How to choose and prepare a successor

1 The bottom line

Choose a successor for the war you will actually face, build a bench early, and step back fully once you do. A handover done badly loses talent, strategy and sometimes the founder's own freedom.

2 Key takeaways

• Build a bench before the job opens. A passed-over heir leaves and competes, and a thin bench forces you to hire an outsider.
  • Katzenberg thought he was promised number two, was told he was not ready, and founded DreamWorks. The lawsuit reportedly settled for $280 million Michael Eisner, Disney57:05.
  • Schultz hoped Orin Smith would stay on instead of developing internal talent, then hired outsider Jim Donald Howard Schultz, Starbucks2:59:40.
• Choose for the conditions ahead, not the ones you hope for. A caretaker fails when the company needs a builder.
  • Iger picked Chapek assuming peacetime. The board fired Chapek after about two years Bob Iger, Disney3:42:48.
• Hand the company to the strengths you lack. Founders usually know where they are weak.
  • Sol Price sold to Costco and Jim Sinegal because he saw himself as creative, not an operator Sol Price, Price Club54:00.
  • Noyce gave Intel to Moore and Grove in 1974, and the company kept growing Bob Noyce, Intel47:51.
• Step back fully and let the successor make mistakes. Learning needs room, and a name left on the door keeps you exposed.
  • Chang held back from stopping a reorganization he disagreed with Morris Chang, TSMC57:51.
  • Rockefeller stayed president in name and spent about two years in hiding from the antitrust suits John D. Rockefeller, Standard Oil1:24:31.
• Keep a way back for emergencies. Sometimes a handover fails and only the founder can fix it.
  • Chang took back the CEO job in 2009 after layoffs and the 40nm dispute Morris Chang, TSMC57:51.

let the CEO make his own mistakes and learn from them

Morris Chang, TSMC

2.1 Build the bench early

A successor is made over years, so start developing candidates long before you plan to leave.

• Keep a promised or expected role honest. See Michael Eisner, Disney57:05.
  • After Frank Wells died, Katzenberg, who thought he had been promised number two, was told he was not ready.
  • Eisner made himself president instead of building a bench.
  • Katzenberg quit, sued for bonuses, and founded DreamWorks with Spielberg and Geffen, poaching Disney animators. DreamWorks Animation went on to make Shrek.
• Develop internal talent instead of hoping the current CEO stays. See Howard Schultz, Starbucks2:59:40.
  • Schultz kept hoping Orin Smith would remain, then brought in outsider Jim Donald just before the financial crisis.
  • He says the organization leaned on his merchant and marketing instincts, so others followed instead of led.
  • He says "it's on me." He has stepped away and returned as CEO three times, including as interim CEO in 2022.
• Give promising leaders a broader job to stretch them. See Morris Chang, TSMC45:40.
  • Chang built business development into TSMC's marketing arm and put an operations leader in charge.
  • He first offered the job to Mark Liu, who refused because it had 60 or 70 people against his 10,000. C.C. Wei took it willingly.
  • C.C. Wei is now chairman and CEO of TSMC.

2.2 Pick for the job ahead

Judge candidates against what the company will need next, not what it needed last.

• Do not assume the hard part is over. See Bob Iger, Disney3:42:48.
  • Iger saw Disney Plus as set up and needing a caretaker.
  • The streaming model needed constant learning, and Chapek's reorgs and self-inflicted wounds followed.
  • Disney Plus accumulated about $13 billion in losses before turning profitable.
• Pick a leader who can unite strong egos when the company needs to come together. See Larry Page, Google3:35:45.
  • In 2015 Page became CEO of Alphabet and Sundar Pichai became CEO of Google, with bets such as Nest, Calico and Verily separated.
  • Sundar had led Chrome and Android and never worked in search or ads. The hosts see him as a peacemaker among big egos.
  • At the end of 2015 Google had $75 billion of revenue and $23 billion of operating income, against about $3.5 billion of losses in other bets.
• If you do not want to scale, hand the company to people who do. See Joe Coulombe, Trader Joe's2:08:20.
  • Joe left just under 30 stores in 1988, since "bigger wasn't necessarily the goal."
  • John Shields took it national, and Dan Bane later took it to the Trader Joe's of today.
  • The chain grew from 27 stores to 175 under Shields, and has 608 stores in 43 states today.

