The Succession Question: When's the Right Time to Go

Tech companies often pose unique succession issues, in part because of their unusually fast growth and young founders, according to Wharton faculty and technology experts.

By No Analyst or Consultant

May 10, 2006 — CSO —

The recent resignation of Scott McNealy as CEO of Sun Microsystems, the company he founded 22 years ago, is another milestone in the succession process of a large technology company. But tech companies often pose unique succession issues, in part because of their unusually fast growth and young founders, according to Wharton faculty and technology experts.

"If you look at the dominant companies in the technology industry, most of them are still led, or until recently were led, by a charismatic founder. By and large, the companies that have made the transition have done a pretty good job of it," says Kevin Werbach, professor of legal studies and business ethics at Wharton.

In 2000, for example, Bill Gates turned his CEO position at Microsoft over to his first hire, Steve Ballmer, although Gates remains chairman. Adobe Systems founders John Warnock and Charles Geschke similarly turned over the CEO job to Bruce Chizen.

The industry is still young, however, and many of the best-known firms continue to be run by entrepreneurial founders, such as McNealy, who have been in their jobs for decades and have grown to become corporate icons. It remains to be seen what will happen at Oracle, which is still run by founder Lawrence J. Ellison after nearly 30 years, and at Apple, where founder Steve Jobs left the company once, but is now enjoying a second honeymoon with the success of the iPod and iTunes.

Celebrity Entrepreneurs

While succession is important at any company, it can be even more critical at a firm run by entrepreneurs, such as Gates or Jobs, who are also celebrities.

"In a situation where the CEO is also the founder, it's not just a succession event when he or she steps down," says Wharton management professor Peter Cappelli. "These people are closely identified with the organization, and it can be extremely traumatic when somebody like that [leaves]. They have to think carefully about what kind of person could step in."

Young start-ups flourish with creative, charismatic leaders who have a deep passion for, and understanding of, technology. But as the organizations grow, they need chief executives with a different set of skills, including the ability to delegate and to operate in a highly structured management system, says Kartik Hosanagar, Wharton professor of operations and information management. "In the technology industry, you have entrepreneurs who have been running the show for a really long time. But as these firms start to grow, they need to be looking at seasoned managers who have broad-based management skills."

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