What Happens When the CEO Retires but Won't Go Away?

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WAYNE RIVERS: Hi everyone. This is Wayne Rivers at Performance Construction Advisors, where We Build Better Contractors.

This week before we get into our vlog, two things. Boot Camp starts up in February of 26 in Dallas. So, see our website, contact Charlotte and get your folks enrolled. Second thing, our vlog on succession planning from a few weeks ago got some thoughtful emails, so let me share those with you.

The first is from Don Woodruff from Woodruff Construction in Iowa. He had a great point. "Succession planning begins with onboarding." Wow, I never thought about that. That's a great way to look at it. "The transfer of knowledge and experience allows people to grow into more advanced roles." So, succession planning, we're not just talking about somebody retires and some other person steps in. We're talking about knowledge transfer as well. So, knowledge transfer, we've done a vlog about that. It's an incredibly important thing as you pass down your institutional wisdom from your current employees to future employees.

"We strongly believe in the Peter principle, except everyone has limitations. We stress that it's not a person being succeeded, but rather skill sets. Some skill sets may be antiquated and best left behind. While others may not be present in the current individual. Change creates opportunities." Another great point. You're spot on, discussing the three-legged stool of what needs to be succeeded. Thanks to Don. Very thoughtful. I was so impressed with that.

And then another member from Iowa, Kent Pilcher from Estes. "Wayne, well stated. Succession isn't just about replacement." Another great point here. "It's really about how does an organization identify, develop, and grow talent." Really wonderful comments from my friend from Iowa.

And Al Petrangeli from Carroll Daniel Construction in Georgia says, "Succession is an underutilized process. It's probably one of the most significant factors for sustainable success. Why? Because it's hard. And the answers many times create challenges and disappointments for some in the business." That's another great point that I have consistently failed to make over time. If you choose successor A, that may necessarily mean that successor B will be disappointed, and we've never really done a vlog discussing that.

So, Al continues. "Because of loyalty and the avoidance of conflict, we default to our internal pool of candidates who may not be the best choices. They are a choice, but maybe not the choice. External candidates are very tough to bring into an organization unless the choice is abundantly clear in skill set and skills." Sorry, "Skill set and experiences." So, on the one hand, there's downside to internal, but an upside, on the other hand there's trade-offs with bringing in outside people. "We don't spend enough time grooming our leaders early enough or declaring because we don't want to show our hand. If we wait until someone's ready, we've waited too long. I've heard many times they aren't ready."

"Yep, you're right. I wasn't either knowing what I know today. The right people will figure out with help and guidance. Give them challenges. Telling loyal teammates why they didn't get picked is hard and you need to place them in a role that adds value for them and the business. It's just not maybe the lead role." So great wisdom from our wonderful members, and I mean their experiences, your experiences are so valuable and we're eager to share them. So, email me and let me know what your thoughts are about this and future blogs.

Okay. This week I want to talk about what happens when the CEO retires but doesn't go away. This comes from a New York Times article in August of 25 by Jordyn Holman. And in particular, the news had to do with sort of a household name company Target. And Target informed the world that their CEO is stepping away, but he's not leaving.

His new role will be executive chairman and they're bringing in new CEO. We talked about this at length when we did a vlog on Disney's succession mess two years ago, three years ago. It's been some time. It's a little over 10 minutes, but it's on our website if you want to see it. But it kind of goes into some of the pros and cons of what went right for Disney, not much, and what has subsequently gone wrong as they navigated through some succession challenges. So, the New York Times article says that half of the CEOs, half of the S&P 500 rather had CEO turnover last year. That seems like a lot, but New York Times, that's what they say. And half of them utilize the chief executive to executive chairman format.

So, what happens? They talked to a professor, Ryan Krause at the University of Iowa College of Business, and he says, the following. "What the data say is when the former CEO sticks around as chair, what you get is less change. You're going to get less performance change than you would if it was a clean break, and the former CEO just went away." Okay, so that's a pretty clear opinion on this format. The article says, without clear boundaries between the duties of the executive chair and the CEO trouble could ensue. Well, that is a very diplomatic way of saying it is a tricky thing.

Now, what about our members? What about non-S&P 500 companies? Can it work with co-CEOs, co-presidents, a chairman, a CEO retires, becomes the chairman and brings in a new CEO? Well, yeah, it can work. Does it work? Practically speaking, I'm going to say our experience, it doesn't work all that well. We have at least one member I can think of where it works really well, but for most, it just doesn't work all that well because you need super clear boundaries and what we refer to as RRA, roles, responsibilities, and accountability.

They have to be super clear, super defined. And if you do that well, you have a better chance of succeeding with the co-president or co-CEO kind of arrangement. Frankly, especially as it relates to family businesses, coming up with the co-president or co-CEO thing is a little bit of an abdication. It's almost like deciding not to decide. And we've seen, again, in family situations, that's the easier path, but not necessarily the better path. Where would you go for a question like this about succession and CEO and talent and leadership and all that? Where would you go? To me, peer groups. Your peer group, what you want is someone objective that can look at your company as an outsider from that 30,000-foot point of view and give you real solid sound advice on what your next group of leaders needs to look like. So anyway, what do you think about that? Share with me in the email [email protected]. This is Wayne Rivers at Performance Construction Advisors, where We Build Better Contractors.

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