Good morning. Geoff Colvin, senior editor-at-large, here.
Barry McCarthy’s recent abrupt resignation from his role as Peloton’s CEO was a relatively easy succession call: McCarthy was recruited in 2022 to stop the fitness company’s vertiginous financial plunge from its fad-fed pandemic heights, but by the time he resigned, just over two years after he arrived, some 5,000 employees had been dismissed and the stock had dropped from $37 to about $3. He clearly had to go.
A more common and far more difficult succession call is the opposite: a CEO who has performed well or at least acceptably for several years, and neither the board of directors nor the CEO is sure what to do next. That’s a big problem, because a board’s No. 1 job, more important than all its other jobs combined, is making sure the company has the right CEO at the right time. In theory, that’s an exercise in data and hard logic. In practice, it’s never so clear. “You have all the dynamics around who actually owns the decision as to whether to push somebody out or demand something different,” Spencer Stuart succession expert Robert Stark tells me for an article I’ve written, published today, on finding a CEO’s sell-by date. “There’s this gap between the objective performance and whether people stay in the role.”
Stark and his Spencer Stuart colleague Claudius Hildebrand’s new book, The Life Cycle of a CEO: The Myths and Truths of How Leaders Succeed, identifies five stages in the tenure of a company leader, from the CEO’s first year filled with optimism to the later stage when the CEO has built a successful record but may be out of new ideas. Not every CEO follows the schedule they lay out exactly, but the described overall progression of a typical CEO’s corporate objectives—and personal emotions—rings true.
The toughest succession calls involve CEOs who make it to their second decade as boss. “When they get past 10 years, they know how to manipulate the stock price and keep it going,” says former Medtronic CEO Bill George, who declared at the beginning of his tenure that he wouldn’t stay more than ten years. “They fail to make the bold moves. They just want to hang in there.” Pushing that CEO out is awfully difficult for a board of directors, yet it may often be the right move.
The big message from the experts: Succession is way more psychological than mathematical. Situations like McCarthy’s, in which numbers make a compelling case for an exit, are rare. More often the main factors are a leader’s evolving self-image and anxiety over post-CEO life, plus directors’ relationships with the boss, which often include an element of gratitude.
Every CEO, board, and company is unique, which means succession will always be a deeply human exercise—at least until AI takes over.
Geoff Colvin
geoff.colvin@fortune.com
