After decades at the top, CEOs-turned-chairmen have a hard time yielding the daily reins.
April 1 2004 by Erik Sherman
Odd how the most difficult time of Sander Flaum’s successful career as a chief executive came at its end. Over his 15 years as CEO of New York-based health care marketing agency Robert A. Becker, Flaum grew the firm into the sixth largest in the United States before selling it to Euro RSCG Worldwide in 1991. Last year, Flaum became chairman of the combined entity Euro RSCG Life, the third-largest specialized health care communications company in the world, while the CEO of another RSCG company was brought in to run things. Far from viewing the change as an opportunity for a well-earned break from the fast track, Flaum experienced it as trauma.
“It took a lot of transition and a lot of mediation to move from being the day-to-day operating guy to being the chairman of the management committee,” says Flaum. The 65-year-old admits that as CEO his life had little balance. When he and his wife entertained, it was usually work-related. Even extracurricular activities, such as founding and chairing the Fordham Leadership Forum at the university’s business school, tended to focus on business. “When you have passion €¦ and all of a sudden it comes to an end, you become disheartened,” he says.
Which is why Flaum is already plotting what he calls his “second act,” although he’s not divulging details. “I’m going to wear out-I’m not going to rust out,” he says. “The thought of going out to golf every day is enough to make me go to a pawn shop and buy a gun.”
For many corporate leaders, the end of a career can feel like the death of an identity, and those transitioning must pass through the classic five stages of grief. Trouble is, some get stuck on the first: denial. In 1997, Xerox’s Paul Allaire remained chairman of the board after resigning as CEO, only to fire his replacement and reinstate himself three years later. Last October, Rupert Murdoch announced that he would have to be “carried out.” Sandy Weill hardly receded into the night after turning over the reins at Citigroup to Chuck Prince. Even Jack Welch took an extra year to oversee the acquisition of Honeywell, a delay many observers deemed unnecessary. Plenty more former CEOs have hung on longer than they should have, hampering the progress of the incoming leader, disrupting operations, and costing the company money, opportunities and performance.
But given what CEOs have to leave behind, it’s a wonder more of them don’t barricade themselves in the corner office. “You can’t expect someone who’s spent their life fighting to be the top, to be chief executive, to step out of the limelight willingly,” says Michael Watkins, associate professor at Harvard Business School and author of The First 90 Days: Critical Success Stories for New Leaders at All Levels. “Let’s face it, the life of the ex-CEO is not the same as the life of the CEO.” No frills, no adrenaline rush, no phones ringing off the hook, no employees looking up to them. As Herb Baum, CEO of Dial Corp., said of his decision not to retire after selling Quaker State to Pennzoil in 1998, “You go out there and you’re just another person. American Airlines doesn’t meet me at the gate when I’m just Herb.”
That fear of civilian life may be why CEOs who get bumped up to chairmen think of plenty of excuses to hang around. The company, they argue, needs their experience, vision and institutional knowledge. Or they insist that because the new CEO has no experience with this board, the former CEO should become a surrogate to handle all of those interactions. If the candidate is right for the job, Watkins says, that shouldn’t be necessary.
Not all reasons for staying on campus are illegitimate. Flaum, for example, really did help cement his company’s merger and provide continuity for customer relationships. But even in the best of circumstances, it can be tempting to meddle. “You see some moves being made that you wouldn’t have done,” says Flaum. “You bite your tongue, you start to make a call or write an email, and you say, €˜No, not my job anymore.’ “
When the former CEO convinces him- or herself that the new CEO needs help, it can pave the way for unnecessary interference. At best, conflicting orders and demands cause confusion and disrupt operational efficiency. At worst, the new CEO’s agenda is totally undermined. “In a company like Xerox, where their industry is going through major change, it’s especially important to allow new CEOs to take command,” says Jim Hatch, a principal with PricewaterhouseCoopers Human Resource Services. The competing demands of new and old leaders can bog a company down, making it unable to react quickly to market changes.
Executive coach Mary Wilson recalls working with the new CEO of a $500-million firm where the former CEO remained as chairman. “The chairman continuously overturned the new CEO’s decisions; the board of directors did not confront the chairman about his behavior; and [there was] a disconnect between the core values of the [two],” Wilson says. The new CEO wanted to free cash for aggressive growth plans and the chairman wanted to avoid layoffs, but wouldn’t agree to other cutbacks. As a result of the stalemate, existing financial losses accelerated as the company lost market share and the new CEO was forced to leave.
Constance Dierickx, a management psychologist with the consultancy RHR International, reckons that, aside from business disruption, the cost of replacing a CEO can run as high as $47 million. Each misplaced step in the search can significantly impact the company’s bottom line.
Hiring problems are uncomfortably common. Watkins notes that 68 percent of COOs brought into a founder-led, publicly traded company leave within two years. “These people are brought in with the promise of, €˜I’m going to be moving on, it’s time, and we’re going to cut and groom you to lead the company,’ but the founder just cannot let go,” he says.
Keeping the Transition Schedule
For the sake of the company, and in the best interests of his or her career, the new CEO must work with the outgoing chief and the board to defuse a potentially harmful situation. Often, it does make sense for the old CEO to stay for a period and help a replacement get acclimated. Yes, as Watkins noted, new CEOs must have experience with boards and cannot be cut off from them. But Chuck Lucier, Booz Allen Hamilton senior vice president emeritus, adds that a CEO promoted from within can still find a transition period to be helpful. “We’ve done a number of surveys with new CEOs and the number one thing that proves to be a tough learning experience for them is dealing with the board,” Lucier says.
Still, transition periods must be finite-12 to 18 months, thinks Lucier. An incoming CEO and the board must work together and negotiate a series of stages through which the old CEO moves to the post of chairman and then leaves that position. Simultaneously, the new leader takes on increasing responsibilities, with the understanding that he or she will be running the show within a set period. Without such a schedule or even a timetable, a qualified CEO candidate might wisely pass on a job offer, knowing that less potentially contentious opportunities exist.
There are other ways the new CEO can deal with a predecessor. If the argument is that the old chief needs to pass on institutional knowledge, that can be accomplished on a contractual consulting basis with no board position. If the outgoing CEO is motivated by protecting a legacy, find a way to formally recognize accomplishments, giving the person a sense of something permanent that won’t disappear with a change of strategy. Sometimes persuasion can work. “Try to convince the CEO who’s leaving that €˜Your baby is better served if you step away,’” Hatch says.
The most important factor, though, is in the hands of the former CEOs, who should prepare for life after the corner office before it comes time to yield power. “I watched my grandfather retire and he was very successful in a small business in rural North Carolina,” says Walt Boomer, CEO and chairman of Rogers Corp., a manufacturer of specialty polymer and electronic materials, who will retire on April 1. “He had zero interests when he left and never developed any. Until the time he died, I think he was an unhappy man and made everyone else unhappy.” As a once-already-retired former Marine general who entered the private sector as a second career, Boomer believes outgoing executives must develop interests and aspirations beyond what corporate power can provide. “If there isn’t any other self than the general self or CEO self, what the hell are you going to do?” he asks. “Once you leave, you’re just who you are.”