In a surprise move after close of market trading yesterday evening, Workday announced a new co-CEO, replacing Chano Fernandez, who had held the role since August 2020. Workday board member Carl Eschenbach has been named co-CEO alongside founding co-CEO Aneel Bhusri, with the stated expectation that Eschenbach will become sole CEO at the end of January 2024, when Bhusri will hand over the CEO reins but stay on in a full-time role as Executive Chair.

Eschenbach joined the Workday’s board of directors in February 2018. He had previously held various leadership roles during a 14-year stint at virtual infrastructure powerhouse VMware, including President, COO, acting CFO, and EVP of Worldwide Field Operations. Prior to VMware, his career in sales management included spells at Inktomi, 3Com, Lucent and EMC. He left VMware ahead of its takeover by Dell in 2016 to become a Partner at storied VC firm Sequoia Capital, where he will continue to be involved in a venture partner capacity. He has served on the boards of various tech companies who have joined the Sequoia portfolio during his tenure, including Snowflake, UiPath, Zoom and self-driving venture Aurora Innovation. In a statement released by Workday, he said:

I’ve long admired Workday and how it has redefined the enterprise software industry, with a focus on putting people at the center, a values-based approach to leadership, and a relentless focus on customer service and innovation. This has helped differentiate Workday, driving its growth and success in supporting some of the world’s largest organizations.

I’m thrilled to be expanding my role at Workday and working with Aneel, the rest of the leadership team, and our amazing group of employees to help us build on this great momentum and take hold of the massive opportunity in front of us.

In the same release, Bhusri said:

We have an incredible opportunity in front of us and I’m confident that Carl, with his leadership skills and his proven experience in helping technology companies scale, as well as his commitment to culture and values, will help lead Workday through its next phase of growth.

Bhusri also had warm words for Fernandez, who has stepped down from the Workday board today as well as relinquishing the co-CEO role. Bhusri said:

Chano has been an integral part of Workday since he joined almost nine years ago and has helped us to achieve great success and growth. We thank him for his many contributions.

There was no further news of Fernandez’s plans, but it is likely that he will continue as Senior Advisor at KKR, a role that he took up in March this year. This involves advising the private equity investment firm’s global technology team and its portfolio companies in the cloud, SaaS and enterprise software arena. Fernandez joined Workday in 2014 as President of its EMEA and APJ regions, and was later promoted to co-President and ultimately to co-CEO. He had previously held roles at SAP, Infor and McKinsey, among others.

Workday is no stranger to the co-CEO arrangement. As Bhusri noted when appointing Fernandez to the position in 2020:

My co-Founder, Dave [Duffield] and I operated as co-CEOs for almost five years, and the model worked great for us and for the company. I wholeheartedly expect the co-CEO structure will also work great for Chano and me …

Much like it was with me and Dave, two like-minded people are better than one in the CEO job. It was my best experience at Workday when Dave and I were co-CEOs, so I’m thrilled to be able to share the role with Chano. He’s a much stronger operational leader than I am.

My take

Is this a hasty move to replace Fernandez or a carefully prepared succession plan? My sense is that it’s the latter. Workday’s management has had plenty of time to get to know Eschenbach in almost four years since he joined the board — and vice-versa. This move may have been brewing for as much as a year, which would fit in with the timing of Fernandez joining KKR as an advisor. Also, when I met Fernandez at the recent Workday Rising event in Stockholm last month, while he was as professional as ever, his demeanour seemed somehow more relaxed than usual. It had struck me at the time, but it was only last night when I heard this news that it suddenly made sense. I could be wrong, but I’m guessing that this had all been decided by then.

It’s an odd time of year to announce such a big management change, but with just six very light trading days ahead until the return to work in January, perhaps Workday felt this was the best time to let financial markets digest the news. Or maybe, as often is the case with big contracts, it wasn’t until the holiday deadlines loomed that Eschenbach’s deal was finally nailed down. Whatever the true story behind the scenes, Workday’s press statement made a point of reaffirming financial guidance for the current quarter and its preliminary outlook for the next financial year — in other words, “Nothing to see here.” The initial reaction in after-hours trading last night was a 2% drop but the real impact, if any, will be seen when the market opens today.

On the face of it, this should not be a disruptive change, except for Fernandez personally and perhaps some of his direct reports. Eschenbach should know the company well after four years on the board. He’s had extensive experience across many senior roles at VMWare and his sales background complements Bhusri’s technology chops in a similar way to Fernandez. But this will not be the same co-CEO relationship as before. This time, the new co-CEO has been officially acknowledged as heir apparent to the sole CEO role — and on a known and relatively short timescale, with just over a year to go before that transition is complete. It’s not long for the newcomer, who has largely stayed out of the public eye since leaving VMware, to earn the confidence of staff and customers.

On top of that, there’s the significant matter of retaining Bhusri’s confidence. Co-CEO arrangements have had a bad rap recently, particularly after the unexpected departure of heir-apparent Bret Taylor from Salesforce just a few weeks ago. They’re often seen at companies where a founder wants to find a successor, but founders aren’t good at handing over the reins. In such cases, the proposed future arrangement at Workday of a CEO working with the support/supervision of an Executive Chair is the more usual way of doing things, but doesn’t necessarily work out any better.

The success of such arrangements all comes down to the trust that exists between the individuals concerned, and the self-discipline of the founder to be able to draw a line under their reign. If my conjecture that this has all been carefully planned is correct, then it also follows that Bhusri is fully signed up to this transition, which bodes well for it to go smoothly. In which case, we look forward to getting to know Eschenbach better and finding out more about his plans for Workday’s future.