Cultivating a Succession-Ready Organization
A CEO's Guide to Succession
The CEO's role in succession planning
CEO succession planning is a critical aspect of an organization's success, especially given the increasing turnover and decreasing tenure of CEOs.1 The process can also be expensive: it's been estimated that the cost of failed CEO and C-suite successions was close to $1 trillion dollars per year for the S&P 1500 alone.2 With so much at stake for businesses, devoting attention and resources to the succession process is critically important for many organizations and perhaps the most consequential role of the board.
In addition to the focus by the board, it makes sense that CEOs are thinking more about this topic. To explore further, we turned to data from the Fortune/Deloitte CEO Survey, surveying Fortune 500 and Global 500 CEOs, and the Board Practices Quarterly Report, surveying public company corporate secretaries.3 Results revealed some unity between CEOs and corporate secretaries regarding involvement of the board in the succession planning process, especially, including creation and approval of the succession plan and selection of the eventual successor. Less clear was the perceived CEO's role in the succession process with high levels of variance regarding the CEO's involvement in the interview and selection processes.
CEOs have an opportunity to directly impact selection of their successor, whether they are involved in the actual CEO selection process or not. Our research suggests that focus across three areas may improve an organization's overall readiness for succession, many of which can be influenced by the CEO: creating a strong pipeline, aligning expectations across the organization, and positioning succession planning with overall business strategy.
"I am not trying to create job security, but organizational company security."
CEO interviewee
Succession readiness and why it matters
Succession readiness goes beyond having a plan to replace the CEO. First, CEOs largely agree that the plan is not a problem: over half of surveyed CEOs in the Winter 2024 Fortune/Deloitte CEO Survey, for example, agree that their board has a well-defined process for selecting the next CEO. Although there seems relatively widespread confidence in the plan and processes, there is less confidence in the other half of the equation: the candidates themselves. Only a third of CEOs strongly agree that their company has a strong pipeline of candidates for the role, a number that is even more striking when considered with the fact that 91% of the CEOs identify themselves as responsible for developing that pipeline.
To investigate further, we spoke with seven CEOs and other executives who have firsthand experience leading a succession or are currently working to build plans for their organizations. From these conversations we found that these CEOs feel highly invested and personally involved in setting up their organizations for successful transitions. There’s a consensus among the leaders we spoke with that a key driver of success is thinking about the organization as a whole and its readiness for succession. This goes beyond having a plan to replace key leaders, it encompasses building a culture, infrastructure, and strategy that proactively prepare the organization for change. This means identifying and developing talent at many levels, creating a robust pipeline of future leaders, and ensuring that the organization’s vision, mission, and strategic priorities remain steadfast regardless of who occupies the corner office. These results highlight the fact that the CEO has an important and distinct role to play in creating a succession ready organization.
The executives we interviewed collectively identified several areas where CEOs can focus their efforts to help build an organization that is ready for succession, whether that is in the near or long term.
Conclusion
Creating an organization that is succession-ready is not a one-time initiative; it’s an ongoing commitment that requires foresight, intentionality, and collaboration. For CEOs, the process of succession planning is a powerful opportunity to shape the future of their organization. By championing leadership development, understanding their role and expectations, and aligning succession planning with strategic goals, CEOs can build a resilient and agile organization that is poised for continued success—no matter what challenges may lie ahead.
Endnotes:
1 "Age and tenure in the C-suite," Korn Ferry Report, 2017.
2 Claudio Fernández-Aráoz, et. al., "The high cost of poor succession planning," HBR 2021.
3 "CEO Succession planning processes," Board Practices Quarterly, December 2023. Deloitte; "Winter 2024 Fortune/Deloitte CEO survey insights," Deloitte 2024.
4 B. G. Glaser, & A. Strauss, The discovery of grounded theory: strategies for qualitative research, Mill Valley, CA: Sociology Press, 1967; B. G. Glaser, The grounded theory perspective II: description's remodeling of grounded theory methodology. Mill Valley, CA: Sociology Press, 2003. K.V.D. Berns & P. Klarner, "A review of the CEO succession literature and a future research program," Academy of Management Review, 31(2), 2017: 83-108.
