Nvidia's Rockstar CEO Exit Puts Succession and Governance to the Test

Jensen Huang resigned as chief executive of Nvidia (NVDA) on Thursday, putting the company's succession planning and its dependence on its founder under scrutiny. Analysts say Huang's value extended beyond technology to supplier relationships, customers and his influence across the AI industry.

What Huang actually did

Huang, who co-founded Nvidia in 1993 and resigned amid reports of extramarital affairs, had become a bridge between Silicon Valley, Asia and Washington and one of the most prominent voices for the wider AI industry, according to Duncan Clark, speaking on CNBC's "Access Middle East" on Friday. On "Squawk Box Asia" the same day, Dylan Patel of SemiAnalysis said Huang would persuade executives at smaller companies that make critical components to commit capacity to Nvidia, helping it secure what Patel called the majority of supply chain capacity. Without Huang, competitors could try to persuade those suppliers to allocate more capacity to them, Patel argued.

Before the resignation, Eric Ross told "Squawk Box Asia" that Huang "is the company." Bernstein's Stacy Rasgon, also on that program, made a distinction: Nvidia had capable executives who could keep the business running, but what was harder to replace was Huang's vision. For a company whose valuation reflects not just what it sells but expectations of what AI could become, replacing that vision may prove harder than replacing the CEO.

The flat structure behind it

Huang ran an unusually flat organization. He reportedly had about 36 direct reports and eschewed one-on-one meetings, according to Fortune. The chipmaker employs more than 30,000 people. That structure made Huang central and seemingly indispensable, and it may have contributed to the crisis Nvidia now faces: at age 63 and after nearly 34 years as chief executive, he left with no obvious No. 2.

Nvidia said on Thursday that finance chief Colette Kress would serve as interim CEO while the board hunts for a permanent successor, considering both internal and external candidates. Nvidia's board had never previously had a board chair, according to Linda Ford, chief executive of The Chartered Governance Institute in the U.K., who said a high-profile leader can be an asset but the board needs to work hard to protect its independence.

Governance, not just succession

Michael Withers, professor of management at the University of Notre Dame, told CNBC that Nvidia did not appear to have a succession plan for Huang and that successor CEOs often struggle even under normal circumstances; it becomes considerably more difficult when the transition follows a high-profile scandal. Storm Uru, co-head of the Global Innovation team at Nvidia investor Liontrust Asset Management, identified two priorities: changing company culture and managing the supply chain, which he said was where Huang provided a vision for the future and brought people to the table.

Fortune cited Molly Rosen of ProjectNext Leadership, who said flatter structures tend to concentrate power with CEOs and boards can have a harder time reining in a boss who has amassed outsize authority, and that the board owns succession. Siobhan O'Mahony, a professor at Boston University's Questrom School of Business, wrote that having fewer managers means fewer people gain the experience necessary to prepare for senior roles.

Jo-Ellen Pozner, associate professor of management at Santa Clara University, told CNBC the flat structure was designed to adapt well in a world of change, but without Huang there is likely nobody who can coordinate among the various leaders with different expertise. Whether Nvidia's business can stand on its own without the person who built it is now the open question, and other boards may want to ask whether they could say the same.

Nvidia shares were at $162.85 in delayed trading, down 2.01%.