RECENT STUDIES SHOW that more than 50% of outgoing public company CEOs retain a formal role on the company’s Board of Directors1. In contrast, our analysis of 112 joint venture CEO transitions reveals that 15% of outgoing JV CEOs transition to a formal role on the JV Board2.
Should more joint ventures consider giving their outgoing CEOs a role on the Board? Our view is yes, with some important caveats.
In public companies, evidence and opinions on the benefits of retaining former CEOs on the Board are mixed. Some research has concluded that companies with former CEOs on their Board perform better, while others have established the opposite 3,4. Anecdotal evidence is similarly varied. Chip-maker Intel’s CEO succession process, for example, had each outgoing CEO serving as Chairman, actively mentoring the successor, and handing-off day-to-day operational responsibilities. This process has been credited with enabling a series of orderly CEO transitions at the company from Andrew Grove to Craig Barrett to Paul Otellini.
Varying evidence and the dissimilar experiences of public companies notwithstanding, we believe that too many exiting public company CEOs are allowed to retain a seat on the Board. Surrounded by their hand-picked directors, the presence of exiting CEOs on the Board of public companies can inflict severe harm in the form of an ambiguous chain of command and divided loyalties, restricting the new CEO’s ability to act decisively, and compromising the Board’s crucial oversight role.
In contrast, too few joint venture CEOs are invited to take a role on the Board. In doing so, joint venture owners are missing a real opportunity to address serious gaps in governance continuity and independence from which too many joint ventures suffer. Outgoing JV CEOs – especially if non-seconded and high-performing – on the JV Board, can play a valuable role in preserving continuity with respect to relationships, current initiatives, or the overall strategic direction of the company; and infuse Board discussions with an independent perspective. That said, the outgoing JV CEO’s role on the Board should be structured to not undermine or conflict with the authority of the new CEO, and with clear expectations on required contributions.
TO STEP UP OR OUTConsider Dow Corning, the world’s largest silicone producer and, for most of its 70-plus year history, a 50:50 JV between Dow Chemical and Corning. Dow Corning established a formal system for transitioning the outgoing CEO to the role of Board Chair to provide governance and leadership continuity as the company tried to manage a series of class action lawsuits and charges that its silicone breast implants caused serious health issues.
Or consider Thomas MacMillan, the former CEO of CIBC Mellon, a JV between Canadian Imperial Bank of Commerce and BNY Mellon to provide financial services for institutions and corporations. Over MacMillan’s 11-year tenure as CEO, the JV grew dramatically: from a small company with a 10% market share and 200 employees, to a leading provider of custody and trust services with 1,400 employees. This dramatic growth was, in part, possible due to the client relationships that MacMillan – a respected industry veteran – was instrumental in cultivating. The global financial crises triggered the requirement for a renewed emphasis on risk management processes and systems and, with it, a leadership change at the JV. MacMillan was retained as Board Chair to continue to support key client relationships.
A similar role is played by Jason Mann, who led Life and Specialty Venture (LSV) – an insurance products JV among a number of Blue Cross Blue Shield Plans in the US – since its inception, and steered its growth into new products and geographies. Mann became the independent, non-voting Board Chair after 11 years as CEO, provides an independent pro-venture voice on the Board, and assists the current CEO with support in new strategic growth initiatives and other areas when asked.
These and other examples suggest that moving an outgoing JV CEO upstairs to the boardroom can promote continuity and independence – attributes that many joint venture Boards lack5. Specifically, moving an outgoing CEO onto the Board can tap into a deep well of experience and maintain momentum with key strategic initiatives6. The JV CEOs in our database that transitioned to a Board role had a median tenure of 7 years as CEO. Each additionally had years of experience in the JV’s product-market built within the owners or outside, and a subset were in the midst of implementing major initiatives at the JV.
Make no mistake, there are some situations where placing the former CEO on the Board could prove detrimental.
- First, when the outgoing CEO no longer commands the respect of the owners, and was replaced for underperformance or tensions and conflicts with the owners. Each of the JV CEOs in our database that transitioned to a Board role had successfully led the JV during his tenure as JV CEO, and was stepping down for reasons other than underperformance (for example, coinciding with the progression of the venture business to its next phase, or retirement).
- Second, when the outgoing CEO was a secondee from one owner, and the incoming CEO is appointed by the other partner (potentially part of a contractually-stipulated rotational agreement). All but one of the JV CEOs in our database that transitioned to a Board role did not have an existing employment relationship with the parent companies. They were either outside hires, JV employees, or ex-owner employees who had severed their employment relationship with the owner prior to accepting the role of JV CEO.
- Third, when the successor CEO candidate lacks certain skills and needs to be back-stopped. In these instances, insisting on a candidate with threshold qualifications and characteristics is a battle worth fighting. In placing the former CEO on the Board as insurance against the incoming CEO’s shortcomings, the former CEO risks functioning as a ‘shadow CEO’, effectively pulling the strings and muddling accountabilities and authority.
- Fourth, when the JV is at a strategic inflection point and is starting over with a clean slate – and with a CEO who brings the capabilities, expertise, and mindset to navigate the inflection. Having the former CEO on the Board could restrain Board discussions and fetter the JV’s ability to chart a new course.
HOW TO STRUCTURE THE ROLEThere are three potential ways to structure an outgoing CEO’s role on the JV Board (Exhibit 1): (i) Board Chair; (ii) Specialized Board Role; and (iii) Advisor to the Board.
Board Chair: In most cases in our database when a former JV CEO transitions to a Board role, they become Board Chair, either tasks associated with the JV into boardroom discussions...