With Amazon officially naming Andy Jassy its new CEO, the multinational e-commerce company demonstrates a clear succession plan as now former CEO and founder Jeff Bezos transitions to executive chairman of the Amazon Board of Directors.
Darla Moore School of Business management professors Patrick Wright and Donald “DJ” Schepker have done intensive research on CEO succession planning and both see Amazon’s announcement and choice of Jassy as a meticulously planned decision that was likely years in the making. Wright and Schepker have worked with numerous organizations to explore CEO successions’ successes and failures. Both say time will tell how involved Bezos will be as executive chairman; since he is also the founder of Amazon, he is likely to be much more involved than a typical chairman and have tremendous influence on the future strategy of the company.
Wright and Schepker answer some questions about succession planning and how Amazon has handled their CEO succession announcement this week.
Why is succession planning important?
Wright: The CEO is the most impactful and important job in a company, and the requirements of the role are extremely difficult. Without adequate planning, the company can be caught in a situation where they must put someone into the role who lacks important qualifications, and that can have dire impact on the company’s performance. For instance, one company we worked with gathered the performance data of firms that had made poor CEO succession decisions with firms that had made good ones and found a 20 percent difference in market value.
Schepker: Succession planning ties the needs of the organization to the capabilities of its potential CEO successors. It allows for multiple years of assessment and development of organizational capabilities to enhance the transition’s success. CEO successions are also disruptive events, and succession planning can limit such disruption by enabling a more orderly transition of power. Companies without effective succession planning can often fall prey to common decision-making biases or be caught off-guard when the need for transitions arise. This latter scenario can increase the likelihood of selecting the wrong individual or relying upon the use of an interim CEO, which often has adverse consequences for the organization.
What does this c-suite transition mean for Amazon?
Wright: It was clearly a planned decision. They seemingly had narrowed it down to two individuals they thought were viable candidates and ended up choosing the one who the board felt was most appropriate for the challenges that Amazon will face going forward. Jassy has probably been aware that he was the successor candidate since August, and so there were likely some internal efforts to prepare him. With the announcement, he will begin to take on increasing internal responsibilities, but more importantly, will be more visible with the external stakeholders such as analysts, customers and the press. In essence, instead of throwing him in the deep end and hoping he swims, they transition him from the kid’s pool to the shallow end of the adult pool and then finally to the deep end. This is entirely consistent with our research, which finds this to be a normal succession process. There is a time frame, usually 2-3 months between when the board makes the formal decision and the decision is announced and then about a 6-month timeframe between that announcement and the new CEO formally taking on the role. The only thing to watch for is if the transition is accelerated. We often see that if the successor seems to be adapting into the role well, the current CEO may hand over the reins earlier than the planned timeline.
Schepker: This announcement illustrates a clear process has been followed. The next six months allow for an orderly transition of duties from Bezos to Jassy. This time period also allows Jassy to gain additional visibility with important external stakeholders, including key shareholders, analysts, suppliers and customers. Given recent investments in logistics and growth in the core business, it is likely that Jassy can continue operating the business successfully implementing existing growth plans. The choice of the leader of Amazon Web Services, however, may also signal Bezos’s and the board of director’s intention to push more toward strategic growth in the cloud computing space.
Are there any special considerations that need to be taken into account considering Bezos is not only the CEO but the company founder?
Wright: When Howard Schultz transitioned from CEO to chair at Starbucks after naming Jim Donald as the new CEO, people wrongly concluded that he was leaving the CEO role. After the board fired Donald and Schultz again took on the CEO role, those in the inner circle noted that Schultz never really left the role. It will probably be a similar situation at Amazon. As executive chair, Bezos will still have tremendous influence on the strategy of Amazon. It’s highly likely that Jassy will be clearing any strategy changes through Bezos before he announces them. As founder, chances are if he disagrees with Jassy on a strategy issue, the board will likely side with Bezos over Jassy. So, it’s likely that Bezos will move from developing strategy to approving strategy, leaving the development to Jassy.
Schepker: The transition for founders to CEO to executive chair can often be difficult. Bezos will always be synonymous with Amazon, and his presence as executive chair will likely always loom over every decision. This can create tension if senior executives or other employees disapprove of decisions made by Jassy and air such grievances with Bezos. It is important that Bezos and the board of directors appropriately scope the role of the executive chair to clearly delineate duties between the executive chair and the CEO. It is not uncommon for executive chairs to desire to retain approval authority over strategic decisions, which can often limit the strategic discretion felt by the CEO. This has led to high profile conflicts in the past. In the end, it will be important for the board of directors to not only delineate responsibilities between the executive chair and the CEO, but also to navigate the relationship between the two executives.
Anything else that we should know regarding succession planning?
Wright: I’d say one way to see what influence Bezos will have will be evident by his office and his control over certain resources. If his office doesn’t move, it will signal to the organization that he is still the “real” CEO, and Jassy is more the “nominal” CEO, kind of like CEO vs. ceo.
Schepker: Succession planning is perhaps the most important responsibility that is housed with a company’s board of directors. Our own research shows that companies which follow more formalized succession planning processes are more likely to have ready, internal CEO succession candidates with a larger pool of candidates to consider. Despite this, research also shows that many boards of directors feel unprepared for succession or that their boards’ current processes are ineffective or incomplete. Succession planning is a multi-year process that is linked to other organizational talent management processes. Boards face significant challenges throughout in reducing information asymmetries regarding the company’s future needs, the current capabilities of the organization’s senior executives, and the development opportunities that may exist to enhance executive capabilities. As such, succession planning requires considerable teamwork between the board of directors and the organization’s CEO and chief human resources officer.