Succession is never easy, particularly at firms where the Founder/CEO is still active on the Board.
CEO succession is difficult for firms across industries, particularly when a given firm is looking to name a successor to the Founder CEO. Oracle and Carlyle Group have had different succession experiences.
Oracle (ticker: ORCL) comes to mind as a firm who seems to have got it right in terms of finding a successor (Safra Catz), that meshes with the founder/former CEO (Larry Ellison). I question Ms. Catz’s technology chops, but ORCL over the past 20-plus years has been less about cutting edge technology (regardless of Larry Ellison’s propaganda), and more about M&A, Operating Margins and Cash Flow. Ms. Catz’s skill set fits that bill. Equally important is the fact that Ms. Catz’s personality meshes well with Mr. Ellison’s. So often the question of whether or not succession will work comes down to the personality of the principals (Mr. Ellison and Ms. Catz in the case of Oracle, and often includes other co-founders and/or Board members). Ms. Catz has been Co-CEO or CEO since 2014 and an ORCL Board member since 2001.
The Carlyle Group (ticker: CG) succession story is a puzzle. Earlier this month former Carlyle Group CEO Kewsong Lee abruptly announced that he was stepping down as CEO. Bloomberg reported that tensions had been building for months between Mr. Lee and Carlyle’s co-founders/Board members. Perhaps the Board “settled” on Mr. Lee as he was the only choice the Board could agree upon? It appears that Carlyle’s Board did not and does not have a CEO qualification process which would remove the mystery around who will be the next CEO and where that person will come from. The fact that Carlyle has hired search firm Russell Reynolds to help identify the next CEO smacks of not having a CEO qualification process nor a robust bench of internal CEO candidates. Three co-founders sit on Carlyle’s Board. One of them – William Conway – serves as interim CEO.
What is so puzzling is that Carlyle’s three co-founders are intelligent men with decades of experience, yet between them they could not craft an effective CEO qualification process to identify a successor. Founders ought to spend a significant amount of time qualifying the next generation of leaders to ensure the firm’s longevity. Any qualification process needs to be ingrained in the firm’s day-to-day operations. This did not happen at Carlyle.
M&A the answer? Don’t be surprised if Carlyle is acquired by another Asset Management firm. Carlyle’s Market Cap is approximately $13 billion with AUM of approximately $400 billion.