When CEOs step down but remain as board chair, what’s the forecast for incoming CEOs?

Drs. Navio Kwok, Richard Davis | 16 December 2021

“Iger is an extraordinary leader whose Midas Touch was missed throughout the Disney ecosystem.” – Dr. Richard Davis, Kilberry CEO

Updated: 19 July 2023

One of the most challenging endeavours for freshly minted CEOs is making their mark early in their tenure while valuing the efforts of their predecessor.

And this is especially tough when the CEO stepping down remains as chair of the board.

Consider a recent example from Disney.

After delaying his retirement four times since 2013, Bob Iger announced in December 2019 that he was ready to step down as 15-year CEO of Walt Disney Company. Although there were rumblings of a flu-like virus, which led to the eventual shutdown of their Shanghai theme park, Disney moved forward with their succession plan two months later. Bob Chapek, former head of parks and cruises, took over as the new chief executive while Iger remained as executive chairman and chairman of the board.

In an interview with Fortune, corporate governance expert Charles Elson notes, “Executive chairman means you’re CEO. The person with the CEO title is really the chief operating officer.”

So, what happened at Disney?

Despite handing over the keys to the Magic Kingdom, Iger began reasserting his control and returned to running the company. So much so, that internally, the new CEO Chapek was referred to as “Bob C” while the former CEO Iger was just “Bob”. Although Iger suggested that this arrangement was all part of his plan – for him to focus on the creative side of the business and for Chapek to take on the day-to-day operations of the company – one of Iger’s associates said Iger “miscalculated” the extent that the gravity would shift over to Chapek after he stepped down.

At Disney’s annual board and top management retreat in June 2021, Iger’s final remarks were seen as a dig to the number-cruncher Chapek – “In a world and business that is awash with data, it is tempting to use data to answer all of our questions, including creative questions. I urge all of you not to do that.” Chapek was said to have followed-up by declaring Disney was now a data-driven company.

A recent study published in the Academy of Management Journal explored a similar scenario that is intertwining Disney. Analyzing CEO successions of all publicly listed S&P 500 companies between 2001 and 2012, they first find that a new CEO’s early dismissal is –

  • 2.42x more likely when the outgoing CEO remains as board chair, and

  • 1.53x more likely when there is a negative stock market reaction.

With pandemic factors also at play, Disney’s stocks dropped 39% month-over-month about a month after Chapek was announced as CEO. Over the course of 2022, the company’s shares have fallen more than 40%.

The study also finds that new CEOs are trapped in a catch-22 –

  • New CEOs who maintained strategic continuity of their predecessors were better able to retain a strong relationship with the former CEO/new board chair, which reduced the negative impact they had on new CEOs’ early dismissals. However, the stock markets did not respond favorably, which increased the negative impact they had on new CEOs’ early dismissals.

  • On the other hand, new CEOs who displayed more independence from their predecessors impressed the markets, which reduced the negative impact they had on new CEOs’ early dismissals. That came at the expense though, of the relationship between the new CEO and former CEO/new board chair, which increased the negative impact they had on new CEOs’ early dismissals.

Chapek’s list of controversial changes since taking over the helm include releasing new movies on Disney+ the same day they hit theatres, which led to a now-settled lawsuit from Scarlett Johansson claiming the company breached her contract and deprived her of potential earnings.

For CEOs/leaders in this position, here are some considerations –

  1. For newly appointed CEOs, recognize that you cannot please everyone, as we know intuitively and as this research highlights. You must decide how you want to lead and show up, and to whom. Pleasing everyone is pleasing no one.

  2. This can reflect a timebound problem for new CEOs. For instance, at the beginning of your tenure, it may be important to win over the former CEO (and board chair). However, at a certain (early) point in your tenure, it will be critical to shift your focus and approach to other important stakeholders, including shareholders.

For boards, beware of boomerang CEOs, where former CEOs come back to save the day. While there are several high-profile examples of success, such as Apple and Starbucks, this is a sign of poor succession planning, and recent research finds that these anecdotes are exceptions rather than the rule.

The writing was on the wall for Chapek’s future at Disney. With just under three years at the helm, the company announced that Chapek would be replaced by his predecessor Iger, who is tasked with setting a new strategic direction and developing a succession plan over the next two years.

“Iger is an extraordinary leader whose Midas Touch was missed throughout the Disney ecosystem,” said Dr. Richard Davis, CEO of Kilberry. “The challenge of succession returns, though. Two years is nothing.”

On this last point, Disney just extended Iger's tenure for an additional two years, through 2026.


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