U.S. judges could use CEO succession tips

As many top bosses have learned, even when they have well-laid plans, things can go awry

U.S. judges could use CEO succession tips

By Reynolds Holding

NEW YORK (Reuters Breakingviews) - Corporate America could teach Anthony Kennedy a thing or two about succession planning. Watchers of the U.S. Supreme Court reckon the justice will retire before his 82nd birthday this July, taking advantage of a Republican-controlled White House and Senate to ensure a like-minded heir. Yet his replacement probably won’t share his views, according to a new study. And, as many top bosses have learned, even when they have well-laid plans, things can go awry.

Some boards fail to have a candidate on hand when a chief executive, especially a seemingly near-immortal one, makes a surprise exit. The interim arrangements at advertising giant WPP following Martin Sorrell's departure last week are a recent example. Others look to their current CEOs for help in picking a ready replacement but come to regret giving the outgoing chief too much say — roughly the analogy to the Kennedy situation.

Bank of America, for example, may still be kicking itself for handing the reins in 2001 to Ken Lewis, who was handpicked by outgoing CEO Hugh McColl and in whose tenure the bank’s stock price dropped some 55 per cent. The choices of Jeff Immelt to follow Jack Welch at General Electric, Kevin Rollins to replace Dell founder Michael Dell and Steve Ballmer to succeed Bill Gates at Microsoft were similarly disappointing.

Apple founder Steve Jobs’ designation of Tim Cook to be the boss has worked out so far, but it is the exception. In fact, almost 80 per cent of the Fortune 250 companies with bosses clearly handpicked by predecessors between 2001 and 2012 saw their shares underperform the S&P 500 Index during those CEOs’ reigns, a Stanford Business School study found.

Top court justices are, of course, very different from corporate honchos, not least because they cannot ordinarily be fired or designate their successors. They do, however, occasionally retire and typically try to time their exits to maximize the chances of a compatible replacement. David Souter, for example, waited until Barack Obama was president to step down in 2009, and the equally liberal Sonia Sotomayor filled the vacancy.

Surprisingly often, though, retiring justices end up disappointed. Liberal Chief Justice Earl Warren said he “never would have resigned” in 1969 had he “known what was going to happen to this country and this Court ... They would have had to carry me out of there on a plank."

Justice Sandra Day O’Connor expressed similar sentiments after stepping down in 2006 and being replaced by the right-leaning Samuel Alito. In fact, since 1954, the 12 justices who retired voluntarily were roughly as ideologically similar to their replacements as the 12 justices who stepped down involuntarily were to theirs, according to a new study by Christine Chabot at Loyola University Chicago.

One reason for these results, says Chabot, is that some replacements diverged from their expected behavior. Obama selection Elena Kagan, for example, has turned out to be far more of a centrist than her liberal predecessor, John Paul Stevens, anticipated. Another reason is that some justices timed their exits poorly. Chief Justice Earl Warren’s deal with President Lyndon Johnson to step down in 1968 and be replaced as chief by his ideological companion, Abe Fortas, went awry when ethics charges forced Fortas to resign.

Republican President Richard Nixon ended up naming the conservative Warren Burger to the seat the next year. And other justices, like liberal lion Thurgood Marshall, simply stuck around too long, unwilling to give up a position of power and influence. Bad health eventually forced Marshall to retire, making way for Clarence Thomas, one of the most conservative justices in decades.

In the corporate context, misfires have prompted more boards to reduce the outgoing CEO's influence on the process. It’s not clear whether that has led to better selections, but judging from a slew of recent academic studies and consultants’ reports, many companies are at least trying to identify more objective criteria for picking a leader. Supreme Court nominations remain essentially political, but the corporate experience – and the ill-fated Warren-Johnson deal – should dispel any notion that retiring justices should try to game the process.

Whenever Kennedy steps down, he will be in an unusual position. He is famously the nine-member Supreme Court’s swing voter, the centrist justice who often makes the difference in a close five-to-four ruling. And though he is also a Republican, his ideology doesn’t easily align with any president’s, including Donald Trump's. In fact, Trump’s one nominee to the top court so far – Neil Gorsuch – disagreed with Kennedy in more than 60 percent of the split decisions they were both involved in last term.

That suggests there’s very little reason for Kennedy to base his retirement on the political party in power. The current SCOTUS scuttlebutt is, in other words, probably wrong. Bet on the justice to retire in his own sweet time.

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