How do companies pick their CEOs?
The corporate news of the day is out of Disney. The company announced that former CEO Bob Iger, who stepped down in 2020, is back in the role. He’s replacing Bob Chapek, whose short time as CEO was marred by the pandemic and disappointing financial results as well as his handling of political issues and lawsuits. Disney has a two-year contract with Iger, which means his succession planning begins now.
A company’s hunt for its next CEO never ends, said Jan Koors with the consulting firm Pearl Meyer.
“A number of CEOs tell me that when they get promoted into that CEO role, one of the first questions their board has for them is, ‘OK, who’s going to be your replacement?'”
That’s because it takes years to identify outside talent or groom someone from within. In fact, around three-quarters of CEOs at companies in the S&P 500 were promoted internally. That grooming time is key because once new leaders step in, they don’t get a lot of time to find their bearings.
“Inside of 30 days, CEOs need to have met with all the key stakeholders inside the organization,” said Alex Kirss with the consulting firm Gartner. “And inside of a quarter, they should be executing fully on their strategic vision.”
Boomerang CEOs like Iger, who leave the company and return, aren’t common, though there are high-profile examples: Steve Jobs returned to Apple and Howard Schultz to Starbucks. This can signal a company in crisis or that the board is buying time to pick a new successor, which Kirss said is tricky because the talent pool had already been evaluated a couple of years earlier.
“When you take high-performing leaders and groom them for success and don’t give them that top job, it’s oftentimes very hard for them to stay at the organization,” he said.
Is someone in streaming or content a good fit? Maybe. Finding a successor for a company like Disney is particularly difficult, per Morningstar analyst Neil Macker, because it has such a huge range of offerings.
“You’re a steward of these franchises or, more accurately, characters like Mickey Mouse who’ve been around for 100 years now,” he said. “And you’re blending it not only with the parks business and everything that’s attached to that and animation and Pixar and Marvel and now ‘Star Wars.'”
That mix — plus the fact that Iger’s pushed off retirement several times before — is why Macker’s skeptical that he’s just a placeholder. It’s a two-year deal, but contracts can always be renewed.
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