This commentary originally appeared in Forbes.
Brett Favre, quarterback, and Warren Buffett, Oracle of Omaha, don't.
Brett Favre is one of the gridiron's all-time great stars, winner of three consecutive Most Valuable Player awards and leader of the Green Bay Packers to seven division championships and a victory in Super Bowl XXXI. But his legacy has been tainted by his handling of his retirement.
Instead of ending his career on top of his game and praised by fans throughout the league, he has been hanging on through subpar seasons and has become fodder for message board griping. He announced his retirement from the Packers in 2008 but has already come out of retirement twice. Unless he can lead his new team, the Minnesota Vikings, to a Super Bowl victory, his retirement snafus will have tainted his Hall of Fame legacy and damaged the credibility he needs for any post-NFL ventures.
He should have learned from Cal Ripken Jr., the baseball great who announced his final season well in advance, when he was still playing better than most younger Major Leaguers. I remember sitting in the bleachers at Fenway Park for his last game in Boston. The fans cheered louder for him than for anyone on the home team. Ripken drew on his fame and fan goodwill to launch a second career in business and philanthropy. He is remembered for his heroics as the Iron Man rather than for trying to hang on when he shouldn't have.
Like sports stars, business leaders spend whole careers clawing their way to the top. After years of battle, it is no wonder that many cling to their power and the attendant luxuries like private jets. Many of them don't know when and how to ride off into the sunset. Maurice Greenberg, the former chief executive officer of American International Group (NYSE:AIG), and James Cayne, ex-CEO of Bear Stearns, would probably both inhabit the pantheon of all-time CEO greats with the likes of former General Electric (NYSE:GE) CEO Jack Welch had they retired a few years earlier. CEOs who stay too long hurt not only their reputations but also the value of their organizations.
You have to know when to move on for yourself personally, and you also have to have a good succession strategy. When a CEO stays too long, top talent moves elsewhere, bleeding the organization of the very people it needs if it is to grow. Investors flee a stock when an all too powerful and charismatic CEO leaves late and the new CEO isn't well known to the investment community. People fear that the new leadership won't be up to task.
Bill Gates did it right, and that's a major reason why he remains the richest man on earth. He seamlessly handed off power to Steve Ballmer over a several-year period and ensured that Microsoft would no longer be all about him. Investors yawned when day-to-day control finally ceded to Ballmer, because they were already comfortable with the new leadership. Gates' reputation has stayed undiminished despite Microsoft's loss of technological dominance. He has been able to use his money, brains and credibility to become potentially the greatest philanthropist of all time, through his Bill & Melinda Gates Foundation.
Not everyone understands the importance of having a good succession plan. Executives fear facing their own professional mortality. They're unable to accept that anyone else can do as good a job as them. But an organization can't preserve its value without a plan. And the more charismatic and powerful the CEO, the earlier the plan should be made public.
The greatest investor of all time, Warren Buffett, should learn from his bridge-playing companion Gates and develop a better and more transparent succession plan for his company. Buffett argues that when he moves on, the management teams within Berkshire Hathaway (NYSE:BRK.A) will stay in place, and the underlying financial value will remain. He believes Berkshire's share price ought to remain the same too. But even if he is correct that the majority of the work at making the company great is done by his front-line managers and not by him or his right hand man, Charlie Munger, he needs also to realize that investors buy Berkshire Hathaway stock first and foremost because they believe in him personally, both as an investor and as a man of integrity. Does anyone think thousands of people will flock to Omaha to hear his successor? Or pay $1.68 million to have lunch with that person?
Buffett underestimates how much we love him and how much our love influences Berkshire's stock price. When he speaks, most people listen. I do. It is our trust in him as an investor and as a person who will do the right thing that makes his stock worth so much, above and beyond the underlying numbers of the companies in his portfolio and the management teams of his different companies. No one else can compare to that. He strikes us as the embodiment of what makes America great.
However, he runs the risk of destroying that legacy and hurting the wallets of his shareholders if he doesn't develop a good succession plan and things go south. Even if we think his personal presence adds only 5% to Berkshire's stock price (a conservative estimate, to be sure), that is still billions of dollars in shareholder value that could evaporate if investors don't like his successor or if he retires suddenly because of illness (he is 78 years old).
It's terribly hard to get to the very top in either sports or business. Stepping down at the right time may be even harder. It means facing your own mortality and giving up the rush and thrill of battle. But executives, like sports stars, need to preserve not only their own legacies but the value of their organizations. Don't end up like Brett Favre. Go out like Cal Ripken Jr. or Bill Gates.