CEO Succession at Tesla: The Beginning of the End?

When it comes to CEO succession, safe picks are dangerous.

Most boards are ill-equipped to handle one of their most critical responsibilities: hiring a new CEO.

Unlike other corporate functions, hiring a CEO is a rare event, occurring only once or twice in a board’s tenure. Because they have little opportunity to practice CEO succession, boards typically lean heavily on executive search firms to navigate the process.

Unfortunately, this arrangement usually produces disappointing outcomes. Executive recruiters are vendors of the board, who do what the board asks for (or what they think the board wants). They make money by providing candidates the board goes on to hire—not necessarily the candidates the board needs. Thus, they prioritize candidates who check conventional boxes: extensive industry experience, proven track records in high-level roles, and a profile that minimizes risk.

The result is that boards, acting as a committee, end up making safe, predictable choices. And they don’t take into account the unique characteristics of the CEO role compared to other executive roles.

It’s not dissimilar to how organizations often promote great individual contributors into management roles, not realizing that excellence in individual contribution doesn’t correlate with excellence in managing people. (In fact, there’s sometimes a negative correlation.) To paraphrase Marshall Goldsmith, what got you to executive success won’t get you to CEO success. For boards, it feels safer to pick someone with the resume of a sure bet, but it’s not.

A Dangerous Moment for Tesla

The safe approach could spell disaster for a company like Tesla, where the board is reportedly considering replacing Elon Musk as CEO. Board chair Robyn Denholm denies that story, but it does seem likely that some board members may have reached out to executive search firms, which was the original claim of the Wall Street Journal.

I certainly understand the board’s frustration with Musk’s departure into politics. For one, his attention is off the company, and he’s also not “staying out of it.” It is appropriate for them to consider alternatives, but they need to understand what made Musk successful.

When Musk took the helm at Tesla, no search committee would have hired him to be CEO. He lacked automotive industry qualifications and executive experience at established firms. Yet, under his leadership, Tesla revolutionized electric vehicles, disrupted the automotive industry, and became the world’s most valuable car company. Using the most common measure—shareholder value—Musk has been the best CEO in the history of the auto industry. Regardless of the recent share price volatility, the total value created under his tenure exceeds $900 billion, blowing other auto CEOs out of the water. In these achievements, Musk’s unconventional background and relentless innovation were not liabilities. They were the very qualities that fueled Tesla’s unprecedented success.

The Worst-Case Scenario

Replacing Musk with a safe choice, like a seasoned executive from Ford, GM, or another legacy automaker, would be a particularly catastrophic misstep.

I have seen this movie a hundred times: The board tells the search firm, “We want a candidate who has extensive experience in our industry.” Of course, no one at another auto company has anything resembling Musk’s track record of success. Does anyone really think that someone who has worked their way up the bureaucracy to be the #2 exec at Ford or Volkswagen would be better than even a part-time, polarizing Musk? Such candidates, steeped in the incrementalism of established organizations, won’t replicate Musk’s ability to rethink markets, attract talent, and take bold risks.

At the same time, the automotive sector is undergoing seismic shifts. These shifts (electrification, autonomous driving, and a move toward sustainable energy among them) demand leaders who can envision the future, not manage the status quo. A “proven” hire with deep industry will steer Tesla toward mediocrity, stifling the innovation that defines its brand and crushing shareholder value.

What Would a Good Successor to Musk Look Like?

That isn’t to say no one could do well as the CEO of Tesla. The right successor for Musk would be somebody who could work with Musk and capture his best vision while tempering his excesses. A smart incoming CEO at Tesla would say to Elon, “I want as much of your time as you will give me to drive innovation and manufacturing excellence.”

Apple provides a great case study in this regard. The board famously hired John Sculley because they were unwilling to turn over the reins to Steve Jobs. Sculley could not find a way to work with Jobs, so Jobs left… and the company almost went bankrupt. Jobs returned, saved the company, and transitioned it to Tim Cook, who continued the success. Temperamentally, the right CEO for Tesla will likely have a Tim Cook–style humility—perhaps someone internal at Tesla—who recognizes the brilliance of Musk rather than a polished executive out of central casting for the role of “CEO.”

In the end, CEO succession is not about finding the candidate with the most industry experience or smoothest presentation. It’s about finding the candidate who understands the unique role of CEO and can best adapt to leading the existing organization with all its specific history and dynamics. Finding such a person for Tesla is a tall if not impossible order, which is why the board is, rightly in my mind, doubling down on their confidence in Elon Musk.

“I can't think of anybody on the face of the earth or Mars who can replace Elon Musk," University of Michigan business professor Erik Gordon said to Axios in the wake of the WSJ reporting. I tend to agree.