It is inevitable that organisations have to replace top management, for various reasons, including the CEO. However, most organisations are usually underprepared to handle this process in a diligent and efficient manner. In fact, a survey by firm Heidrick & Struggles and the Rock Center for Corporate Governance at Stanford University, found that “only 54% of boards were grooming a specific successor, and 39% had no viable internal candidates who could immediately replace the CEO if the need arose.” ¹
A further study into the succession planning of 2,500 of the world’s largest firms found that companies that aren’t ready to replace the CEO, or have a weak succession planning strategy, missed out on $1.8 billion in shareholder value.² For organisations that manage to replace their CEO despite poor succession planning, estimates suggest that up to 40% of new CEOs fail to meet expectations in the first 18 months. ²
So, what should organisations consider when putting together a successful succession plan?
According to Eben Harrell from the Harvard Business Review, organisations should refine their succession strategy around 3 key points ² –
- Time: Planning takes years, not months
- Insiders vs Outsiders
- Traits of a good CEO
Time: Planning takes years, not months
Dr. Marshall Goldsmith, recognised as one of the world’s leading executive educators and authors, recommends that potential replacements need to be mentored by current CEOs and included in executive decisions as much as possible, since they will ultimately be responsible for the legacy of those decisions.
Insiders vs Outsiders
Deciding on recruiting internally or externally is a dilemma that most organisations face. Whilst it makes sense to develop a replacement for the CEO internally and allow them to truly understand the culture of the organisation, many companies choose outsiders to help quell any conflict that may arise from recruiting internally.
Traits of a good CEO
Bob Neill from Seaview Consulting suggests that deciding on an appropriate successor comes down to understanding the nuances of the recruitment process, such as understanding the culture of an organisation or the legacy of the CEO that they are replacing, over being able to ‘crunch numbers’.
Want to know more?
Is your organisation prepared for the inevitable departure of top-level management, or a change in ownership? Join Bob Neill in our on-demand webinar: The 5 stages of developing a successful succession plan for your financial planning firm.
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¹ "Succession Planning : What the Research Says," Harvard Business Review
² "How to plan for your own succession," Harvard Business Review
³ "Why Succession Planning is Important," Seaview Consulting