Passed Over for the Big Job. Now What?

It’s made more than a few headlines—companies pushing out a CEO, but replacing them with an outside executive instead of the more usual insider. Now they have a new issue: What do they do with the snubbed executive who’s still on the firm’s payroll?

Historically, the problem has been self-resolving, with one Harvard study of successions from 2005 to 2015 finding that 74% of passed-over candidates left their firm. But today, more of these would-be CEOs are staying on, creating an awkward détente. “It’s not unusual for the passed-over person to end up in an odd outlier role with a wonderful title,” says organizational strategist Maria Amato, senior client partner at Korn Ferry. “No one quite understands what they do.”

While turnover for CEOs is slowing, the number who are being forced out is growing. Of the 191 Russell 3000 Index company heads who have left this year, 74—or nearly 40%—were reportedly fired or forced out, according to data compiled by exechange.com, a research provider that analyzes public sources to track executive changes. That’s the most at this time of year since the firm began tracking CEO departures in 2017. And each time, the announcement of the replacement’s name leaves some candidates inside the firm disappointed, especially if they had the inside track for taking over the reins.

Experts say the hanging-on executive does provide some critical experience and perspective that any incoming CEO might find helpful. They also have inside knowledge of the firm that could prove valuable to a competitor if they left.

But they can quickly become a bitter rival and a disruption to the new CEO’s objectives. Often, the relationship between the two simply becomes uncomfortable, and gossip about their friction distracts managers. “There have been plenty of cautionary tales,” says Dan Kaplan, a senior client partner in Korn Ferry’s HR practice. Yet experts say that many who might have left in the past no longer do, in part because reality about their future is setting in. In all, just 1 in 5 of all passed-over CEOs eventually become CEO of another company. “There’s no fruitful market for them to go to,” says David Vied, global sector leader for medical devices and diagnostics at Korn Ferry. “What they want does not align with what’s offered in the outside world.”

Some firms may simply demote the slighted leaders. But experts say that smart companies try to nurture them. “When it comes to number twos, companies that tread carefully can send strong messages to their organizations about how executives are valued, and can consequently hold on to talent,” says Dennis Carey, vice chairman and co-leader of board services at Korn Ferry. Kaplan says he knows of firms that have given the spurned executive new and interesting duties, and even one where the exec was put on the board. “The best-case scenario is the CEO and nonpicked executive have sufficient mutual respect that they can stay as a one-two punch,” he says.

Learn more about Korn Ferry’s Assessment and Succession capabilities.

Read more This Week in Leadership articles