One morning in August, 2000, the top executives of Computer Associates International (CA ) summoned the 2,500 employees at company headquarters to the parking lot for a historic announcement. The Long Island (N.Y.) software maker's founder and chief executive, Charles Wang, would be handing off the CEO title to his longtime protégé, Sanjay Kumar. Wand would remain chairman, with operational duties.
Some in the audience might have picked up a hint that things wouldn't go smoothly. In his speech, Wang said, "I have complete faith in Sanjay," but then added: "I'll be with him every step of the way -- of course, until he pulls the old 'I'm-the-boss' routine on me." Wang laughed, then quickly changed the subject.
In the end, things went poorly indeed. Fifteen months later, the relationship turned vitriolic, and Wang tried unsuccessfully to fire Kumar and take back his old job. A year after that, Wang himself was out.
The failure of this succession should serve as a warning to other executives and boards of directors who contemplate something similar, according to management experts. "Boards should recognize that creators have a strong tendency to act like monarchs or generals, and both kinds have trouble giving things up," says Jeffrey Sonnenfeld, associate dean of the Yale University School of Management and author of The Hero's Farewell, a book about the pitfalls of CEO succession. "You wrest the organization away from them, and they feel they have nothing but this yawning abyss of emptiness."
Under most circumstances, it's best for the long-term CEO who gives up the role to leave the company entirely, rather than stay around in an operations role or even as a nonemployee chairman of the board. That way, everybody knows the new CEO is the boss.
"Technical entrepreneurs have strong, nonnegotiable values, and if they stand in the way of running the business, you have to get rid of them," says Edgar Schein, professor of management emeritus at Massachusetts Institute of Technology's Sloan School. "Typically, the hope that those people will change and adapt is doomed to failure."
If a CEO stays on as an employee, the board should clearly define the former leader's role. In most cases, the position should be ceremonial and advisory. It's up to former CEOs to adapt to the new situation. They must allow the new CEO to run things, even when they disagree about strategy or tactics. Micromanagers have to transform themselves into statesmen.
People who have pulled off this kind of succession provide a guidebook for anybody else who would try it. Intel (INTC ) managed a smooth handoff from longtime Chief Executive Andy Grove to Craig Barrett, the current CEO. Key to their success was a clear definition of roles and a willingness of the departing CEO to let his successor run the business unimpeded, says David Yoffie, a Harvard Business School professor who sits on Intel's board.
"Andy quickly recognized that to be an effective chairman, he could no longer be CEO," says Yoffie. "He had to allow his successor to make decisions that he might not have made and was not comfortable with."
Wang had hoped that he and Kumar could work together like Bill Gates and Steve Ballmer of Microsoft (MSFT ), say former board members. Chairman Gates concentrates on technology strategy. Ballmer, who got the CEO job in 2000, runs day-to-day operations. While the two had some initial frictions, they smoothed out over time.
The big difference between them and the CA pair is that Gates and Ballmer are the same age and have been close friends for more than 30 years. Gates was the founder and longtime CEO -- but Ballmer had always been his equal, not some whippersnapper protégé.
"Nobody will find it as easy as Steve and I did, because of the mutual trust and how long we've worked with each other, and the friendship we have," Gates observed during a 2002 interview with BusinessWeek. "Even so it was hard. That's a cautionary note to anybody who wants to try something like that."
The message is clear. Boards should be extremely wary of complex succession arrangements. While the rewards of keeping a former CEO deeply engaged may seem great, the risks often aren't worth taking. And longtime CEOs should gut-check themselves -- making sure they're really ready to give up power when they hand off the title. If they're not, everybody pays the price.
By Steve Hamm in New York