Philippa Kaur

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Of the many worries that whirl around the minds of chief executives, few are more unsettling than the question of succession. Having toiled their way to the top of the corporate ladder, many bosses struggle to imagine relinquishing control and placing their legacy in the hands of another.A growing number of America’s bosses have instead opted to defer the matter altogether. By the end of last year 101 S&P 500 CEOs had held the corner office for more than a decade, up from just 36 ten years earlier, according to figures from MyLogIQ, a data provider. Although some, like Warren Buffett, the longest-serving of the lot with 53 years on the clock, built the companies they run, most are hired hands. Jamie Dimon of JPMorgan Chase, a bank, Shantanu Narayen of Adobe, a software firm, and Chris Nassetta of Hilton, a hotel franchise, are among the many who have outlasted their predecessors. Such long-serving bosses have pushed the average tenure of S&P 500 top dogs up from six years to seven over the past decade.image: The EconomistSome bosses have become infamous for their reluctance to move on. Earlier this year Howard Schultz ended his third stint as boss of Starbucks, a coffee chain. Late last year Bob Iger took back the reins at Disney, a media giant, from his chosen successor, Bob Chapek. In July his two-year contract was extended until the end of 2026. The question of succession has long loomed over Mr Buffett’s conglomerate, Berkshire Hathaway.Of course, plenty of companies are well served by CEOs who hang around. And with populations healthier for longer, forcing bosses out once they reach an arbitrary retirement age, as many firms still do, is unnecessary. Yet the lengthening tenures of America’s bosses is a cause for concern.In 1991 Donald Hambrick and Gregory Fukutomi, then both at Columbia Business School, published an influential paper on the “seasons” of a CEO’s tenure. They suggested that, in the early years, performance improves as the boss learns the ropes, but later declines as they become more resistant to change and less engaged in the job. A paper in 2015 by Francois Brochet of Boston University and his co-authors sought to quantify that tipping-point in performance by studying the relationship between market value and CEO tenure among listed American firms. They found that CEO performance rose through roughly the first decade on the job before flattening off, then beginning to decline after around 15 years.“Eventually you lose the oomph and the creativity,” says Bill George, a former CEO of Medtronic, a medical-technology company, who now teaches at Harvard Business School. That vigour is especially crucial when a company is in need of reinvention. Microsoft’s transformation under Satya Nadella into a cloud-computing giant at the vanguard of artificial intelligence may never have happened had Steve Ballmer, who led the business through a period of stagnation from 2000 to 2014, stuck around.An extended stay carries risks even when a CEO’s long stint seems justified by stellar performance. Mr Iger delayed retirement three times during his original 15-year spell as Disney’s boss, leading a number of potential successors to try their luck elsewhere. Boards waiting to find a replacement CEO with experience comparable to the incumbent’s necessarily find it harder the longer they delay, notes Jason Baumgarten of Spencer Stuart, a headhunting firm.Ideally, succession planning should begin the day the CEO starts, says Claudia Allen of KPMG, a consultancy. That involves building a pipeline of candidates, assessing their skills and developing a plan to fill gaps. Public spectacles like the six-year saga to replace Jack Welch at GE, a once-mighty American industrial giant, are best avoided. Separating the roles of chief executive and chairman of the board can help, too (appointing a lead independent director is seldom sufficient to keep in check an almighty boss with both jobs, let alone sack one). Two in three S&P 500 CEOs who have been in the role for longer than a decade also chair the board, compared with two in five for the whole group.Perhaps the most important rule for succession is to make a clean break. Bosses that hang around after their turn has ended do their successors a disservice. The most pernicious example of this is the CEO who stays on as “executive chairman”, a loosely defined title that gives its bearer the right to meddle in big decisions while shirking operational responsibility. James Gorman of Morgan Stanley will take on the title when he steps down as the bank’s CEO in the coming months.Last year 15% of S&P 500 companies were presided over by an executive chairman. Some, like Jeff Bezos and Rupert Murdoch, are founders eager to maintain a say over the companies they built. For the rest, the role may look like a handy way to smooth a transition. But it brings dangers. Predecessors may struggle to accept shifts in strategy, and confusion may reign as to who is ultimately in charge. During Mr Iger’s stint as executive chairman of Disney, he and Mr Chapek clashed over a number of big decisions, denting the new hand’s credibility.Get an afterlifeThat CEOs find it hard to let go is unsurprising, and not only because power is seductive. Many struggle with the sense that, having reached their professional pinnacle, there is little left to do, says Mr George. Rather than retiring to a life of leisure, he counsels bosses to find ways to make use of their wisdom. Some may choose to sit on boards. Others, like him, may teach. Others still may try their hand at politics. Before his latest return to Starbucks Mr Schultz toyed with a presidential bid; Mr Dimon is being urged by some to pursue one. It is uncomfortable to accept that an organisation you lead will survive without you. But stepping down need not mean stepping into obscurity. Many of America’s bosses still have plenty to give—not least a shot for the next generation.■ More

