Succession Planning, the Microsoft Way

Bill Gates provides a model of how to arrange for executive changes at the highest level of a corporation

Many CEOs, especially founders, die in the saddle. Sumner Redstone won't let go. Michael Eisner (not a founder, only seems like it) left kicking and screaming. Hank Greenberg was pushed out of AIG in disgrace. Steve Jobs came back.

Bill Gates is different. He will leave the saddle in one of the smoothest transitions of power in corporate history. Every founder, CEO, and board should be required to have Microsoft engineer its CEO's succession. Few could execute a plan as well as Microsoft (MSFT).

Give Gates, the man, his due. He has found a calling higher than CEO and has created the means and time to pursue it. And he actually began engineering this transition at age 45, when most executives are just getting ready to take on a top corporate role.

SEPARATION ANXIETY.

  The issue of transition at the top is one of the thorniest problems facing every corporation—be it a multi-billion-dollar multinational powerhouse or a closely-held family-run business. This challenge is typically faced out of necessity—illness, mandatory retirement, severe performance issues—all can force a company's hand. The Microsoft case changes the game. It demonstrates how a board and an executive can mobilize succession out of pure opportunity, rather than pure need.

For CEOs, succession is frightening. Many feel they are irreplaceable. They lack a personal sense of identity beyond their professional lives because their personal time has been constrained. For the board, the reasons for reticence to implement an aggressive succession strategy range from complacency to loyalty, to fear of the unknown. Boards tend to glance backward to measure success for the future.

The process of looking forward at opportunity is more art and guesswork, and CEOs are hired to be the "vision" people. Boards don't relish the departure of a successful CEO. It is risky, it is venturing into the unknown. Plus, it presupposes that a board can understand and predict innovation and leadership impact, subjects not really understood well at all.

STRONG TEAM.

  Succession planning is not just a tool for "what if" disaster management, or for dealing with failure to perform a necessary transition, it is a tool for creating timely opportunity with the advantage of innovation and change.

Few would dispute Microsoft's persistent and evolving success. The surprise is that founder Gates has not only reinvented the success model multiple times himself, but has then included his commitment to killing the company's dependence on him. Steve Ballmer and a young COO, Kevin Turner, are there—and most recently, Ray Ozzie, formerly of Groove Networks. Ozzie is not only a technology visionary, but also a man with a strong personal identity who understands Gates.

Other notable successions of very long-run CEOs make the case that boards needlessly fear change and underestimate its implicit opportunity. The GE that Jack Welch left is not the same today, but it's just as good and maybe better. Bob Iger has already salvaged two critical Disney (DIS) mistakes from Eisner's legacy. Pepsico (PEP) is bigger and better, and now far more than a beverage company under Steve Reinemund.

BETTER TRANSITIONS.

  So what is the Microsoft lesson for boards? Boards must work on using succession as an opportunistic strategy. To do so, they must accept the principal of term limits for executive leaders, swallow hard, and live in the future. Past performance is not a reliable predictor of future success when the business environment has all moving parts.

Second, boards must increase appraisal of, and faith in, leadership qualities that fit the business situation, rather than weighting specific industry experience and knowledge so heavily. There is no better example than the replacement of John Akers at IBM (IBM) by Lou Gerstner. Not only did it happen far too late, but Gerstner knew relatively little about the computer business and still succeeded.

On top of that, Gerstner dismissed a lot of people who were experts in the computer business. He succeeded on personal leadership qualities that fit the situation. Had the board recognized opportunity at IBM five years earlier instead of looking backward to evaluate success, it would have been a lot easier.

ONE OF A KIND.

  The third thing boards can do is learn how to look forward. Vision cannot only be delegated to the CEO. If this is the case, it will be a rare thing for a company to seize opportunity to drive succession. Boards must get out of the habit of thinking that the state of affairs is a look in the rear-view mirror.

The real story at Microsoft is about more than an extraordinary board. The real story is about Bill Gates, an extraordinary man who has won the Olympics in his own sport and who now chooses to define himself on a new playing field. And he is doing it out of a sense of responsibility and contribution, not self-absorption; it's leadership.

He took Microsoft from a software company to a media and Internet company. But he knows that the future of Microsoft will be up to the next generation. And he is one of the few founders to engineer his own departure. He believes in a future for Microsoft that doesn't revolve around him. How many CEOs can you think of who are willing to invest fully of themselves to make the world a better place? That's what I call a role model.