old guy out of the way, and let the new guy makehis own decisions and not feel that he has to validate his predecessor’s decision,” says Nell Minow, co-founder and editor of the Corporate Library ( www.thecorporatelibrary.com ), a corporate governance website.
Yet nearly a third (31.3%) of study participants say they sit on a board with the company’s former CEO. How do they—and how can others—handle it? Robert Mellor is currently a director of the Ryland Group, a home building and financial-services company, and Coeur d’Alene Mines, which mines silver and gold. He remembers a situation—he won’t name the company—in which “a new CEO took over, made a number of changes, and took the company in a new direction, something the board supported. But the former CEO, who was still on the board, didn’t like the fact that his legacy projects were no longer being invested in. So he decided to resurrect his career as CEO. He approached a number of directors for support, and a special meeting of the board was held. Ultimately, he was unsuccessful. And he had to leave the board.”
It’s best, of course, to ward off an aggressive former CEO without the distraction of a battle to the death. Paul Lapides of Kennesaw State University’s Corporate Governance Center in Georgia says he receives about one call a month from someone who “wants to get rid of a former CEO on their board.” Often it’s the current CEO who is asking for help, sometimes a director. “They always talk nice; they never talk bad about the former CEO,” says Lapides. “But it’s clear that the person is in the way and causing problems.”
The best time to deal with a potential meddler, he says, is at the moment of transition, when a new CEO comes in and the old one can be eased out with confetti rather than confrontation. “Sometimes the best advice is to throw a ‘Thank you, we appreciate your service to the company, goodbye’ party,” he says. “And you don’t have to tell him about it before arranging it.” Lapides also recommends that boards look for opportunities to put a CEO’s experience to work, but outside the boardroom. “If they want to mentor or advise,” he says, “they don’tneed to be a director to do that.”
Among other strategies, the current CEO or nominating committee may want to pack the board to under cut the power of a former executive. “One way to approach the problem is to bring in new independent directors that don’t have allegiances to that CEO, and have them help with change,” Lapides suggests. “Sometimes it takes a new director to come in and say, ‘Who’s in charge here?’ It’s much easier for new people to do.”
When William George gave up his CEO job at Medtronic Inc. last year, he remained on the medical-technology company’s board as chairman but said he’d serve for only 12 months. George knew how having an outgoing chief executive around can create problems: “It doesn’t allow the new CEO to take charge. It’s not a good idea on an ongoing basis.” But, he adds,“it can make sense with a fixed time limit. A lot of boards have shown instability.” In such cases, a former CEO can help define a company’s “history and long-term strategy, as well as the values,” he says.“That’s very important.”
During the year he spent in his new role, George says, he made a calculated effort to change the nature of his interaction with the directors. “I was more reserved than when I was CEO. I didn’t engage in discussionsas aggressively. Had I asserted my opinions strongly, they would have offered too much deference to the former CEO; they’d be afraid to offend the former CEO if policies he put in place were challenged,” he says. George also moved his office out of Medtronic’s headquarters, giving his successor room to rule.
“There are some pretty terrible examples of former CEOs who are confused as to whether they are involved or not,” George says. “I wanted to avoid that.” He did, and earlier this year the National Association of Corporate Directors presented its annual Director of the Year award to him, lauding his commitment to “board independence, corporate ethics,and a healthy environment of disclosure.”
In his book The Hero’s Farewell, Jeffrey Sonnenfeld, associate dean at the Yale School of Management and founder of Yale’s Chief Executive Leadership Institute, divides outgoing CEOs into four archetypes: Monarchs, Generals, Governors, and Ambassadors.
Monarchs “tie their heroic mission to their corporate position”—and leave only by overthrow or death. “They have nothing in life but being CEO,” Sonnenfeld says, “their name is hyphenated with the company’s, and they are not good people to have around.” Neither are Generals, the CEOs “who loved the trappings of office and the distinctive role as leader. They are always ready to return in times of crisis—even if they sometimes help stir up the crisis.” In addition to creating weak boards that they join in retirement, Generals are plotters who present acontinuing threat to board stability, Sonnenfeld says. Some of them—he calls them “fallen messiahs”—“fake their retirement, change their mind, and come back in.”
Governors, on the other hand, “have a compelling heroic mission, but stature they don’t care about,” says Sonnenfeld. “They are consummate builders and creators, and so they move into new enterprise.” They’re unlikely to cause problems as directors, because they have little desire to remain for long in a situation in which they are not fully in control: “Jim Clark, for example, was quick to involve himself with other projects, such as launches of WebMD and MyCFO, after leaving the Netscape suite.”
“Ambassadors,”Sonnenfeld says, “are fabulous to keep on a board. They don’t need thesash across the chest, epaulets on the shoulder.” Former CEO Andy Grove has been a “huge asset” on Intel’s board, says Sonnenfeld. And Home Depot’s Bernie Marcus “didn’t get in [successor CEO Robert] Nardelli’sway in any fashion. He was a senior statesperson serving in a mentoring role to a General Electric industrialist who didn’t know the retailworld.”
Thank you, Mr. Ambassador.
