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MAY 9, 2001

EXECUTIVE MEMO

The Last Step Up Is a Big One
A new study points out how hard it can be for presidents and chief operating officers to become the CEO

 
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If you are an "heir apparent" to the chief executive officer of a major corporation, you might think that your path to the top would be relatively smooth -- particularly if the company is doing well. But a study in the current Academy of Management Journal suggests that aspiring top dogs often face a major hurdle in the form of a powerful incumbent CEO -- unless that power is offset by the power of outside directors.

In a random sample of large manufacturers, Albert A. Cannella Jr. of Texas A&M University and Wei Shen of Rutgers University traced the fortunes of 128 chief operating officers or presidents who were at least five years younger than the incumbent CEOs of their companies. Over a 10-year period ending in 1996, they found that 65 made it to the corner office while almost half as many left. (The rest stayed put.)

DIRECTOR POWER.  What caused so many No. 2s to leave? The biggest factor was the power of the incumbent CEO, measured by such factors as corporate stock holdings and length of tenure. The more powerful the CEO, the researchers report, the smaller the No. 2 guy's chances of making it to the top and the longer the wait before promotion. And heirs apparent were especially likely to leave companies with powerful CEOs if corporate performance was high.

The path to the top was eased, however, if powerful outside directors -- as measured by their number and equity investments -- were on the board. Director power, the study found, lessened the likelihood of No. 2s leaving high-performing companies and raised their chances of becoming No. 1.



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