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The Business of Succession

Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.

Corporate succession can be very tricky and reality can be every bit as strange as fiction. In this episode of Global Infusions, Tom and Tom explore the business of leadership transitions. From Viacom and Disney to Apple and Starbucks, there are a million ways to mess it up. They also discuss fashion colleges teaching avatar design, a leap forward in MRI scanners, Music/AI, and the genius branding of Liquid Death.

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TR – Hello, I’m Tom Record and I’m here with Tom Morris. Welcome to Global Infusions, an investment podcast from the Liontrust Global Fundamental team that takes a long term view of today's stories.


Last episode we chatted about the business of subscriptions from coffee to cable TV. This episode we’re looking at leadership, and in particular – succession. If your taste buds are tickled or you have any questions for our next episode, please do send them in via your client contact or through the contact us link on the Liontrust website.


So sit back, grab a cup of tea, and remember that when we talk about individual companies we are not making a recommendation to buy or sell shares and that some of these companies may not be held across Liontrust’s global fund range.


TR – Leadership succession can be very hard to get right, and it often makes for great drama. Have you been watching the HBO show?

TM – Yes, I love Succession, and I’ll be sad to see it end later this month. Amazing theme tune as well – one of the absolute best ever I think.

TR – I will catch up with it at some point, but I know from the coverage that it’s inspired by the Murdochs and the Redstones.

TM – Yes now the Murdochs get discussed a lot, but the Redstones fly under the radar for most people I think.

TR – Indeed, so they’re the family that controlled Viacom and CBS, which have now both merged under the Paramount umbrella.

TM – Exactly, and that merger was only possible because Shari Redstone managed to wrestle control away from her father Sumner, over the course of a multi-year campaign spanning boardrooms and courtrooms.

TR – And Sumner was reportedly quite a lot like a character in Succession – unrelenting, hyper-competitive, happy wielding his enormous wealth and media influence to get what he wanted.

TM – I saw a quote from one of his rivals at Warner Bros, who said that “Being a competitor of Sumner Redstone’s is a fate worse than death”, which sounds very much like something someone would say about Logan Roy, the Succession patriarch.

TR – Sumner Redstone died in 2020 and the NYT reported in his obituary that he survived a fire in 1979 that destroyed the hotel room he was staying in by hanging off a window ledge while half his body was burned. A huge amount of grit and perseverance there.

TM – That’s amazing – there’s a quote from him afterwards, he said ‘"I think I was always driven before, but out of that fire came most of the exciting things I have ever done." He went on to build this media empire spanning CBS, MTV, Nickelodeon, Paramount, and Simon and Schuster. He repeatedly stepped back, retired, returned, fired everybody, then appointed successors, stepped back, and the whole cycle repeated.

TR – Ultimately it seemed like his voting control, which was exercised through a range of family trusts, was supposed to go to his daughter Shari, but then in 2006, a feud between them became public, around the same time that his son was also suing over a dispute about money.

TM – Yes it all got quite acrimonious, but eventually they seemed to smooth things over, in time to fight various other court cases vs board members and executives, eventually leading to Shari taking full control, and orchestrating the merger of Viacom and CBS.

TR – It’s an incredibly twisty tale.

TM – It definitely is. But it’s not just Medialand that attracts big egos. Let’s talk about tech.

TR – And where better to start than with the world’s largest company?  So Tom, Apple has quite an interesting corporate history…

TM – Indeed. So of course Steve Jobs became one of the most famous businesspeople of all time, and his handoff to Tim Cook in 2011 went very well. But that wasn’t the first time Jobs had tried to orchestrate a succession.

TR – You mean the John Sculley saga?

TM – I do – so back in 1983, Apple’s CEO at the time, Mike Markkula, said he wanted to retire, and so Jobs went out looking for someone to replace him. He approached John Sculley, a senior exec at Pepsi, and said ‘"Do you want to sell sugared water for the rest of your life? Or do you want to come with me and change the world?".

