Article originally published in the Philadelphia Business Journal on August 11, 2015
Should a retiring CEO continue to remain on the board? If that individual holds the position of chairman and CEO, should they remain as chairman once they vacate the CEO position? These are questions that boards often deal with at the time of CEO transition. How does a lingering CEO impact the newly appointed one?
When the former CEO remains on the board, especially in the case where they retain the position of chairman, there is a high probability that their presence could have a chilling effect on the actions of the new CEO. The last thing a new CEO needs is to be second-guessed by someone whose strategies are undergoing review and perhaps being changed. The retired CEO has a vested interest in not having the strategies they put in place changed, even if change is necessary to move the company forward. This is just human nature. The other board members won’t know if the retired CEO is challenging the new CEO because of their “ownership” in a former strategy, or if they have a real issue with the new CEO’s strategy.
If the retiring CEO retains the position of chairman, it is likely little will change regarding strategy unless driven by the chairman. The chairman may cede operational control to the new CEO, but ceding responsibility for strategic direction is not likely. However, in the case of a privately held company where the individual holding the position of chairman and CEO has a controlling interest in the company, appointing a CEO for operational matters is not uncommon. Because of their controlling interest, the chairman often retains ultimate responsibility for strategic direction, unless this responsibility is also ceded to the CEO.
Why do boards permit retired CEOs to remain as board members, or continue to serve as chairman of the board? Perhaps there is the thought that the board does not want to lose the business knowledge of the retiring CEO. This can be addressed by asking the retiring CEO to be available for consultation after retirement, at the option of the new CEO.
Perhaps the board feels that retirement would be an easier transition for the individual if they remain a board member. The board must make their decisions based on what is in the best interest of the company and its shareholders, not the retiring CEO.
The Conference Board’s September 2010 article by Jason D. Schloetzer titled, “Retaining former CEOs on the Board” shared a number of perspectives from board members and others on these issues:
- “Former CEOs could dominate the board agenda …”
- “It is very difficult to discuss steps that may reverse a course of action with a board that includes the person who made the original decision …”
- “Former CEOs can hardly ‘contribute constructively to board discussions without being concerned that they will undercut the effectiveness of their successors.’”
- “What you have now is a CEO who is neither gone nor forgotten.”
- “Former CEOs make excellent directors – of other companies.”
Schloetzer’s perspectives are very consistent with my own, and others who have experienced former CEOs remaining on the boards of companies they had once led.
When I was named CEO of PQ Corporation, the retiring CEO left the board. Many changes needed to be made to get the company growing again. I can only imagine his reaction if he had continued to sit on the board as I outlined my plans for change.
A similar issue exists when a senior executive is promoted to a higher position within the company. When I was appointed president of PQ’s Canadian subsidiary, the changes I made were challenged by the former subsidiary president, now at a senior executive position. My response was that the business environment had changed, and he would have made the same changes had he remained in that position. This was a face-saving way for him to accept the changes I was making.
The most important job of any board is to hire and fire the CEO. Board members should not encumber the new CEO’s chance to be successful by keeping the retired CEO on the board. Don’t expect major change if the retiring CEO retains the position of chairman of the board. Except in the case where the CEO has a controlling interest in the company, permitting the CEO to remain on the board or retain the title of chairman is not in the best long-term interests of the shareholders.
Stanley W. Silverman is a writer, speaker and advisor on effective leadership. He is the Leadership Catalyst at Tier 1 Group, a firm of strategists and advisors for preeminent growth. Silverman is vice chairman of the board of Drexel University, a director of Ben Franklin Technology Partners of Southeastern Pennsylvania and former president and CEO of PQ Corporation. Follow: @StanSilverman. Connect: Stan@SilvermanLeadership.com. Website: www.SilvermanLeadership.com