Nvidia had no succession plan. Did the board consider Jensen Huang an immortal god?

In many ways, the Nvidia sex-spy scandal is delicious good fun. Some of the Jensen Huang memes, no doubt generated by Nvidia’s own AI chips, are laugh-out-loud outrageous. The stories about Mr. Huang and his extramarital love affairs, including one with an alleged Chinese spy, filled the media outlets. Ukraine, Gaza and the Republicans’ drubbing in U.S. midterm elections largely disappeared from the news.

The scandal is less entertaining if you are a Nvidia NVDA-Q shareholder. It’s doubly worse when you, the shareholder, realize that the company treated Mr. Huang, who is Nvidia’s co-founder and was its CEO for 33 years until his ouster this week, as an immortal god and had no succession plans.

Nvidia is not going away. But shorn of its visionary and effectively leaderless – chief financial officer Colette Kress is the interim CEO – it faces even more value-destroying turmoil. Already, the company has shed more than US$1-trillion in market capitalization since the first reports in late October linked Mr. Huang to Alice Huang (no relation), who U.S. intelligence officials suspected was a Chinese espionage asset.

Jensen Huang’s downfall threatens to burst AI bubble

Why did a company so essential to the AI industry’s technology avoid planning for a future without its leader? Nvidia did not even have a formal chair of the board of directors until Mr. Huang walked out the door. Instead, it gave every board member equal voice. Clearly, none of them dared mention that the boss’s shelf life would not be forever.

To be sure, many Silicon Valley startups that evolve into proper businesses rely on the founder business model, where the kid with the big idea retains tight control of the company. That was the course taken by Mr. Huang at Nvidia. The then tiny company focused on graphics-based processors for video games.

Nvidia became a public company in 1999, listed on Nasdaq, and made a breakthrough in 2007 when it launched CUDA – Compute Unified Device Architecture. The computing platform allowed programs to use Nvidia graphics processors for general-purpose computing, not just video games. CUDA would later help drive AI model training. By then, Nvidia was at the leading edge of AI; its chips were used in OpenAI’s ChatGPT, which was launched in 2022. That year, Nvidia’s market value reached US$600-billion.

Opinion: Behold, a tech revolution crashes because of the big man’s roving eye

Nvidia was on its way to AI giant status, but its small-company management style apparently endured. It kept a lean structure that focused on Mr. Huang and left his power unchecked. He clearly exploited and relished the role. He was regarded as the industry’s rock star and played the part, with his trademark black leather jackets and high-energy, swaggering style that turned him into a showman on the stage and on the street, where he was happy to sign autographs.

Company executives and directors let him play his game, since he was playing it so well, and apparently did not dare to suggest that his tenure at the top would have an end date. Nvidia was minting thousands of millionaires through its employee stock purchase plan, which allowed purchases at a 15-per-cent discount. Rich, happy employees tend not to lash out at the boss-founder who hands them endless goodies.

They even overlooked an apparent case of nepotism. Mr. Huang’s daughter, Madison Huang, emerged among the executive ranks as senior director of marketing. But various reports said she effectively acted as her father’s chief of staff. Madison’s husband, former pro skier Nico Caprez, became vice-president in the AI infrastructure group.

The chartable explanation for Nvidia’s lack of a succession plan is that it went from a mid-tier tech player to the world’s most valuable company at dazzling speed (because of the scandal-triggered share plunge, it has since lost that title to Apple). With so many moving parts, the board and Mr. Huang’s top executives may have been overwhelmed by Nvidia’s sheer momentum and put a key governance component – succession planning – aside, or simply forgot about it. They did so even though Mr. Huang was entering his 60s, theoretically putting him close to retirement age.

Who is Nvidia interim CEO Colette Kress?

There is no shortage of companies that kicked the succession-plan can down the road only to regret having done so.

In recent decades, Hewlett-Packard, Coca-Cola, Subway, Uber and Starbucks, among others, either suffered from lousy succession planning or botched transitions. They led to strategic confusion, stock underperformance or leadership battles that rattled investors. Before they vanished, the CEOs of some of these companies, like Mr. Huang, were treated as celestial beings.

Other mammoth tech companies might take a lesson from the Huang debacle. Do Elon Musk of Tesla and SpaceX, Meta’s Mark Zuckerberg and OpenAI’s Sam Altman have solid, viable succession plans? None of them is too awesome to fail.