TR – That is quite a pitch! So Sculley joined Apple as CEO, Jobs continued as head of the Mac division, and things started quite well, but then rapidly disintegrated.

TM – Yes and in fairness to Sculley, it must have been hard being CEO with the founder of the company still hanging around, with his own power base, making it difficult for regular employees to work out who was really in charge.

TR – Yes – a bit of tension in there.  So they launched the first Mac together, in 1984, with the iconic hammer throwing ad that a lot of people today still regard as one of the greatest of all time.

TM – But it was downhill from there, and at the end of the power struggle between them, Sculley emerged victorious, persuading the board to oust Jobs in 1985, who was cast out into the wilderness.

TR – Banished by the person he hired. Et tu Brute.

TM – Indeed. He went on to found Pixar, but he didn’t return to Apple until 1997.

TR – At which point he started one of the most amazing corporate turnarounds in history, transforming Apple into the technological and cultural behemoth it is today, with the help of designer Jonny Ive and operations expert Tim Cook.

TM – So now is probably a good time to talk about Burberry, the UK luxury fashion brand, and the succession drama that ensued after its extremely successful CEO Angela Ahrendts left to take a role at Apple.

TR – Oh yes Ahrendts had been the one who came in to rescue Burberry from its downmarket tartan phase, and restore it as a luxury brand. She came on board in 2006 I think, and stayed until 2014 or so, when she left to become Apple’s head of retail.

TM – Exactly. She’d done an excellent job at fixing the company. But the thing she failed at was sorting out a successor.

TR – Yes the CEO role was passed to the chief designer, Christopher Bailey, which even at the time seemed like a pretty odd move.

TM – Yes Bailey was clearly a really talented designer – he’d done an amazing job rehabilitating the brand – but he wasn’t a business executive. He’d never run a big company. He was a creative, which is a completely different set of skills. And in the end giving him the CEO role just meant that he was stretched too thin. It didn’t go well, and a couple of years later the board appointed Marco Gobbetti, previously the CEO of Celine, to run the business.

TR – It is an interesting comparison with Apple, where Jobs could have chosen to appoint Ive as his successor in 2011. By all accounts they were extremely close, having lunch together most days, and Job’s biographer even described them as soul mates. But Jobs, and the Apple board, realised that being a great product designer, and being a great CEO of a huge business like Apple, are completely different tasks.

TM – Yes, opting for Cook, the less glamorous logistics guy, was clearly the right decision. Burberry should have taken note.

TR – Agreed. So sometimes after a tricky transition, the easiest path can just be to bring the old person back, and there have been a few very high profile examples where that’s worked quite well.

TM – And I think sometimes it’s also that the person who left just can’t let go. Like Howard Schultz at Starbucks.

TR – He’s definitely worth talking about. So in the 1980s Schultz got a job at a coffee bean retailer in Seattle called Starbucks. He tried to get them to start selling cups of coffee, but they refused, so he resigned and opened his own café, called Il Giornale. Later that decade, the founders of Starbucks sold their business to him, which he combined with his cafes, and rebranded everything as Starbucks.

TM – So people talk about him as the founder, because he effectively founded the café chain, although technically not the brand itself.

TR – Yes, and he went on to be enormously successful, expanding the chain across North America, and then the globe, through a combination of owned stores and franchises. He did more to popularise espresso-based coffees in the US than anyone else.

TM – And he made himself mega rich, and then decided to step down as CEO in 2000.

TR – But things didn’t go as planned – the business ran into trouble without him, overexpanding and getting embroiled in disputes about product quality and staff working conditions. He decided to return as CEO in 2008, during the financial crisis, to try to sort things out.

TM – He came in with the kind of moral authority that only a founder can have, and started firing executives, closing stores and retraining staff. He got the business back on track, and ran it as CEO until 2017, when he decided to step back again, handing over the role to Kevin Johnson.

