2024 Annual Corporate Directors Survey
Over 500 corporate directors shared their views on the most pressing issues facing boards. Learn their views on how they are leading their organizations through uncharted territory in our 2024 survey.
How the best boards approach CEO succession planning
CEO exits continue to rise, and shareholder activists are exerting ever more pressure on boards to make leadership changes. Yet many boards have failed to adjust to the new uncertainty at the top, and may not be fully prepared for CEO changes despite succession planning being one of their core responsibilities. In fact, some companies have had to resort to “boomerang CEOs” to navigate transitions. In today’s complex environment, in which disruptions are the norm and emergency successions are ever less surprising, the board’s engagement in CEO succession planning has become essential for keeping operations and sustainable growth on track.
With accelerating CEO turnover, traditional ways of approaching succession planning may no longer be effective. In our latest report, we outline important steps directors can take to be proactive and better prepared for both planned and unplanned departures.
Why CEO succession planning is so important
Planning for who will be the company’s next leader has long been one of a board’s most important responsibilities. Without the right person at the top, even established companies with solid business models and innovative strategies may struggle. And that’s even more true in the post-pandemic business landscape — the way organizations operate, adapt and thrive has been profoundly transformed. This transformation, marked by unprecedented disruptions and accelerated digitalization, necessitates a fundamental re-evaluation of which skills and attributes a CEO needs today. Boards must proactively re-think and recalibrate the skills they seek for long-term viability and growth.
The changing nature of CEO succession planning
In 2022, 56 S&P 500 CEOs resigned, up from 48 in 2021. Of those, only four did so under pressure. The lower number in 2021 can likely be attributed to longer CEO tenures and higher departure ages to provide stability during the pandemic. However, average CEO tenures are starting to normalize back to slightly shorter tenures, making it increasingly likely that directors will oversee more CEO successions (both planned and unexpected) during their board service, particularly given that board tenures continue to increase.
Nine leading practices in CEO succession planning
Boards that prioritize CEO succession planning find ways to lay the groundwork for smooth CEO transitions. How do they do this despite the more immediate pressures of overseeing quarterly performance and strategy execution? We’ve identified nine actions that may make them successful.
Successful succession discussions often stall due to differing opinions on how the company's strategies and future demands should shape the choice of the next CEO. To find common ground, boards should begin by assessing factors likely to impact the business in the next few years. Once aligned on strategy, they can identify the dynamic skills and experience required for the next CEO and plan for multiple succession scenarios. This includes defining qualities for a good cultural fit and involving the current CEO and management team in the process.
Eyes on the prize
These turbulent times demand much more from corporate leaders. Done well, CEO succession and transition planning can boost stakeholder confidence in the company’s board and executive leadership — and, when the time for a transition arrives, increase a company’s chances of getting a CEO who can lead the company into a profitable future.
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