Lead from the front, or manage from the grave?

By Lucy P. Marcus
January 26, 2012

In the past couple of months, several companies have gone through extreme and very public upheaval. Such transitions offer opportunities for fundamental, board-led change for the better, but they are also fraught with significant risks. Recent developments at RIM and Yahoo help illustrate three pitfalls: “managing from the grave,” sequence and timing, and misplaced suspense.

Managing from the grave

One of the big risks at a time of transition is that those who leave the helm of the company are tempted to “manage from the grave,” being more concerned about their own individual legacy than that of the company.

For example, BlackBerry maker Research In Motion (RIM) has finally rid itself of its founders’ disastrous co-CEO/co-chair setup. Yet the stamp of the old management team is still very much in evidence. The founders continue to have a strong presence in the company, with both remaining as board members, and Mike Lazaridis staying on to head a newly created innovation committee.

RIM needs revolution, not evolution, and yet it has chosen to replace its co-CEOs with a company insider, Thorsten Heins, one of RIM’s two chief operating officers. While this may provide some continuity, what RIM needs right now are fresh eyes and ideas.

RIM’s newly appointed independent chair, Barbara Stymiest, has been on the board for five years, and though she comes with strong credentials, she may be too closely associated with past failures to be truly independent. Only time will tell if the former co-CEOs and co-chairs can truly let go and give the company the freedom it needs to right itself. Also in question is whether the new CEO and the board can resist being deferential to the founders or the pull of past strategies. To make the decisive moves needed to stop a death spiral, they must do both.

In another case, Yahoo’s decision to hire a new CEO before refreshing its board may prove to be a real detriment to fundamental change, again demonstrating a desire to “manage from the grave.” Jerry Yang may have left, and several other board members may be leaving as well, but by appointing the new CEO itself, the outgoing board has set the company on a path that a new board with fresh perspective might not see as the best way forward.

Getting the sequence wrong

This brings into a focus a second risk: getting the sequence of renewal wrong. By choosing to appoint the new CEO before a new board takes over, Yahoo’s existing board may have made a fundamental error for the company.

By making this move Yahoo’s current board has lost a significant amount of trust not only in the investment community but also among other stakeholders. The new CEO is potentially less credible to the market, and the new board may find it hard to work with him — or worse, decide that he is actually not the right choice for the job.

Had a new board hired the CEO, it would have signaled that long-term chemistry and commonality of purpose and vision was in place. Instead, this CEO will always be perceived as “of the past board” and will have to work that much harder to build trust with the new board and investors.

Keeping the world in suspense

One last danger is worth highlighting: Both RIM and Yahoo have dragged their feet on making decisions and sending a clear message to the market.

RIM promised to make changes to its governance structure months ago, and by not following through quickly and decisively, it shook the faith of investors and made people irate. It will have to work hard to regain the trust that has been lost. Most worrying, the changes may be too little, too late, and the announcements so far have not done much to quell concerns.

Yahoo’s board continues to leave everyone in suspense as to how many and which board members will be leaving the board besides Jerry Yang. This unnecessarily compounds the uncertainty that already surrounds Yahoo. If the board knows who will go, it should make that clear now. If it doesn’t know, it had better decide fast.

So how can boards avoid these issues when managing through tough transitions?

Take responsibility for the future

Avoiding the repetition of past mistakes is a responsibility that rests with individuals. For those who step down, it means resisting the temptation to manage from the grave — taking some last decision that will bind the company beyond their tenure. For continuing board members it means having the courage to make a decisive break with the past. They need to learn and apply the lessons of the company’s past and not fall victim to them or carry them forward.

The board appoints the board, as it were, but this represents a significant opportunity if those doing the appointing ask themselves who will be the best people to help move the company into the future. It is a tough task, because in times of extreme upheaval it means admitting that perhaps their own actions have been detrimental. The board’s holdovers must ask themselves who can bring the skills and experience needed to provide the stewardship their organization requires in a difficult period of transition.

For incoming board members it means avoiding the danger of being “sold” accounts of the past and establishing for themselves a full picture of the company’s strengths and weaknesses. They should hear from every constituency — board directors, members of the executive team, employees, customers, and investors — and ask probing questions of all those they speak with. Armed with this knowledge and their own skills, they can weigh competing narratives of the past and learn from history rather than become its perpetual victim.

Start the sequence of renewal with the board

When whole swaths of a company need to be renewed, sequence is important. Since the board appoints the CEO, it first needs to look to itself for renewal, including securing trust if it has lost it. Only then will the CEO have a running start.

The process of board renewal prior to appointing a new CEO and executive team may take slightly longer when properly sequenced. However, if done right, it will send a clear message to investors and stakeholders that the board has gotten the message, that it is prepared for and capable of taking decisive action in the best interests of the company, and that its number one concern is the company’s legacy — not its own.

The board must be able to tell when it has put all the right pieces in place. It can then take a step back from the front line and let the newly appointed executive team get on with the job. Here, too, the balance comes in the knowledge that stepping back from the front line of crisis management does not mean disengaging from the responsibility of stewardship.

Managing transitions successfully

RIM and Yahoo are just two examples of companies going through difficult transitions. But many companies, both in and out of the news, are experiencing the same sort of upheaval. Managing transition is an essential skill that boards and their directors must possess individually and collectively. Only boards with the ability to grasp the opportunity presented by periods of transition will be able to lead from the front and avoid being managed from the grave.

PHOTO: A Research in Motion (RIM) sign at its headquarters in Waterloo, Ontario, January 22, 2012. REUTERS/Geoff Robins

3 comments

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Two pretty dramatic examples that will keep biz school profs and (one suspects) corporate obituarists busy for some time, and I think the analysis is spot on. The kind of myopeia of which often very smart and decent men and women are capable when a company is going down is a study in the fascination of the horrible. Another way of saying that gaining perspective on our own situation is a hard thing. Another reason to read, for example, Thomas Kuhn and Leon Festinger, who tend not to make their way onto biz school reading lists (wondering here how many of the principals Lucy refers to have heard of them). At the end of the day, while organizations fail for many reasons the more the environment is characterized by change and the faster that change is taking place (ahem, Moore’s Law), the bigger the threat posed by groupthink, in its various iterations.

Posted by NigelCameron | Report as abusive

You are absolutely right: When major change is needed, restructuring the board should be the FIRST step. I can speak to this first hand as my business focus has been and continues to be on dealing with under-performing companies. After an initial in-depth analysis, the first step is always a restructuring of the board before any further action is taken. Although there is more complexity involved than this comment section will allow, said simply, if you get the board right and laser focused on performance and value maximization, then all else will cascade down from that level.

Restructuring the board in an of itself, is not enough. It is essential that the “right” board members be selected based on the particular situation. You noted RIM and Yahoo in your post. In both situations, the major investors have a much better grasp on what is needed than the incumbent board members do. At RIM, Jaguar Financial has been very vocal about what is needed and they are correct in their assessment. At Yahoo, activist investor Dan Loeb has also been vocal about this and is gearing up for a proxy fight if necessary.

By and large, active and sophisticated investors usually have a much clearer perspective regarding what is needed to improve a board than the board does. This says something about governance in publicly traded companies. You state that companies in transition “offer opportunities for fundamental, board-led change for the better….” Agreed that the opportunity is there. But, the likelihood that board-led change in these situations will be effective is very low to non-existent.

Henry D. Wolfe

Posted by DeLaVega | Report as abusive

Once again, on the mark.

Posted by BernardGrob | Report as abusive