CEO succession planning is a fundamental board responsibility. Or is it? This article takes a critical approach through the lens of expected shareholder return. This is partly as a counterweight to the often positive view of CEO succession planning and partly to explain why some firms don’t do it. We can summarize it with two scenarios. The first CEO is 50 and isn’t ready to think about the time when he won’t be around. He has a jam-packed growth agenda. The firm has a functional structure, making it hard to create realistic tests for CEO contenders. There are similar competitor companies and talent is fungible. The labor market is fluid and nobody frowns on executives moving. The political and economic climate is unstable, you’re not sure what sort of CEO you might need next.
Succession planning could lead to board-CEO conflict, distraction from priorities, candidates you invest in going to competitors, and possible CEO skill mismatches. You might as well take your chances on the external market when the time comes, especially if there’s a strong infrastructure supporting executive placement. Evidence suggests external CEOs perform as well as internals anyway. The second CEO is 63 and indicated she’s looking to move on. She has successfully delivered her agenda. She is committed to the success of the firm when she’s gone. The company and its environment are stable. The firm dominates its market. You know the skills the next CEO will need. The firm is multinational, you can create CEO-like roles for candidates. There are few companies like this one and the top job is a prized goal. Here the risk seems worth the return for succession planning. The downsides from scenario one probably don’t exist.
The article highlights conditions that might mean these risks are worth taking or not. It isn’t for or against CEO succession planning. I bought this for 30 dollars when asked to read it for a short-notice meeting. Was it worth it? Yes, for the way it clearly frames the issues. I came away thinking it’s not about whether firms should succession plan for CEOs or not, instead it’s about when they should start.
Source: https://lnkd.in/eF4zJcaz
