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How CEOs Work

CEO Succession

So what does happen to a company when a CEO leaves?

As we've learned, it's up to the board of directors to hire and fire CEOs. The decision of CEO succession is entirely up to the board -- in theory, at least. In reality, it might be a different story. In the past, boards of directors generally took a passive role in their corporate oversight. It was the accepted tradition that CEOs should choose and groom their successors while they're still at the company. Once the CEO died or retired, boards typically followed suit and elected the former CEO's choice. Microsoft's Bill Gates took a variation of this route, as he began planning his own succession at age 45 [source: Mader]. He bowed out gradually, leaving the CEO position and naming a successor in 2000, but retaining his position as chairman and taking on a new role of chief software architect. By 2006, he decided to leave the management position but stay on as chairman.

But not every CEO phases himself or herself out of the picture gradually like Gates did. In the modern dynamic of corporate culture, a board of directors is more likely to take an aggressive role in appointing a successor. In fact, it's not uncommon for the board to make an independent choice, perhaps selecting a candidate from outside the company. Hiring CEOs from outside the organization has become more popular lately. In the 1960s, for instance, outsiders accounted for 9 percent of new CEOs, but by 2000, this figure had risen to about 33 percent [source: Carey]. Theorists disagree about what factors are behind this shifting ideology. Some claim that boards increasingly (and unwisely) seek charismatic, superstar CEOs for the illusion of strong company leadership [source: Monks].

Because of the problems than can ensue from the sudden death or departure of a CEO, experts recommend that boards always have a plan ready for a stable transition. This would involve communicating with various managers to appoint the best successor [source: Monks].