Succession in the Valley: some, like Hyperion, get it right. Most others, unfortunately, don't

Chief Executive, The, June, 2005 by Kim Girard

In 1999, Jeffrey Rodek was brought in to salvage the wreck of Hyperion's failed merger with Arbor Software. Rodek was a self-described numbers guy who had cut his management teeth during a 16-year stint at FedEx, but two years into his rescue operation at the financial reporting software maker, he decided the Santa Clara-based company could do better faster if it hired a chief operating officer who possessed the salesmanship he lacked. He found his man in 51-year-old Godfrey Sullivan, a former division president at design software maker Autodesk who also had spent 11 years at Apple Computer.

As soon as Sullivan arrived, Rodek went a step beyond making him a strong "No. 2"--he began preparing him to take over the corner office. Ten months ago, Rodek, at the age of 51, packed up his office and headed home to Orange County, Calif., leaving Sullivan in charge. Rodek retains executive chairmanship of the board and is "the angel on my shoulder who's there for a phone call, meeting or a piece of advice," says Sullivan.

Hyperion thus became the rare Silicon Valley company to enjoy a smooth transition between leaders. If only more Valley companies, where tech execs take on the aura of Hollywood moguls, could say the same. Certainly, there are notable successes; semiconductor giant Intel has had smooth transitions in the corner office going all the way back to the 1970s, and at Adobe Systems, where CEO Bruce Chizen managed to shake up management without alienating the company's founders, who were still on the board of directors.

But for the most part, the Valley is full of CEOs who came in sans premeditated transition plan. And it's an industry where good succession planning is particularly important because of the rapid pace at which technology changes. If a company stumbles for even a quarter as a result of a poor transition, it can miss crucial shifts in the market. "Not having a plan undermines the CEO from the get-go and costs the organization an enormous amount of money," says Jenny Chatman, professor at the University of California Berkeley, Haas School of Business.

The biggest obstacle to good succession planning in the Valley is often its greatest strength--the strong-willed entrepreneurs who made their companies what they are. "The shadow of the founder is very long," says Harvard Business School Professor Rakesh Khurana, who has studied CEO succession. Young programming wizard Larry Ellison turned a single-contract consulting firm for the Central Intelligence Agency into database giant Oracle. Scott McNealy turned a little computer company into Sun Microsystems. Steve Jobs was so critical to Apple's success, the company hasn't found anyone who could succeed him.

Therein lies the problem: the rock star CEO who is impossible to replace. "The vision and tenacity these people have--they're a rare breed who don't lend themselves to succession," says Geoffrey Moore, managing director of TCG Advisors, a corporate consulting firin, and the author of Crossing the Chasm.

That's why controlling the influence of founding CEOs once a successor is hired is almost impossible. Tom Siebel, the founder of struggling Siebel Systems, stepped down in May 2004 and was replaced by IBM veteran Mike Lawrie, but after less than a year, Siebel's board fired Lawrie and named George Shaheen, former CEO of Andersen Consulting and veteran Siebel board member, as the new leader.

Some say Siebel is waiting in the wings to return. "It's Tom's company," said Paul Wiefels, managing director of the Chasm Group, a high-tech consultancy in San Mateo, Calif. "My sense is that Shaheen is a caretaker until Tom reasserts his leadership." Siebel, who owns 10 percent of the company and serves as chairman, has told analysts he has no plans to leave the firm.

In Silicon Valley, many companies are pre-IPO and worry little about succession. They aren't large enough to groom prospects internally and lack the big operational jobs required to train future CEOs, says Simon Francis, a partner at Christian & Timbers, the executive search firm in Menlo Park, Calif. TiVo's cofounder Mike Ramsey, for example, stepped down as CEO in February, with no successor in sight.

Companies like Intel, which manage succession well, however, share some common ground: They plan for the long term, place a premium on executive training, identify talent early and limit the CEO's stay at the top. Indeed, Intel almost makes succession look easy. The company appointed its fifth home-grown CEO in November 2004, picking 54-year-old Paul Otellini to replace Craig Barrett. Within a few months, the board was already planning for Otellini's successor, says David Yoffie, a 16-year veteran of Intel's board and Harvard Business School professor.

At its annual meeting in January, the board was in deep review of the senior management team and scanning a list of contenders for the top job. Yoffie says the board typically plans five or six years out. "We look at people who are in their late 30s and early 40s and think about their long-term career perspective," he says. Once or twice a year the board also reviews programs for improving top managers' skills, reviewing recent promotions and tracking career advancement. Focused sharply on grooming leaders from within, Intel trains its top managers to practice "two in a box," a method of overlapping job duties to help execs who lack skills in certain areas to support each other. They learn new skills while also covering areas in which they lack experience.