Magazine

A Short History Of Unpassed Torches


There was an eerie sense of déjà vu about the management shakeup at Nike Inc. (NKE) this week. Not only has the edgy shoemaker failed at earlier attempts to pass the baton, but business history is littered with the troubled successions of charismatic entrepreneurs and once and future kings. For visionary founders, the years of emotional investment, the inextricable melding of their own identity with the business, and the distancing from their creation can all pile up to create a transition that has classic corporate melodrama written all over it. "It's like Shakespeare or Greek tragedy or the Bible," says Jeffrey A. Sonnenfeld, senior associate dean at the Yale School of Management. "It's just such a predictable script."

One of the most famous such scripts stars William S. Paley, founder of Columbia Broadcasting System (VIA). Over the span of his 60-year reign at the company, at least four attempts to establish a successor failed. Indeed, his final return to power, at age 85, was even more dramatic than the recent maneuverings of Nike's 67-year-old Phil Knight. In Silicon Valley, Lawrence J. Ellison, the autocratic software king of Oracle Corp. (ORCL), talks little about succession -- a concern on Wall Street -- and has resisted passing the torch to potential heir apparents such as Ray Lane, who later left the company. Ellison shook up his top ranks two years ago, making his CFO chairman and appointing two people as co-presidents.

While Return of the Founder is a familiar drama, there are many variations on the theme. Charles R. Schwab recently took back the CEO title at the company he built. Ted Waitt, the ponytailed entrepreneur who built PC maker Gateway Inc. (GTW), pushed out his handpicked replacement and much of the senior management team, renaming himself CEO. (He has since left the company.) And then, famously, there is Steve Jobs (page 62), who represents the rare case where a strong founder is ousted by his own recruit, former Apple Computer Inc. (AAPL) CEO John Sculley (though Jobs bounced back triumphantly).

Knight's story adds a new chapter. "The core challenge of corporate governance is getting past the concept of the imperial CEO," says Ric Marshall, chief analyst at The Corporate Library, a research firm specializing in governance issues. "Nobody exemplifies that better than Phil Knight." Indeed, the failure of the Nike succession plan, say Marshall and other governance experts, rests squarely on the board's shoulders. With Nike, in Sonnenfeld's opinion, "you have a board that was on cruise control.... [They were] a complete rubber stamp."

While the conventional wisdom advises a clean break from CEOs, and especially strong founders, in practice there are sometimes advantages to having them stick around. Starbucks Corp.'s (SBUX) Howard D. Schultz or Microsoft Corp.'s Bill Gates, for instance, are visionary entrepreneurs whose continued presence is clearly an asset. "No one in their right mind would want Bill Gates or Michael Dell to run off to take scuba diving lessons," says Sonnenfeld.

If a charismatic leader is to remain on the premises after a replacement arrives, boards must draw clear lines of demarcation to allow the newcomer to do his or her job. Sonnenfeld also suggests the board take a role in making sure the founder finds an engaging way to do something new.

Most of all, boards can't be on the hunt for the founder's better twin. "The message about filling shoes is that you can't," says Stephen P. Mader, vice-chairman at executive search firm Christian & Timbers. "You've got to design new shoes." Luckily, Nike already has that skill. It just has to learn new ways to apply it.

By Jena McGregor


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