The presence of a retired CEO on the board could thus limit the new CEO's ability to assume the control he must have in order to be an effective leader. If the new CEO were a protege of the retiring CEO, the problem is a conflict of interest: The new CEO will be torn by a sense of loyalty and a desire to follow his own agenda when the retiring CEO disagrees with a policy decision. If the new CEO was brought in from the outside, the problem could be even worse: The new CEO could be blocked from effecting any major changes not approved by the retiring CEO.

The current chairman and CEO of a Fortune 500 company provided us with a different way of looking at the dilemma. It is true, he said, that there are dangers of some retired CEOs dominating their successors, and that is a good reason to keep them off the board. But, he said, the majority of retired CEOs recognize this problem and, in an effort to be responsible, they stay silent on major policy questions. Thus, the most well-intentioned retired CEOs become ineffective directors.

In short, it is a catch-22 for the retired CEO. Retired CEOs who care about their successor may not be effective directors. Retired CEOs who want to dominate the board should not be on the board at all.

But it is also a catch-22 for shareholders. Retired CEOs have vast experience which could benefit the company, and the new CEO in particular. Shareholders who decide not to return the retired CEO to the board thus lose something of great value.