Corporate Succession

Getting It Right

Disney’s CEO, Robert Iger, is getting a lot of credit in the press for designating his eventual successor, even though the succession will not occur for 3 more years. That may be because his own ride to the top was so bumpy.

As James Stewart put it in the Business Section of The Times: “Mr. Iger’s predecessor, Michael Eisner, elevated and discarded some prominent candidates to succeed him — Jeffrey Katzenberg and Michael Ovitz, in particular — in a multiyear drama that eventually led to a shareholder revolt and Mr. Eisner’s ouster.” Eisner made a mess of it, and Iger may well have wanted to avoid that spectacle.

There are a lot of reasons for the process to be troubled, starting with the fact that the person leaving the top job can be ambivalent about giving up the powerful role. He may not want to leave, even if the must. Or more narcissistically, he may not want to be succeeded by someone who will be seen as better than he was.

David Larcker, a professor at the Stanford Graduate School of Business noted that “the track record for handpicked successors who follow highly successful chief executives isn’t encouraging. In a recent research paper, he found that the share price of companies run by chief executives who were selected by their predecessor tends to underperform the Standard & Poor’s 500, sometimes by large percentages.” (That’s how corporate boards assess success.)

The reason, he suggests, is what he calls the “Mini-Me syndrome,” the tendency of CEOs to prefer people like themselves. (Not as capable of being successful, like them, I suppose he means, but similar in a way that blinds their judgment.)

In this case, Thomas Staggs, Iger’s chosen successor sounds as if he could not be improved upon. According to The Times, Staggs “is very artist-friendly. He’s a musician. He’s warm and friendly, and he’s got a gorgeous family.” He “is also popular on Wall Street and was repeatedly named by Institutional Investor magazine as the entertainment industry’s top chief financial officer.”

What concerns me here is that is seems almost too perfect for the part.
The really important question, though, is he good enough for the job?
Absent in this account of succession is any attempt to characterize the
problems he will face or to assess the special qualities or strengths he
would need to bring to solving those problems.

Maybe because Disney is in the entertainment business, they think
primarily of casting the role, but the account in The Times lists a
multitude of issues he will face.

One man who worked closely with Staggs mused: “The problem, if there is one, is how big can Disney get? How do they keep the growth rate?” As The Times noted: earnings showed “a 19 percent increase over the previous year. . . . Last week, the stock hit a record high of $102, and it is up more than 30 percent over last year. . . . But the studio entertainment division’s 33 percent gain and the closely related consumer products earnings increase of 46 percent were even more impressive because of Disney’s remarkable series of hit feature films.”

Stock analysts and investors expect continuous growth, and that’s how Staggs will be measured.