Should a departing CEO take up another role in the organisation?

Some organisations have given their departing chief executives or managing directors some role after their exit or end of tenure.

While there may be several benefits in doing so, there are significant downsides, which can make this a more complicated scenario than you might think.

One of the best reasons to give a departing CEO or MD a role in the company, for example, being a board member or advisor, is that they have a lot of inside information about the business and industry—something that many board members may not have in adequate supply.

Having an insider can serve as an asset to the other board members as they fulfil their duties to monitor and maintain organisational performance. Further, this may enhance the entire board’s ability to fulfil its fiduciary duties.

The presence of a departing CEO or MD in the company can facilitate a smoother transition for a new CEO, providing continuity and stability for the organisation.

The presence of a departing CEO can also boost the confidence of investors and other stakeholders in the organisation’s future.

Research suggests that successful and influential departing CEOs, as advisors or on the board, may provide valuable experience and guidance, potentially leading to improved organisational performance.

The departing CEO’s deep institutional knowledge and experience can be invaluable to the organisation and the new CEO. And particularly if the new CEO is a recruit from outside the organisation.

There are concerns, though, that a departing CEO’s presence can hinder the new CEO’s authority and create an environment of internal conflict.

The bigger negative consequence of appointing a departing CEO as an advisor or a board member of the company is that they can severely inhibit the kinds of choices the new CEO makes. This could, for example, include terminating pet projects started by the departing CEO and even firing underperforming executives who were in the departing CEO’s inner circle. Research indicates that the incoming CEO does not take on some of these difficult moves with their departing boss on the board or as an advisor. The negative impact of this scenario on the organisation’s performance is obvious.

A large survey of US companies by Berenbein concludes that “it is very difficult to discuss steps that may reverse a course of action with a board that includes the person who made the original decision.”

Additionally, departing CEOs retained by an organisation, for one role or another, may have a vested interest that could conflict with the best interests of the company and its current leadership.

Further, their previous authority has the potential to create power imbalances that would make it difficult for the current CEO to assert their leadership, voice, and culture for the organisation’s next phase.

It may be argued that the retention of a departing CEO in whatever role prescribed is a lack of confidence in the new leadership.

The retention of a departing CEO within the company could limit innovation and critical thinking. Additionally, they may not devote the time and attention needed to effectively contribute to the organisation, especially if they are involved in other ventures. This has the likelihood of delayed organisational decision-making. According to Betsy Atkins, chairman of the Google Cloud Advisory Board and a director of at least three publicly listed companies, it is not best practice for a departing CEO to remain in the company in whatever role once their tenure is complete, as this confuses the organisation because employees and other key stakeholders become unclear as to who is really in charge.

A departing CEO’s ties to the management team can also drastically impede the ongoing independence of the board of directors. A departing CEO’s deep knowledge of the company and industry may create information asymmetry and can lead the board of the company to become over-reliant on the departing CEO’s viewpoints, thus potentially limiting alternative viewpoints while introducing potential blind spots in the decision-making process.

The presence of a departing CEO within the organisation, who will invariably have a deep emotional connection to the company legacy, makes it very hard to put in the muscle and energy needed in executing a change of company direction, even when it is urgently needed.

The decision as to whether a departing CEO should be offered a role within the company may ultimately depend on several factors, including the departing CEO’s age and whether they were founders, as well as the characteristics of the incoming CEO and the firm’s performance at the time.The state of the company and the personality, ambitions and other characteristics of both the departing and incoming CEO have to be taken into account in determining whether the relationship between the two is likely to be productive or not.

- The writer is an expert in leadership