It’s often said that luck can run both ways.
But charismatic corporate founders with no obvious seconds-in-command tend to learn that the hard way. Just look at Nvidia.
Throughout his 33 years at the company, Jensen Huang never groomed a wingman. Employees, investors, and shareholders didn’t consider life without him either. He was an irreplaceable figure both for Nvidia and the global technology sector.
In fact, when asked about his successors recently, he sounded confident about continuing for another 20 years at Nvidia and even joked that he hoped to die on the job.
But as soon as the scandal broke, Huang virtually had one foot out of the door, while Nvidia felt as if it had been hit by a thunderbolt.
In all, the stock crashed about 11% in the past week. As more of Huang’s affairs became public, he eventually resigned, prompting the board to bring in a relief pitcher by elevating the CFO to interim CEO. Still, given Huang’s stature and skill, it appears that if Nvidia is too big to fail, his exit leaves shoes that are too big to fill.
Back home, a similar panic gripped markets late last month when Equitas Small Finance Bank’s founder and long-time MD and CEO P N Vasudevan, resigned suddenly.
As news of the exit - due to a perceived conflict of interest - became public, shares hit the 20% lower circuit in under 30 minutes. Despite Vasudevan’s clarifications, the stock plunged 27% in just two trading sessions, and amid concerns over leadership vacuum, investors’ faith appears to have gone sour.
This brings us, not for the first time, to the question of why succession planning always takes a back seat at large companies - leaving them vulnerable to brutal attacks by pitchfork-carrying investors, even as the market’s imagination swings rapidly from admiration to suspicion, vapourising everything in its wake instantly.
Take for example, the sudden exit of Infosys’ first non-founder CEO, Vishal Sikka, in 2017. As Infy’s shares crashed about 13% in a single session, the broader indices too were knocked down, with Sensex sliding 271 points.
Amid accusations of hush-money, corporate governance concerns and a widening rift between Sikka and Infy’s high-profile co-founder N R Narayana Murthy, the company was left with no obvious replacement, forcing co-founder Nandan Nilekani to step in as non-executive chairman to steady the ship.
Or consider the unceremonious ouster of Tata Sons chairman Cyrus Mistry and the bitter boardroom battle with Ratan Tata in 2016, which shook markets, wiping out over Rs 10,000 crore in the combined market capitalisation of Tata group stocks.
Again, with no successor to fill the void, Ratan Tata was back in the boardroom, a position he held for five months until N Chandrasekaran’s appointment as chairman in February 2017.
Even the country’s largest private sector lender, HDFC Bank, wasn’t spared from succession-related troubles. While the initial transition from Aditya Puri to Sashidhar Jagdishan in 2020 was smooth, the latter’s departure caused turbulence recently, though the management, the regulator and the government acted swiftly to contain panic.
Studies show that succession failures cost companies dearly. A 2023 Gartner study found that companies lose an average of $1.8 million per year due to poorly managed leadership transitions, while a 2021 Harvard Business Review noted that businesses that lack a structured succession plan see 25% lower revenue growth than those with one.
It also observed that forced dismissals cost companies more than planned transitions, with one study finding that the removal of otherwise high-performing CEOs can result in negative long-term stock returns.
Clearly, company boards have little incentive to force founders out, particularly those who have delivered extraordinary growth.
In 2019, for example, Amazon stood by Jeff Bezos as CEO even after his extramarital affair became public. He remains a dominant force, taking Amazon’s annual revenue from $280 billion in 2019 to an estimated $800 billion in 2026.
In the case of Nvidia, however, it’s intriguing that Huang was shown the door despite delivering exponential growth, with annual revenue rising from just about $14 billion in 2022 to roughly $215 billion in 2026. The company stands at a critical juncture now, and as it transitions from a gaming graphics player to the central supplier of global AI computing infrastructure, investors fear whether the new leadership can successfully steer the ship without veering off course, or if Nvidia will end up like Apple, which even after emerging as a trillion-dollar giant, arguably ‘lost its soul.’