Leadership

How to take over gracefully after a legendary CEO departs

How do you fill the shoes of a legend? Start by choosing your own path

Business figure standing inside a much larger cutout of a predecessor

(Illustration by Matt Murphy)

When Jim Leech was offered the top job at Ontario Teachers’ Pension Plan in 2007, he had his doubts. He would be following in the footsteps of Claude Lamoureux, who had led the organization since it was founded in 1990. “It was pretty daunting to take over for him,” Leech recalls. Lamoureux built the pension plan into a world-renowned institution with $108 billion in assets by the time he retired. He was a humble, understated guy—he rode the subway to work and established the pension plan’s Toronto headquarters far from the ostentatious office towers of Bay Street—but he was an unparalleled leader. Because of his skills and unassuming style, he was revered within OTPP. Outside it, he built a reputation as a fierce corporate governance advocate, unafraid to use the organization’s clout to lean on companies to improve their boardroom standards. Leech worried the OTPP had nowhere to go but down. “There were thoughts in my mind like, Is this a smart thing to do, to take over from somebody who’s done so well?”

Leech’s apprehension isn’t unusual. Assuming command from a legendary CEO or company founder is a more complicated and dicier process than your standard leadership transition. Employees will wonder how the replacement can ever measure up, and they will compare the new boss to the old. Shareholders will worry about the possibility of the company going off the rails.

That’s happened before. Jean Coutu, founder of the eponymous Quebec drugstore chain and one of the country’s wealthiest individuals, handed the reins to sons François and Michel in 2002. The siblings ended up presiding over a steep share price decline in the ensuing years. Coutu the elder had to return to the company in 2005—at the age of 78—and spent the next two years cleaning up the mess his sons had made.

Some of the country’s biggest companies have grappled with leadership transitions in the past year. Four of the big five banks saw turnover in the CEO suite, and three of them in particular—TD, with Ed Clark; RBC, with Gordon Nixon; and Scotiabank, with Rick Waugh—lost outspoken, influential heads who had ushered in an unprecedented era of growth at their respective institutions. For TD’s Bharat Masrani, RBC’s David McKay and Scotia’s Brian Porter, the biggest competition might not be one another, but the memories of their predecessors.

Filling the shoes of an iconic leader presents challenges for both the board of directors selecting the replacement and for the person assuming the role. But it can be done successfully. Perhaps the most important thing to keep in mind is that an iconic leader can never be replaced—and that’s not a bad thing at all.

The work should begin long before the legend announces his or her intentions to leave. The risk for companies led by such managers is the inclination not to develop any potential replacement candidates. Companies of this sort tend to follow what’s known as a charismatic leadership model, where everything stems from one individual. “It just happens naturally because that iconic leader is very strong in all areas—with customers, innovation and establishing the culture,” says Vince Molinaro, managing director of the leadership practice at Knightsbridge Human Capital Solutions. As organizations mature, they need to move to a distributed leadership model, which involves a strong team of senior executives responsible for making decisions in specific areas and held accountable for the outcomes. “It’s a danger for organizations to have a lot of knowledge and clout resting with one individual. The idea of power-sharing is very important,” says Stephen Friedman, an executive coach and faculty member at the Schulich School of Business. But it’s incumbent on the company head and the board of directors to recognize that there may be a leadership deficit and to start identifying and grooming potential replacements.

Some companies take a gradual approach when moving away from the charismatic leadership model. Bill Gates stepped down as CEO of Microsoft in 2000, but remained chair­person and served as the company’s chief software architect for years. He eventually transitioned away from full-time work, and it was only this year that Gates stepped down as chair. The approach naturally depends on the board’s assessment of the company’s position. If a major shakeup is needed, then the board has to act fast. “Sometimes it’s better to rip the Band-Aid off,” says Karen Wright, founder of Parachute Executive Coaching.

One of the biggest mistakes a board can make when selecting a replacement is to try to find a carbon copy of the legendary CEO. To start with, that’s virtually impossible, and the qualities and skills possessed by the outgoing leader might not be the ones the organization needs in the years to come. That was the case when Sean Durfy took over from Clive Beddoe as CEO of WestJet in 2007. Beddoe co-founded the company and was a charismatic chief—Durfy calls him “evangelical”—who instilled an underdog spirit in the upstart air carrier. Durfy recognized the differences between them. “You can’t try to replace someone like Clive. You’ll always fail,” he says. “I’d be a horrible entrepreneur. I’m a professional manager. I like strategy, and I like measured results.” That’s what WestJet needed at the time. Indeed, one of Durfy’s big tasks was to develop and articulate a long-term strategy, which most entrepreneurial companies don’t bother to do; they just follow the leader. (Durfy stepped down for personal reasons in 2010 and now serves as president of Northland Power, a developer of natural gas, wind and hydro projects.)