TR – But then things started to go awry again, as Johnson focused too heavily on price increases and returned excessive amounts of cash to shareholders. People started to question if Starbucks was losing its customer service ethos, and the extremely large and expensive Roastery stores opened under Schulz became a financial drag.

TM – Yes those Roastery stores are amazing as a customer – like coffee theme parks. I went to the Milan one a few weeks ago and had a fantastic olive oil espresso martini, but there’s no way it was working economically for Starbucks, there was hardly anyone there.

TR – Olive oil espresso martini?

TM – Don’t knock it till you’ve tried it! Anyway, back to the story – Starbucks also started having issues with store staff unionising, which really scared the board.

TR – So then in April of last year, Johnson stepped down and Schultz returned for a third stint as CEO!

TM – He immediately suspended the share buyback, and promised to use the cash to invest in the business instead.

TR – Quite sensible really.

TM – Yes I think Schultz genuinely cares about Starbucks and its people, because it’s his baby. So he stayed for about a year, and then handed over to another hand-picked successor, Laxman Narasimhan, who had previously been CEO of Reckitt Benckiser, the consumer goods company.

TR – Well if I were Laxman, I’d be watching my back.

TM – Ha! Yes I think that’s fair! So this does remind me of another CEO who just can’t seem to let go of his company – Bob Iger at Disney.

TR – Ah yes – clearly not a founder, but arguably the architect of modern Disney.

TM – Yes as CEO from 2005-2020, he was responsible for the four big transactions that really transformed the company – the acquisitions of Pixar, Marvel, Lucasfilm and 20th Century Fox.

TR – He did a brilliant job, and I think it’s fair to say that a lot of people view him as one of the best CEOs of the 21st century.

TM – Absolutely. I read his autobiography a couple of years ago, and he’s quite a remarkable man. Clearly the board of Disney thought so too, because they kept extending his contract, again and again. High profile potential successors, like Thomas Staggs, kept leaving.

TR – Until eventually Iger retired as CEO in February 2020, just as the pandemic was kicking off. Handing over the reigns to Bob Chapek, who had previously run the parks business.

TM – But even then Iger couldn’t quite let go, staying on as Chairman until the end of 2021.

TR – Meanwhile, Chapek was having problems. He got into a fight with the governor of Florida, Ron DeSantis, where he managed to simultaneously alienate a lot of conservatives, and more liberal Disney employees. He was also criticised for over-monetising the parks business, and for failing to control the losses in the streaming business.

TM – So not all of that was his fault – a lot was put in train by Iger. But the board lost patience, and in November 2021, just 10 and a half months after he stepped down as Chairman, Iger was brought back as CEO.

TR – It does feel a bit like Disney has a bit of a Bob Iger addiction.

TM – I agree. The board seems to have got itself into a headspace where it believes only one man can save it. It’s a bit like the superhero films that Marvel makes. The problem is that Iger is 72, and they will need to move on at some point, ideally sooner rather than later.

TR – Letting go is hard. It’s a bit like a long romance for the company.

TM – It really is.

TR – So we must touch on the dynasty of one of the world’s richest men – Bernard Arnault.

TM – Indeed, the man behind LVMH, with brands from Dior to TAG Heuer, Tiffany’s and Bulgari as well as Moet, Hennessy and others. We could have a podcast just about him and his empire.

TR – Yes, well he is now 74 and shows no sign of stepping back.  Indeed the company changed its bylaws to increase the working age from 70 to 80 a few years ago.  And he knows a thing or two about family feuds.  The wolf in Cashmere, as he is sometimes known, exploited a feud between the top executives, which eventually led him to gain control of LVMH from the Louis Vuitton family back in 1989.

TM – Yes, and he’s stated that he wants his family to carry on the management of the business after he eventually retires.  He’s placed his children around the empire, running various brands, in a kind of ultra high-end management training course, crossed with a brutal knock-out competition. It’s like McKinsey meets Bake Off, but instead of a bunch of flowers, you win control of the biggest company in Europe.

