(Bloomberg Businessweek) -- In July, President Joe Biden transformed himself from the Democratic Party’s biggest liability into its biggest hero. By threatening to hang around too long, he’d walked up to the very edge of unraveling much of the goodwill and respect he’d earned from more than 50 years of service to the American people. By standing down, he redefined himself overnight as an exemplar of patriotism. “I revere this office, but I love my country more,” he said in an Oval Office address.
The episode showcased one of the hardest things that comes with having power: knowing when to give it up. It can take decades of sacrifice to get to the very top—in Biden’s case, three runs at the White House. Departing too soon can result in deep regret over unfinished business. Staying too long risks destroying a hard-won legacy.
There’s an art to knowing when to step aside, one that in the business world is often navigated amid the comfort and secrecy of boardrooms or corner offices and ironed out alongside the counsel of discreet aides and confidants. That’s not how Washington works. Biden’s decision was the highest-stakes example in memory of how this calculus can unfold, but it was also the most public. It’s a vivid reminder that those who make it to the top—buoyed by a long track record of making tough judgment calls—so often get it wrong when it comes to their own tenure.
The first succession mistake often arises when a leader blows past a self-imposed expiration date. During Biden’s 2020 campaign, his aides planted the idea with the news media that their candidate would be a one-term president, telling Politico that “it is virtually inconceivable that he will run for reelection in 2024, when he would be the first octogenarian president.” Apparently, not so much. We don’t know what shifted to make Biden think he was capable of another four years, but we do know he should have followed his initial instincts.
Setting a retirement date publicly isn’t the problem; in fact, some would say that’s the power move. “A wise CEO will set his or her own time limit,” says Bill George, an executive fellow at Harvard Business School and the former chief executive officer of Medtronic Inc. “They shouldn’t wait to be pushed out.” But when a CEO sets a date and then ignores it, key talent waiting in the wings gets frustrated and looks elsewhere for their next role.
At Walt Disney Co., Bob Iger during his first stint as CEO extended his contract so many times that it became a running joke. “I was going to say, ‘This time I mean it,’ but I’ve said that before,” Iger said in 2019 when he told investors he planned to leave in two years. That probably wasn’t quite so funny for the executives in line for his job. And by the time Iger was ready for the handoff, the board didn’t have that many great options left. Iger’s handpicked successor, Bob Chapek, lasted only two years, ousted after a series of high-profile missteps. Iger then boomeranged right back into the job, saying he’d stay for only two years—just enough time to turn things around. Much to the surprise of no one, he’s since extended his contract through 2026.
One reason the Disney board prolonged Iger’s contract yet again: Its directors needed more time to find a replacement. That’s a mess of their own making. Yes, Disney is a complicated company to run, requiring a leader who can both schmooze with Hollywood stars and make successful multibillion-dollar bets in a fast-changing media and entertainment landscape. But the bigger problem at this point is that any high-quality candidate would have concerns about Iger’s looming presence and apparent resistance to retirement, as well as the board’s knee-jerk reaction to bring him back when things got tough.
The Starbucks Corp. board has exhibited a similar complex, twice bringing back former longtime CEO Howard Schultz when the coffee giant hit a bump. Schultz’s tendency to meddle—including a recent LinkedIn piece slagging the current CEO and the board—likely made it harder to find a stronger CEO to replace him from the get-go.
In the case of both Schultz and Iger, their returns have signaled that they and their boards believe they’re the only ones who have what it takes to do the job. Other companies—including Boeing, Caterpillar and Target—have sent a similar message when they’ve scrapped, raised or waived their mandatory retirement age so their CEO can stay on longer. It’s a move that ultimately ends up undermining their bench of talent, suggesting no one else is ready to be the big boss. Biden made the same mistake when he argued that he should stay in the race because he had the best chance of beating Donald Trump and the experience to lead the country through such a critical moment. It implicitly raises the question of why he didn’t think Kamala Harris, his No. 2 and now handpicked successor, had the chops to step up to begin with.
Biden’s disastrous showing at the June 27 presidential debate reflects what’s perhaps hardest for aging leaders to acknowledge: Performance really does deteriorate with age. There are of course exceptions to the rule (paging Warren Buffett), but a 2016 study in the Journal of Empirical Finance found that for every year a CEO ages, there’s a decline in shareholder value of 0.34% for S&P 1500 companies—driven mostly by CEOs older than 68. Companies led by the youngest CEOs (under 42) were 2.31% more profitable annually than those run by the oldest (over 68). (The researchers controlled for tenure and the fact that younger CEOs are attracted to faster-growing companies.)
Mental acuity had something to do with it, but so did behavior. “What tends to happen is older CEOs are more concerned about legacy and are more risk-averse,” says Brandon Cline, a professor of finance at Mississippi State University’s College of Business, who co-authored the study.
Cline’s paper also examined mandatory retirement policies, which 41% of S&P 1500 companies have adopted for their boards—but only 19% have implemented them for their CEOs. Cline and his co-author, Adam Yore of the University of Missouri’s Trulaske College of Business, initially thought these policies were used by shareholders to force out a poorly performing, entrenched CEO. Instead, by comparing companies with CEOs nearing retirement age, they found that the negative impact of CEO age on performance existed only at companies that didn’t have mandatory retirement policies. “In essence, they are an effective tool,” Cline says. “For these firms with a mandatory retirement policy, the negative effect that we found with age goes away.”
How leaders are allowed to descend to a level of poor performance and still hold on to power has a lot to do with their inner circle. Some bosses surround themselves only with people who shield them from bad news and tell them what they want to hear. Biden’s closest aides reportedly strictly limited access to the president to hide his decline, to the point that his debate flubs were a surprise to even some of those working in the White House.
Congress skews older because it rewards seniority, so there’s a huge incentive to hang around. The Democratic Party relies on tenure for making committee leadership and chairmanship assignments. (House Republicans tend not to stick around as long, because they enforce term limits for these roles.) The same reverence for seniority often exists in the business world, with the rare exception of Silicon Valley, where youth and innovation are often conflated. That of course can lead to its own issues, such as the dominance of toxic tech bro culture. But the rest of corporate America and Washington might want to consider giving a little more power to their leaders when they’re younger, so they’re not quite so resistant to giving it up as they get older.
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