At Microsoft, being passed over for CEO

Tony Bates, Microsoft's departing executive vice president of Business Development and Evangelism (Microsoft)
Tony Bates, Microsoft's departing executive vice president of Business Development and Evangelism (Microsoft)

In the aftermath of Microsoft's highly public CEO succession, there were bound to be musical chairs and swinging doors as new CEO Satya Nadella began putting his mark on the company. And indeed, some of those changes were formally announced Monday, when Microsoft confirmed reports that two of its top executives would be leaving.

It's one of the most familiar narratives in business: A new CEO is named, and the runners-up head for the exits.

That appears to be the case with Microsoft's Tony Bates, who had been frequently shortlisted as a successor to Steve Ballmer — and who is now one of the two execs departing the tech giant. This is one of the biggest concerns, across companies, that many board members have about the succession process. What great talent will we lose by choosing one executive over another? And is there a way to keep them around?

In many cases, the answer is no.

If someone is good enough to be in the running for one of the country's biggest jobs, his stock will immediately rise in the eyes of other companies looking for a new chief. That's what happened soon after Johnson & Johnson named Alex Gorsky CEO in 2012. Two months later, the other executive rumored to be a contender, vice chairman Sheri McCoy, was named CEO of Avon Products.

Other times, the passed-over executive doesn't yet have a job, but knows it's best not to stick around. After Marissa Mayer was named CEO of Yahoo in 2012, interim chief Ross Levinsohn — who was gunning for the job himself — left two weeks later. "I took a good run at trying to be CEO and I felt like it was probably the right thing to move on after I didn’t get it," he told Bloomberg later that year. He became CEO of Guggenheim Digital Media in early 2013.

But there are plenty of times when companies try hard to keep their passed over execs. General Motors would be at a big loss if Mark Reuss, its former North American president, had jumped ship when the company named Mary Barra CEO in December. Instead, the auto maker named Reuss, who'd been a top candidate for CEO, to be global head of product development, returning the executive to his roots. Putting executives in their ideal jobs or crafting new ones for them may be the best shot companies have at tying down the talented managers they don't want to lose.

Still, how long Reuss — or any other serious CEO candidate who settles temporarily for second place — will stay in that runner-up job is an open question. In many cases, the best call might not be to sweet talk them into staying at all, but to work connections to help them find their own CEO job elsewhere.

It may sound counterintuitive to willingly lose good people. But it can allow both sides to save face in a situation that's often publicly scrutinized, sometimes extraordinarily so. It allows the new CEO to build a team without members who, however hard they may try, can't help but be sore about the results. And if companies assist the runner up in landing at a customer or partner company — rather than risk a jilted manager becoming CEO at a competitor — everyone wins. For many executives who've made it that far, second best will never be good enough.

Read also:

At Microsoft, would an insider CEO be the best choice?

A look at Microsoft's flawed system of performance reviews

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Jena McGregor writes a daily column analyzing leadership in the news for the Washington Post’s On Leadership section.
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