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Executive Interviews: Interview with James O’ Toole on The Making of a CEO
January 2009
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By Dr. Nagendra V Chowdary
Dr.James O’ Toole Daniels Distinguished Professor of Business Ethics at the University of Denver’s Daniels College of Business. 
We notice that in certain companies,
after the founder CEO has relinquished
the top job in favor of a
new CEO, the company falters in all
the perceptible areas of
performance as it happened with
NIKE, Southwest Airlines,
Starbucks, etc. Why do you think it
happens that way? Or is it bound to
happen this way? What's your reading
into this phenomenon? How do
you characterize such occurrences?
What you say is not true at Southwest,
where founder Herb Kelleher
was careful to develop a team of successors
who shared his values and
leadership philosophy. Nonetheless,
your point is generally accurate, and
there are several related issues that
conspire to create the problem.
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First,
founders tend to be entrepreneurs, and not managers, hence they are not
good at developing successors. Second,
founders are usually replaced
just as a company is getting into
trouble because the founder has
stayed in control for too long, and
now finds his lack of managerial
skills is hurting the company. Third,
founders almost always have different
values than professional managers.
For example, Sam Walton loved
his employees and was willing to sacrifice
for their good, while his successors
atWal-Martweremore interested
in the privileges of power. Lastly, the
concept of leadership is basically different
when it
is your name on the company, on the
one hand, and when you are really
just a high-paid employee, on the
other. Let's look for a moment at NIKE
and Starbucks. Phil Knight has
announced on three different
occasions his retirement and
appointed three different CEOs. Immediately
after each of these three
retirement announcements and CEO
appointments, he came back and
sacked the incumbent. In fact, we
have done a case titled—Phil Knight
at Nike—Succession Guaranteed?
Recently, it happened in the case of
Starbucks where Howard Schultz
had to take the mantle sidelining the
incumbent CEO. What do such CEO
firings indicate?
Well, the situations at the two companies
are a bit different but they do
have a couple of things in common.
First, the hardest task of any leader is
to pick his own successor. All the evidence
shows that it is the rare leader
who does that task well. Second,
when a founder steps down, it is almost
always best if he leaves the company,
and the board, completely. Otherwise,
he will be tempted to meddle
and worse, to make an ill-advised
comeback! When do you think a CEO gets
qualified to be dismissed? What are
the right causes for a CEO dismissal?
There are several justifiable causes:
whenever a CEO behaves unethically;
whenever he shows basic incompetence;
whenever he puts his
own well-being ahead of any of the
company’s stakeholders. What’s your assessment of the
CEOs of AIG, Merrill Lynch,
Goldman Sachs, Lehman Brothers,
Freddie Mac and Fannie Mae? Do
you think they deserve to be replaced?
Did they fail to deliver or
were they made to fail to
deliver? What should have been the
role of such companies’ boards?
The real problem at all of these companies
is a failure of board leadership. What are the characteristics of the
boards that successfully replace
CEOs? Can you give us some
examples?
In the US, boards are totally fixated
on monitoring the financial reporting
of their companies. Thanks, to
Sarbanes-Oxley legislation, boards
are now dominated by accountants,
people who, by definition, are not
trained to see the big picture and who
know little about management, and
nothing about leadership. Decisions
of the auditing committee are now
more important than the board’s asking
if the
company is offering quality products
that people want to buy. Is there any test that can be
applied (by the board) to arrive
at an objective decision of firing
a CEO?
No.
1.
CEO as Change Agent Case Study
2. ICMR
Case Collection
3.
Case Study Volumes
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