Ernie Bot has some controversial views on science. China’s premier artificial intelligence (AI) chatbot, which was released to the public on August 31st, reckons that covid-19 originated among American vape-users in July 2019; later that year the virus was spread to the Chinese city of Wuhan, via American lobsters. On matters of politics, by contrast, the chatbot is rather quiet. Ernie is confused by questions such as “Who is China’s president?” and will tell you the name of Xi Jinping’s mother, but not those of his siblings. It draws a blank if asked about the drawbacks of socialism. It often attempts to redirect sensitive conversations by saying: “Let’s talk about something else.”Ernie’s reticence will come as no shock to Chinese users familiar with a heavily censored internet. They may be more surprised by the AI’s origins. For Ernie is the brainchild of Baidu, a Chinese tech giant that has for years been outshone by rivals. Now, thanks to ai, the firm is staging a comeback. The extent to which it succeeds will say much about the prospects for Chinese tech, which is squeezed both by America’s export controls and Mr Xi’s increasing authoritarianism.A decade ago Baidu, which operates China’s largest search engine, was at the centre of the country’s internet. Together with Alibaba and Tencent, China’s two most valuable internet businesses, it formed a triumvirate known as “BAT”. With foreign search engines banned or heavily censored in China, it faced little competition.Baidu never lost its dominance of that business; it still enjoys upwards of 90% of China’s search traffic. Yet shifts in the tech landscape have left the company a shadow of its former self. Most Chinese internet users now access the web through super-apps such as Tencent’s WeChat. Advertising dollars have shifted to the likes of Douyin, the Chinese cousin of TikTok. Meituan, a delivery platform, and Pinduoduo, an e-commerce firm, have surged past Baidu’s valuation of $50bn. In an effort at emulation, it launched its own delivery and shopping solutions, along with other services such as payments and social media. These mostly flopped. The company’s market capitalisation is now equivalent to one-eighth of Tencent’s, down from one-fifth five years ago.Baidu’s rollout of AI, however, is reigniting excitement about the company. Ernie was downloaded 1m times within 19 hours of its release (ChatGPT reached 1m downloads after five days, according to its maker, OpenAI). Baidu’s shares rallied by more than 4% on the day of release, as analysts, investors and common folk bombarded the bot with questions. Although four other firms, including SenseTime, a facial-recognition business, launched similar services on the same day, and six others have been granted approval by China’s government, Ernie is generating the most excitement.Last month Robin Li, Baidu’s chief executive and co-founder (pictured), said that the rollout of AI had been a “paradigm shift” for the company. Yet it did not happen overnight. Years of investment have turned Baidu into one of China’s most sophisticated AI companies, with a system that encompasses chip design, a deep-learning framework and proprietary models and applications. The company started building Ernie in 2019, making it one of the earliest to experiment with such generative AI.So far Baidu has shied away from giving guidance on what the technology will mean for its bottom line, but analysts believe Ernie will drive more traffic to its search engine and other services, raising ad revenues. Baidu has also cemented itself as China’s largest AI cloud provider, and has started offering bespoke solutions for companies that want AI models designed for them.Enthusiasm for Baidu’s other major foray into AI, an autonomous-taxi business, is more muted. The service has been launched in a few cities across China, allowing users to hail robotaxis via a mobile app. But trips must still be monitored remotely, and a wider rollout could be years away. Few analysts expect the unit to generate meaningful profits soon.Much of what comes next for Baidu will depend on policymaking in Beijing and Washington. The Biden administration’s restrictions on the sale of advanced chips to China are causing the company a world of pain. Almost all of those chips, which most AI builders use to train their models, are produced outside China. Using a larger quantity of lower-powered chips is possible, but expensive.In Baidu’s case, its AI efforts rely on the Kunlunxin chip. Although it designed the chip itself, production is outsourced to companies like TSMC, a Taiwanese foundry. America’s restrictions put limits on the types of chips foreign foundries can sell to Chinese firms, and no domestic supplier can produce such advanced components. Since America’s restrictions were announced, Baidu has been downplaying the importance of the Kunlunxins, which may hint that it is having problems procuring them.Closer to home, China’s government has taken a keen interest in the regulation of AI, moving faster than most other countries. That has yet to cause too much consternation among the country’s tech executives. Regulators recognise the commercial value of AI and want companies to make money from it, says one executive. They also grasp the importance of allowing Chinese firms to compete at the global level, the person says. The approval of the first batch of bots was quicker than some had feared. Long delays, such as those for video games, often hurt the share prices of their Chinese makers.Yet many AI enthusiasts still find some rules onerous, especially for a nascent industry. Companies offering generative-AI services are required to identify and report “illegal content”. They must also adhere to China’s “core socialist values”, a sweeping and ambiguous command. After netizens spotted that a prompt for a “patriotic cat” in Ernie’s drawing application produced a picture of a feline with an American flag, the words “patriotism” and “patriotic cat” were blocked in the tool. Users may be put off by what Chinese AI cannot say, or fearful of being reported for asking the wrong questions. The costs of censorship and compliance will start to add up for Baidu and other companies, warns Kai Wang of Morningstar, a research firm.Recent experience has made it clear to China’s tech executives that they operate at the pleasure of the government, and that its favour can be quickly withdrawn. Internet firms were hit with several regulatory crackdowns between 2020 and 2022. Another on AI could do great damage to the companies that have invested in the technology, not least Baidu. The company is testing the waters in a difficult environment. For that reason it is important to watch what Ernie says—and all that it doesn’t. ■ More

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