The Succession Problem

Tim Cook and Steve Jobs

[Cross­posted from my Medium blog]

Only a few in­sti­tu­tions fulfill their in­tended pur­pose. Such a func­tional in­sti­tu­tion stands out as re­mark­able. It is the ex­cep­tion rather than the rule, always trac­ing its be­gin­nings to a founder. Such in­sti­tu­tions at first always have a skil­led pi­lot — he can al­ter and di­rect the in­sti­tu­tion in a way that pre­serves or im­proves its func­tion­al­ity. If he weren’t able to do so, he would not have been able to cre­ate a func­tional in­sti­tu­tion.

How­ever, the founder can­not re­main the pi­lot for­ever. Another pi­lot, a suc­ces­sor, has to step in and take the reins for the in­sti­tu­tion to re­main pi­loted. Fur­ther­more, in or­der for the in­sti­tu­tion to re­main func­tional and a live player, this new pi­lot must also be skil­led. Such a per­son ex­tends the life of the in­sti­tu­tion, al­low­ing it to achieve more than it oth­er­wise would. En­sur­ing the in­sti­tu­tion ac­quires this new, skil­led pi­lot is the suc­ces­sion prob­lem.

In­sti­tu­tional longevity is a mat­ter of skill and power

As we see, the suc­ces­sion prob­lem has two com­po­nents: power suc­ces­sion (hand­ing off the reins of the in­sti­tu­tion, keep­ing it pi­loted) and skill suc­ces­sion (trans­fer­ring the skill needed to pi­lot the in­sti­tu­tion well, keep­ing it a live player).

If the founder han­dles both parts of the suc­ces­sion prob­lem, suc­cess­fully hand­ing off the in­sti­tu­tion to a per­son who can skil­lfully al­ter it as nec­es­sary, then the in­sti­tu­tion re­mains pi­loted and a live player. If nei­ther part of the suc­ces­sion prob­lem is han­dled, then the in­sti­tu­tion be­comes un­piloted and a dead player.

If power suc­ces­sion is suc­cess­ful but skill suc­ces­sion is not, then the in­sti­tu­tion re­mains pi­loted, but not a live player. Some­one is at the con­trols, but they don’t re­ally know how to use them.

There are mul­ti­ple pos­si­ble out­comes to such a sce­nario. At worst, the pi­lot ag­gres­sively mis­man­ages the in­sti­tu­tion. This situ­a­tion can be catas­trophic; the pi­lot might crash the plane. At best, the un­skil­led pi­lot re­mains at the con­trols but in­ter­venes min­i­mally, al­low­ing the in­sti­tu­tion to func­tion while also defend­ing his abil­ity to al­ter and di­rect it. Of course, if the pi­lot is also not skil­led enough to main­tain his power then the in­sti­tu­tion will even­tu­ally be­come un­piloted un­less a skil­led pi­lot steps in.

If skill suc­ces­sion is suc­cess­ful but power suc­ces­sion is not, then the in­sti­tu­tion be­comes un­piloted and a dead player un­less and un­til the skil­led per­son gains the nec­es­sary in­sti­tu­tional power to pi­lot it.

As an ex­am­ple, the founder of a com­pany might re­tire, giv­ing way to an out­side CEO ap­pointed by a rather con­ser­va­tive board. Even if there is a ju­nior en­g­ineer or de­signer that has the pas­sion and ex­per­tise needed for a whole new kind of product that the team could de­liver, he will not be po­si­tioned to re­al­ize this vi­sion.

To suc­cess­fully change the com­pany, the en­g­ineer would have to at best per­suade, at worst by­pass, the new man­age­ment. Ideally the em­ployee even­tu­ally ma­neu­vers them­selves to the po­si­tion of CEO. If this hap­pens at all, it can take years. In­stead, he might do bet­ter to fundraise and re­cruit for a new start-up.

If you imag­ine a chaotic and di­s­or­ga­nized par­ent com­pany, with shards of re­spon­si­bil­ity and bu­reau­cratic en­trench­ment, in the above ex­am­ple the prob­lem of suc­ces­sion gets harder and not eas­ier.

Over the lifes­pan of a bu­reau­cracy, power lent out to var­i­ous del­e­gates be­comes owned, al­low­ing in­di­vi­d­u­als to use or­ga­ni­za­tional re­sources to pur­sue agen­das at odds with the pur­pose of the or­ga­ni­za­tion. They form an en­trenched op­po­si­tion, that makes ren­der­ing the in­sti­tu­tion func­tional a no­table challenge. Gain­ing con­trol of in­sti­tu­tions that have be­come un­piloted is of­ten more difficult than found­ing one’s own in­sti­tu­tion, even for a skil­led ac­tor.

Even af­ter be­com­ing un­piloted, a func­tional in­sti­tu­tion can re­main effec­tive for a while, but it will de­cay and even­tu­ally cease to be func­tional or even cease to ex­ist un­less some­one cap­tures it and starts pi­lot­ing it.

Creative de­struc­tion is not a ne­ces­sity for innovation

Sili­con Valley en­thuses over dis­rup­tion be­cause we have be­come so used to the suc­ces­sion prob­lem re­main­ing un­solved. To dis­rupt an or­ga­ni­za­tion, in­dus­try, or cul­ture can only be good if it isn’t pos­si­ble to co­op­er­a­tively trans­form it. Un­der such con­di­tions each gen­er­a­tion of in­no­va­tors must start anew or waste their efforts with a scle­rotic struc­ture.