TR – Ha! Yes, I read an article in the NYT about how Frederic was mentored by the CEO of TAG Heuer until Bernard felt that he could take over that role and lead the TAG brand. And his daughter Delphine, who was made EVP of Vuitton before being moved over to be CEO of Dior.

TM – They certainly seem more capable than the children in Succession, but it’s going to be very difficult to pick just one to be the ultimate boss without alienating the others.

TR – It will be fascinating to watch.

TM – So there is one alternative to all the succession drama we’ve spoken about – just keep working forever and never leave.

TR – So, no succession. That feels like it might eventually fail as a plan.

TM – Well yes, but it can work for a surprising amount of time, if you start young and are lucky enough to stay healthy. Warren Buffet is still Chairman and CEO of Berkshire Hathaway aged 92. He’s been in the job for 53 years!

TR – Ha!

TR – OK, let’s move on to the news – Tom, what has caught your eye this month?

TM – Well the first thing I wanted to mention is a follow up on our discussion about AI generated music last episode.

TR – Ah yes the controversy with the person who’d used Drake and the Weeknd’s voices without permission?

TM – Yes exactly. So Grimes, the musician, tweeted that she would be happy to split 50% royalties on any successful AI generated song that uses her voice. She said ‘feel free to use my voice without penalty, I have no label or legal bindings’.

TR – Interesting – this is the Grimes who has children with Elon Musk?

TM – Yes indeed. She went on to tweet that ‘I think it's cool to be fused with a machine and I like the idea of open sourcing all art and killing copyright’.

TR – So ‘smash the system’, but also pay me 50%?

TM – Ha, yes, that seems to be about it. Wanting to kill copyright, but still receive 50% royalties, doesn’t seem like an entirely consistent position. She also went on to outline a few more provisos – for instance she might use copyright laws to take down any AI generated tracks that used her voice to say really offensive things.

TR – So at the end of the day, she would still retain some degree of creative control.

TM – Yes and I suppose it just shows how difficult it’s going to be to answer all the questions that generative AI raises. We’re likely in a kind of muddle through period, where different approaches and limits are going to be tested, both legally and creatively.

TR – Agreed. Some artists are going to embrace it, some are going to strongly resist it, and most are going to fall somewhere in between. On a related topic, I saw that Spotify now has 100k tracks uploaded to it every day.

TM – Wow.

TR – So there’s also a risk that on a 5yr view, we sort of drown in AI generated content. It could become very difficult to separate out the human-made stuff.

TM – Agreed, it’s going to fascinating.

TR – So the first story I wanted to mention this episode is a follow up to our subscriptions episode and in particular the increase in the very good value Pret a Manger coffee subscription that we talked about last episode.

TM – OK, so this was the £25 a month for up to 5 coffees a day.  How far have they upped their price?

TR – Well, it’s up by 20% to £30 a month, but the interesting thing is that they’ve given a few more stats about how successful it is.

TM – Go on…

TR – Well, over a third of their customers have a subscription, and the average subscriber spends nearly 4 times as much as their other customers.

TM – That’s huge! And would mean that what, 2/3 or so of their revenue comes from their core subscribers.

TR – Yes, and to encourage them to spend even more, the new higher subscription price includes a 10% discount on food.

TM – Of course we don’t know if this is a case of subscribers spending more than before, or of the people who are spending more becoming subscribers.

TR – Either way, it’s an impressive loyalty programme.  Ok, so where next, Tom?

TM – So the next thing I wanted to mention is another follow up on one of our favourite topics – the drinks industry.

TR – I’m sensing another celebrity alcohol launch.

TM – Well actually this time it’s soft drinks. Gillian Anderson is following the well-trodden path of creating her own drinks brand, but this time it’s supposedly healthy soft drinks, and she’s chosen to play on her role as a sex therapist in the Netflix TV show Sex Education, by calling it G Spot drinks, which made me laugh.

