Even in the best of relationships, there will be differences of opinion between the CEO-turned-chairman and the new boss.
When Paul Lightfoot was asked to become the chief executive officer of BrightFarms Inc — a New York-based greenhouse designer and operator — the business consultant wasn’t sure if he should accept the offer.
Lightfood had been advising BrightHouse on a new business direction for about nine months, and had considered joining permanently. But the 43-year-old former lawyer and software executive expected to come in as an advisor, not the boss. Complicating matters, founder and then-CEO, Ted Caplow didn’t have plans to exit — he planned to stick around as chairman.
That meant Caplow would head the powerful board of directors, and have a say in company strategy.
The two men got along well, but Lightfoot wondered if he’d be able to do his job while the founder had oversight from the boardroom. Was working with a former CEO better than working without him? What if conflicts or a power struggle arose over strategy or he wasn’t given the latitude to do his job properly?
These are vital questions for many executives. In 2012, 29% of CEOs globally became chairman of their company, according to consulting firm Booz & Company. The CEO-to-chairman path was most common in Japan, where 69% of CEOs became chairman. It was least common in Europe, where just 15% of former executives moved up. In North America, 35% of departing CEOs transitioned into the chairman position in 2012.
The arrangement can be uncomfortable for the new CEO. Not only that, taking the top job when the old boss becomes chairman can have a negative impact on the new chief’s performance about 60% of the time, according to research by Elise Walton, a senior partner at Pittsburgh-based Continuous Learning Group. The partnership becomes downright “dysfunctional” in about 30% of those cases.
“For a new CEO this is definitely a risk,” Walton said.
The problem isn’t limited to the chairman/CEO dynamic. Similar issues exist in other management role handovers. Many managers have a hard time letting go of their old role after a promotion, particularly if they oversee the person in their previous job, Walton said.
Former chief executives may think the company should be run the way it was when they were in charge. When the strategy diverts from their own, chiefs-turned-chairman may try to turn the entire board — which oversees major decisions, including a CEOs tenure, pay and bonuses — against the new boss, Walton said.
The biggest problems typically arise when the new CEO wants to do something dramatically different from the prior chief, said Harm van Esch, an Amsterdam-based managing director with executive search firm Russell Reynolds Associates. That’s why, while deciding whether to accept the CEO job, one of the most important discussions Lightfoot had with Caplow was about their vision for BrightFarms.
It took Lightfoot months to agree to take the helm of the 14-person private company. Even then, he agreed to accept the job only after outlining exactly how his relationship with Caplow would work going forward. Among the provisions the pair detailed in writing: specifics about who would be responsible for what and how their communication would work.
“We worked on it carefully and slowly,” Lightfoot said.
Whether a prospective chief executive will need to work with a CEO-turned chairman — and how influential that former chief is likely to be — depends partly on where the company is. Culture and attitudes about corporate governance vary significantly around the globe, said Per-Ola Karlsson, Booz & Company’s Stockholm-based senior vice-president.
In Germany and France, for instance, most CEOs go on to be chairman, though the percentage is much lower in England, said van Esch. In Japan, while many CEOs do become chairman, that role is seen as more of a symbolic position, said Karlsson. Meanwhile in the United Kingdom, most companies want the CEO to step aside entirely when his or her tenure ends.
The three Ts
Finding a way to make the relationship work is crucial. The CEO and chairman must work on what David Beatty, head of the University of Toronto’s Clarkson Centre for Business Ethics & Board Effectiveness, calls the three Ts: tone, time and talent. While this applies to every CEO-chairman relationship, it’s especially important for former CEOs and their new hires to get this right.
Tone is the most important and includes everything from being clear about intentions to the all-important element of trust. The chairman has to trust that the CEO and her management team have the company’s best interests in mind and vice-versa. Communication also has to be open and transparent and the chairman and CEO must be able to show respect for each other’s opinions, said Beatty.
In North America, chairmen spend about 400 hours a year — double a regular board member’s time commitment — on company business. As a rule of thumb, the CEO and chairman should talk about once a week, said Beatty. This time is critical for facilitating the relationship.
Conversations should have an agenda, which can help keep the former CEO on track and help reduce the likelihood of overstepping. But there should also be room for more informal talk, said Walton.
Meanwhile, board members have expertise they usually want the CEO to acknowledge and tap into. If the new chief ignores board members, they may voice their displeasure to the chairman. If the chairman hasn’t fully let go of the corporate reins in his mind, he may use those complaints against the CEO.
Of course, even in the best of relationships, there will be differences of opinion between the CEO-turned-chairman and the new boss. Two-and-a-half years after taking the job, Lightfoot and Caplow have a strong relationship, although they don’t always agree. But, Lightfoot said, he believes the company is better off with both of them involved.
“I’m the horse he’s chosen to ride and that’s something to respect,” he said. “He... has a lot of depth and knowledge and that’s useful.”
They talk by phone about three times a month, openly share ideas and have built a mutual respect for one another. When they do disagree, say, about the locations of greenhouses, Lightfoot said he never brushes Caplow off. But they real key, said Lightfoot, is having clear expectations.
“Neither of us has ever been surprised by what the other does,” he said.