Blackstone CEO Stephen Schwarzman says he doesn't understand why companies pit execs against each other in succession battles, and tells us why he kept his next-in-line a secret for more than a year

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Blackstone CEO Stephen Schwarzman says he doesn't understand why companies pit execs against each other in succession battles, and tells us why he kept his next-in-line a secret for more than a year
stephen schwarzman 2019 davos
  • Blackstone CEO Stephen Schwarzman has advice for how companies should go about high-stakes succession planning.
  • Schwarzman said that when he and Tony James selected Jon Gray to be Blackstone's next president, they initially kept it a secret from everyone but Gray so that the younger executive would have time to grow into the role.
  • The Blackstone founder also said he thinks it's counterproductive for companies to set up a public competition between senior executives in order for one of them to win the role.
  • Click here for more BI Prime content.

DAVOS, Switzerland - A cohort of private equity executives are getting ready to hand over control to the next generation, and Blackstone CEO Stephen Schwarzman has advice for other firms about how they should go about it.

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The billionaire private equity exec, who founded the firm in 1985 and built it into the industry's largest, told Business Insider in an interview on the sidelines of the World Economic Forum that succession planning often goes wrong when companies expose the new manager too quickly, expect them to rely on their instincts or put them in direct competition with peers.

Schwarzman has thought about it a lot. In February 2018, he and Blackstone's then-president Tony James, appointed Jonathan Gray as James's successor, handing the 49-year-old the title of president and chief operating officer and putting him in line to replace Schwarzman.

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The decision lived as a secret for more than a year to give Gray time.

"We wanted to make sure whoever took his position as president of the firm would be well trained and it would be a seamless transition," Schwarzman said. "We let Jon know, but we didn't let anyone else know."

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Gray shadowed James and Schwarzman, and took a more active role in promotion and compensation decisions for two cycles before stepping into the role, Schwarzman said. Since taking the reins, Gray has taken on a more public-facing role at Blackstone, recently starring as the Blackstone version of The Office's Michael Scott in a playful holiday video the firm created.

"We figured Jon needed at least a year, or maybe two years, of training," Schwarzman said. "Between compensation issues, promotion issues, supervision issues, dealing with crises - which happen all the time in the modern world - we didn't think it made any sense to just put somebody into that position of dealing with that type of thing without watching a lot of it happen."

It's based on the notion that good management skills can be taught, and shouldn't be left to snap judgments.

"Management is a learned behavior, it's not an intuitive type of occupation," Schwarzman continued. "Once you've seen how it works and you watch different types of situations that you didn't even know existed, your chance of being successful if you're smart and really capable is exceptionally high."

The decision should be kept clear from direct and overt competition, Schwarzman said. At Blackstone adviser and sometime competitor Goldman Sachs, then-CEO Lloyd Blankfein pitted Harvey Schwarz and David Solomon against one another in a 15-month battle that left many in the firm choosing sides and battling inaction. Solomon ultimately won.

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"I've always been mystified how companies can have bake-offs among three executives, teach none of them anything and select one," Schwarzman said. "The other one or two might leave, and then the third has the responsibility with no experience. That's why successions are often not successful."

Another key: Knowing when to bow out.

Despite Gray's ascension, Schwarzman has made no plans to step aside. And he said this week that as long as he's having fun and staying healthy, it's hard to imagine doing anything else.

"I still remain quite active and as long as I have the energy and the judgment to do that, I'll do it because I love it," he said. "If I have some health issues in the future or just can't continue the same sort of 16-hour days, then at some point, maybe I wouldn't do this."

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