Success in Succession
A topic we’ve been talking about a lot at Permanent Equity recently is succession, both for ourselves and our portfolio companies. Because if we’re going to have 27-year funds, we need to be prepared for unfortunate events to happen (and, yes, even more unfortunate than me pulling my hammie).
In fact, we’ve already had to implement succession plans at a handful of our portfolio companies, but to be candid the results have been mixed. And certainly mixed enough to say that we don’t have a foolproof approach to succession planning.
That said, I don’t think anyone does. I was reminded of this over the summer when Starbucks fired the fourth hand picked successor to 3x Starbucks CEO Howard Schultz. This was a guy who had trained under Schultz directly for six months and ostensibly knew what he was getting into. And then again when Disney announced a new head to its succession planning committee after they did such a good job picking Bob Iger’s replacement last time?
Because if multi billion-dollar companies like Starbucks and Disney can’t get this stuff right, what hope do any of us have?
Trying to answer that question is going to be a focus of our content efforts here at Permanent Equity now through the end of the year. Not only do we enjoy exploring topics we haven’t yet solved, but I have a particular soft spot for areas where supposed expertise seems to yield worse results than randomness (and, yes, a person off the street might have fared better than Orin Smith, Jim Donald, Kevin Johnson, Laxman Narasimhan, and Bob Chapek). Further, in reviewing the literature to date, it seems that everyone agrees that succession planning is a must-do, but few agree on how to do it.
My hope is that an outcome of this work is clear thinking about what a succession plan should be and who should be in charge of making it.
For example, Warren Buffett of Berkshire Hathaway made famous the idea that he had a name (or names) in an envelope that in the case of his death or incapacitation should be opened. But is that enough of a plan and is Buffett the right person to pick his successor? Perhaps one of the reasons Schultz’s successors failed at Starbucks is because they were chosen by Schultz because it may be the case that the very traits that make one a fantastic CEO also make one a terrible succession planner.
Further, what if succession plans are overreaching by recommending who the successor should be and instead should just identify what a successor needs to do? While potentially less actionable, limiting the scope that way would also make a succession plan potentially less bad. Because if you have a plan, unless you’re vigilant with metrics, it can take a long time to see that plan was actually a bad one – a fact that trips us up from time to time.
Anyway, lots of questions, fewer answers, but a topic we’re aiming to shed some light on. And, of course, I/we would love to hear your thoughts.
– Tim