2.3 Hand over what you are weak at

Be honest about what you are not good at, and give the company to someone who is.

• Name your own weakness and sell or hand over to cover it. See Sol Price, Price Club54:00.
  • Price believed his and his son Robert's strength was creative, not running a large business.
  • He was tired of Wall Street pressure for growth, and moved to sell after Robert's teenage son Aaron died of a brain tumor.
  • Only two buyers were serious, Sam Walton and Costco. Price chose Costco and Sinegal, a world class operator, and the companies merged in 1993.
• Move yourself to the role that fits you. See Bob Noyce, Intel47:51.
  • Noyce liked the early startup phase and disliked running big companies, even though he built two.
  • In 1974 he turned running Intel over to Gordon Moore and Andy Grove and became chairman and spokesman for Silicon Valley.
  • The company kept growing under them.

2.4 Step back for real

A handover only works if the successor has room to lead and you carry no hidden role or risk.

• Let the new CEO make their own mistakes. See Morris Chang, TSMC57:51.
  • As chairman, Chang did not stop a reorganization he disagreed with.
  • His principle was that a CEO sometimes has to learn from his own errors.
  • He would step in only if the whole company was going down the drain.
• Do not keep your title when you leave. See John D. Rockefeller, Standard Oil1:24:31.
  • By 1891 to 1892 Rockefeller wanted to retire fully, but Archbold and the others insisted his name stay on the door.
  • That kept him an officer with legal liability. When the antitrust suits came he hid for roughly two years, still sending in resignation letters that were refused.
  • Ohio issued a warrant for his arrest, and process servers chased him across the country. Henry Rogers later said they told him that if any of them had to go to jail, he would go too.
• Expect the public to link you to the company while your name remains. See John D. Rockefeller, Standard Oil1:55:55.
  • In 1896 he passed day-to-day control to John Archbold and moved to philanthropy, but stayed in title only.
  • "Your name's still on the door." The Sherman Act passed in July 1890, and Standard was not broken up for another 21 years.
• Leave when the work stops engaging you, and plan it. See John D. Rockefeller, Standard Oil18:05.
  • By the early 1890s he felt he had perfected the machine. He stopped coming in on Saturdays and skipped the executive lunches.
  • Archbold was left in charge, and the next decade brought the antitrust fight.

2.5 Stay ready to come back

A founder's return can rescue a failed handover, but it is a sign the first plan fell short.

• Return only when the whole company is at risk or a big opportunity needs you. See Morris Chang, TSMC1:33:01.
  • Chang retired in 2005 at 74 and handed TSMC to Rick Tsai.
  • In summer 2009, after the financial crisis, he returned as CEO, citing "golden opportunities ahead" in smartphones and the cloud, which needed custom chips from companies he knew.
  • He stayed CEO until 2013, remained chairman, and fully retired in June 2018 at 86.
• Expect the board to call you back if your pick fails. See Bob Iger, Disney3:42:48.
  • The board fired Chapek after about two years and brought Iger back.

2.6 Where they differ

The right handover depends on whether the founder wants to keep running things, and on how far the company must change.

• Hands-off oversight can work, but only with a safety valve.
  • Chang57:51 let CEOs err and returned in 2009 when needed.
  • Schultz says founder-led companies tend to lose the offense once the founder goes, and the organization covered up mistakes until he left Starbucks2:59:40.
• Some founders hand over to scale, others sell to an operator.
  • Coulombe2:08:20 left successors to scale the concept, while Price54:00 sold the whole company to Costco.