Suc­cess­ful skill suc­ces­sion cou­pled with failed power suc­ces­sion can lead to de­struc­tive strife. Peo­ple of ex­cep­tional abil­ity and am­bi­tion do not nec­es­sar­ily seek out con­flict, but will gen­er­ally be will­ing to en­dure it. Depend­ing on their op­tions it might be the best course of ac­tion to at­tempt to dis­man­tle or de­stroy the old or­ga­ni­za­tion which they couldn’t work with.

Func­tion­ing firms are repos­i­to­ries of many kinds of cap­i­tal that can­not be liqui­dated, and when they die, it is de­stroyed. Such cap­i­tal in­cludes po­si­tion, team syn­chro­niza­tion, good or­ga­ni­za­tion and tacit tech­ni­cal know-how. Th­ese are ca­su­alties of eco­nomic com­pe­ti­tion.

We have no prob­lem iden­ti­fy­ing this phe­nomenon as prob­le­matic in poli­tics. We view the de­struc­tion of an old poli­ti­cal or­der by means such as civil war or poli­ti­cal strife as re­gret­table ne­ces­sity at best, not some­thing to cel­e­brate. This stands in stark con­trast with our view of the phe­nomenon in the econ­omy, likely be­cause we over­look the de­struc­tive side.

Few ma­ture tech­nolog­i­cal com­pa­nies to­day use their po­si­tion to sup­port effec­tive in­no­va­tion. Many com­pa­nies spend sig­nifi­cant re­sources on re­search, but few man­age to ag­gres­sively im­ple­ment and de­ploy. Ama­zon pro­vides a con­tem­po­rary proof of pos­si­bil­ity, with its con­stant pur­suit of tech­ni­cal in­no­va­tion in ser­vice of ever larger economies of scale and lo­gis­ti­cal effi­ciency.

That Ama­zon is one of the ex­cep­tions re­flects the poor health of the cur­rent batch of in­sti­tu­tions, rather than the na­ture of ma­ture com­pa­nies or even un­der­ly­ing mar­ket in­cen­tives. Dis­rup­tion should be the backup rather than the first choice for in­no­va­tion. That it isn’t is the re­sult of poor in­sti­tu­tional health.

An over­abun­dance of tal­ent in the ab­sence of suffi­cient op­por­tu­nity and power suc­ces­sion can ren­der so­ciety quite chaotic. If am­bi­tion is out­lawed, only out­laws are am­bi­tious. On the other side of the spec­trum, buy­ing sta­bil­ity through the ab­sence of tal­ent is fu­tile in the long run. In­sti­tu­tions ul­ti­mately de­cay with­out ren­o­va­tion ei­ther from within or with­out.

Sclerotic in­sti­tu­tions even­tu­ally break rather than bend, which is the source of catas­trophic in­sta­bil­ity. When think­ing of a com­pany, this might re­sult in a des­o­lated com­pany town, when think­ing of a civ­i­liza­tion, the re­sult is so­cietal col­lapse.

Or­ga­ni­za­tions and so­cieties that solve the suc­ces­sion prob­lems will have a less harsh trade-off be­tween sta­bil­ity and in­no­va­tion. When in­sti­tu­tions of the pre­vi­ous gen­er­a­tion are ac­tively handed off to the next, they re­tain needed flex­i­bil­ity to pur­sue re­struc­tur­ing.

While vari­a­tion be­tween in­di­vi­d­ual or­ga­ni­za­tions is no­table, most rely on so­cial tech­nol­ogy that is widely dis­tributed and im­ple­mented around their so­ciety. A so­ciety is best thought of as a dense ecosys­tem of in­sti­tu­tions always bor­row­ing from each other, out­sourc­ing ser­vices and some­times clash­ing over re­sources. It can be very difficult to im­ple­ment a unique solu­tion. If none of the in­sti­tu­tions in a so­ciety solve a par­tic­u­lar prob­lem, the frag­ility of those in­sti­tu­tions will be re­flected in the frag­ility of so­ciety as a whole.

Conclusion

The foun­da­tion of a flour­ish­ing civ­i­liza­tion is an abun­dance of func­tional in­sti­tu­tions. Th­ese origi­nate with founders who bring new so­cial de­signs into be­ing. In the nat­u­ral course of events their in­sti­tu­tional legacy de­cays, be­com­ing less and less suited to achiev­ing the de­sired pos­i­tive effects.

The suc­ces­sion prob­lem is the prob­lem of en­sur­ing founders can hand off in­sti­tu­tions they have built to other founders. The key prob­lems here are the cre­ation and iden­ti­fi­ca­tion of suffi­cient skill, to­gether with en­sur­ing the next founder has in­her­ited a po­si­tion of suffi­cient power to re­make the in­sti­tu­tion. Of course, even if the suc­ces­sion prob­lem is han­dled once, it always re­turns.

If the suc­ces­sion prob­lem is un­solved, the only pro­cess of in­sti­tu­tional re­form is the de­struc­tion of aban­doned in­sti­tu­tions by new ones, the pro­cess some­times de­scribed as ‘cre­ative de­struc­tion’.. That our so­ciety val­orizes rather than be­moans such out­comes, un­for­tu­nately demon­strates that we have be­come ac­cus­tomed to failed suc­ces­sion and no­table dys­func­tion.

We should tem­per our en­thu­si­asm for in­tense poli­ti­cal and eco­nomic com­pe­ti­tion and in­stead de­velop a greater ap­pre­ci­a­tion for the im­por­tance of suc­cess­ful suc­ces­sion. This change would go far in rem­e­dy­ing con­tem­po­rary in­sti­tu­tional scle­ro­sis and stag­na­tion.