There are risks associated with trying to emulate the management style of the predecessor, too. “People are pretty savvy, and if they see you trying to copy somebody else, they’ll think you’re disingenuous,” says Friedman. He recommends incoming CEOs think about the skills they possess and how they can be used to best serve the company, rather than trying to copy their forebear’s style.

For some employees, adjusting to a new boss is difficult. They’ll inevitably make comparisons and judge the new CEO by the bar set by the old. The incoming chief should address these concerns directly in one-on-one meetings with senior staff. “You need to say that there are ways in which you’re going to be different, and acknowledge that you’ll have to find new ways of working together,” says Guy Beaudin, a senior partner at management consulting firm RHR International.

These one-on-one sessions, Friedman says, are necessary for another reason: to figure out who holds power within the organization. The iconic CEO may have led and influenced people through sheer force of personality or may have developed respect owing to a phenomenal track record. The new person might not be able to rely on those qualities. But in conferring with employees, the incoming leader can better determine whom to influence in order to run the organization effectively and how. “It’s important to say, ‘I want to find a way to be a great manager for you, and I’d like you to teach me about how I can do that,’” Friedman says. Board members represent another constituency that needs to be addressed. Friedman recommends meeting with them individually, too, to build rapport and figure out who the power players are.

Link to slideshow about CEO successors

The transition process can be complicated if the outbound head sticks around in some capacity, such as with a seat on the board. “That’s usually a mistake,” says Beaudin. That person will have strong ties to board members, potentially making it challenging to implement any real change. “There are very few ways to win in that environment. You’re either going to create some severe boardroom battles, or you’re going to be executing the previous CEO’s strategy.”

Still, the legend can perform essential duties in the transition, aside from imparting any wisdom to the successor. Among the most important tasks is to publicly communicate confidence and faith in the replacement. “They can play a big role in the branding of the new leader,” says Friedman. “They can introduce them to the organization and talk about their skills that are unique from the incumbent’s.” The outgoing leader could also serve as a mentor for future managers to ensure cultural continuity.

There also needs to be an opportunity for the departing legend to complete a victory lap. There will inevitably be social events around the time of the changeover, and the new CEO needs to be close enough to be regarded as participating, but not so close as to steal the spotlight. “You need to be seen as honouring the person as they leave,” Beaudin says. That’s what Leech did at OTPP. “Some people think they’ve got to come in and within the first week put their brand on the place,” Leech says. “To me, that’s not what you do. We celebrated Claude’s accomplishments.” One of the small gestures he made was to name a prominent boardroom after Lamoureux.


MORE:


Just how long a leader should wait before making changes depends entirely on the company’s situation. (There’s little time to waste if the company is in trouble, obviously.) But the process can be more fraught when following a legend. “If you’re seen in any way as dismantling what the previous CEO has done, that puts you at risk,” Beaudin says. The key is to thoroughly explain why the changes are necessary and how the organization will benefit. At WestJet, Durfy spent a lot of time ensuring employees understood why he was implementing a particular strategy and explaining what they could do to help fulfil it. “People need to understand the context. It’s new, and change is hard,” he says. This also must be done while respecting the legacy of the previous CEO or founder. Rogers Communications CEO Guy Laurence, for example, was brought in explicitly to shake things up. But in analyst calls and media interviews, Laurence often references the idea of building on the legacy that founder Ted Rogers established, even as he’s outlining how the company needs to change.

At OTPP, Leech went on to have an impressive tenure in his own right, growing the organization to $140.8 billion in assets (as of the end of 2013) and co-authoring a book on the country’s collective pension deficit before stepping down this year. His successor, Ron Mock, was named six months before he took over, and Leech spent a lot of time introducing Mock to the province’s government officials and teachers’ unions (two important stakeholders for OTPP) to make sure they were comfortable with him. Leech offered some advice too—but outside help only goes so far. “The onus is on the successor to do their work and understand the company,” he says. “The successor has to come in knowing what to concentrate on, as opposed to thinking they deserve this based on their past record.” If Leech’s replacement pulls it off correctly, the name Ron Mock might be as well known as Jim Leech or Claude Lamoureux.