TR – Ha!

TM – But on a more serious note, the drink I really want to mention is a canned water brand called Liquid Death.

TR – That is an unexpected name for a water brand.

TM – Exactly. To be honest, I think it’s genius. The concept is that people might often want to just drink some water when out at a concert, or a club, or a sports event, but they don’t want to look boring, and so Liquid Death is a can of water made to look like an edgy craft beer.

TR – I can actually see the appeal of that.

TM – The tagline is ‘murder your thirst’

TR – Ha!

TM – It comes in various flavours too, and plays on the recyclability of cans vs plastic bottles.

TR – Makes sense.

TM – And it’s doing really well. It was created in 2019, and The Grocer magazine reported that it did $130 million of sales last year.

TR – Not bad.

TM – As soon as I saw it I actually started to get annoyed with myself for not thinking of it first.

TR – Well it just goes to show that despite the size and age of the industry, there’s still plenty of room left for innovation in food and beverages.

TM – Agreed.

TR – So to start the next thing from me, I’ve got a slightly random quiz question for you.


TR – So what is a voxel? V-O-X-E-L: And the clue is that it is typically about 1mm cubed and they’ve been around for about 50 years.

TM – Ok, so I think I’ve come across this – it’s like a 3D version of pixel isn’t it?

TR – Well you’re spot on! It’s how radiologists measure the resolution of an MRI scan. So the size of the little boxes that are put together to build an image.

TM – Fascinating

TR – And the reason this is exciting is that a team at Duke has managed to shrink their MRI voxels down to 5 microns, so a 64 million fold improvement in resolution.

TM – That’s amazing – are there any noteworthy tricks that they’ve done?

TR – Indeed there are, you know how we often talk about technologies at the convergence of multiple techs being able to accelerate and innovate very rapidly?

TM – Yes.

TR – Well, the team uses MRI and light sheet microscopy, which is really compute intensive and comes up with these amazing images. So to process a mouse brain they use the equivalent of 800 laptops.

TM – Cool.  So the last thing I wanted to mention today is a further sign of the acceptance of virtual clothing in the world of fashion.

TR – Oh yes.

TM – So one of New York’s top fashion colleges, Parson’s School of Design, has started offering a course called ‘Collab:Roblox’, to teach students about avatar design.

TR – Well virtual outfits are a big business, one that we’ve been talking about since our first episode – loads of big brands, from Gucci to Burberry, and even Louis Vuitton in League of Legends, have had a go at selling virtual items.

TM – Yes I saw a quote from the Parson’s Dean of Fashion, who said simply ‘“We dress in the physical world and we dress in the digital world”. With the implication being that wherever we dress, we’ll need someone to design the clothes.

TR – And with Apple seemingly poised to launch its long awaited AR headset, we could be at a tipping point in the adoption of virtual worlds.

TM – Absolutely.

TR – So let’s end with some chat on birds.  And I thought I’d bring up a study on Parrots using video calls.

TM – What, I know that parrots can be intelligent, but some have their friends on speed dial?

TR – Exactly! There’s a study from the University of Glasgow that taught parrots how to make video calls and as they did, they started calling their friends to do their usual social behaviours like preen, sing and play. The paper suggests that there are benefits to the birds stopping things like relieving boredom and recreating some of the good things about a flock.

TM – That’s pretty amazing, and I think there are something like 20 million parrots in homes in the US.

TR – Indeed! It all lines up with our lots of pets, not many children thesis.

TM – Ha!

TR – Well, Thank you for listening to Global infusions - a podcast that believes that the best discussions are had over tea and cake. We hope you've enjoyed your cuppa and our thoughts on the business of succession. Please do subscribe through Apple or Spotify and with that we wish you goodbye!

TM – Goodbye!

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