Doing CEO Succession Planning Right (and Wrong)

Last week, we got to see two examples of CEO succession planning, each paradigmatic in its own way. The first took place on Wednesday when the chairman and chief executive of Starbucks Corp., Howard Schultz, announced at his annual meeting that the company’s president, Kevin Johnson, would immediately become the CEO. (Schultz will become executive chairman.) When you learn the back story, you realize that this is the way succession planning ought to be done.

The second example came on Thursday when the Walt Disney Co. announced that its board had decided to extend CEO Robert Iger’s contract by a year, to July 2019. As great as Iger’s track record has been in the dozen years he’s run Disney — and it has been superb — the company’s need to push off his planned retirement is a painful reminder of why Disney has had so much trouble with succession planning over the years.

One reason Schultz and the Starbucks board did it right is that they had done it wrong back in 2005, when they installed Jim Donald as chief executive. Donald had come from the supermarket business, and he didn’t really fit with the Starbucks culture. “What I got wrong was in not waiting to groom someone from the inside, someone who was really part of our culture,” Schultz told me recently. “Instead I went outside.”

Moving Up

Percentage change in daily closing stock price since Jan. 1, 2005

 

Source: Bloomberg

By 2007, Schultz was complaining that the company had grown too fast, and that the Starbucks brand was being “commoditized.” The following January, with the stock in free-fall, competitors like McDonald’s Corp. and Dunkin’ Donuts making Starbucks-like coffee drinks, and Starbucks sales hurting, Schultz and the board fired Donald and Schultz returned as CEO and began to revive his beloved company.

This time, as he began to think about stepping down, he went about it differently. Johnson was…

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