Lessons from Yahoo: Enduring Organizations Manage Executive Succession

This week we witnessed another vivid lesson in the value of executive succession: Jerry Yang steps down as the CEO of Yahoo!. Yang replaced Terry Semel, who spent years trying to build Yahoo! into a media company, only to see it lose market share to the more innovative, technology savvy Google. Yang presided over an indecisive decision not to merge with Microsoft, and watched the Yahoo! stock drop from $33 to around $11, effectively trimming billions of dollars off the company’s value.

Now we find that yes, in fact, Yang is a great visionary, but not a strong leader – his inability to change the consensus culture at Yahoo! and make rapid decisions (the Microsoft merger seemed pretty logical to me) are now considered out of favor. The board is looking for an internet-savvy leader who can make decisions, drive execution, and build alliances.

Companies do not have to go through this. In fact, Enduring Organizations®, companies that build brand value over decades of business cycles, rarely if ever go through such tremendous soul-searching to find CEOs. They build strong leadership models, capturing the essence of their business and talent strategy in a set of leadership capabilities. Then they identify high potential leaders throughout the company, using well understood approaches to succession management. And they develop leaders internally through a wide variety of approaches: developmental assignments, internal projects, executive coaching, external education, and 360 assessments.

Look at companies like GE, IBM, Procter & Gamble, Textron, McDonald’s, and Goldman Sachs. These companies have deep pipelines of leadership talent, always being developed and assessed for future top positions. When a change needs to be made, 90% of the time it can be made internally.

Sometimes, of course, a company loses its way and an outsider is needed: Lou Gerstner at IBM and Ron Williams at Aetna. But these situations are rare in these companies, they work hard to constantly re-evaluate their leadership needs and build new leaders as business cycles change. IBM, my alma mater, has completely changed its “profile of leadership” in the last 5 years to reflect the company’s new business model of global services, team based consulting, innovation, and expertise development.

In many ways companies like Yahoo! are still young, so these “old-fashioned” processes have not yet taken root. But that’s no excuse: if Yahoo! wants to become an Enduring Organization®, it’s high time they took the executive succession process seriously. It may be too late, time will tell.

Bersin & Associates defines an Enduring Organization® as one which develops long term business value over decades, through many business cycles, and through many transformations. These companies outperform their peers over consistent periods of time. Our research focuses on identifying the proven principles of enduring organizations to help younger companies embrace these proven approaches to managing talent.

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