Decisions on CEO succession have never been more critical to an organization’s success. No wonder, then, that boards are insisting on being involved in the process and not leaving the choice up to a departing chief executive officer. Are boards doing a good job? A string of brief CEO tenures at some of the best-known corporations — for instance, Douglas Ivester at Coca-Cola, Michael Hawley at Gillette and Rick Thoman at Xerox —suggests ongoing problems. But as current research shows, companies that identify the pitfalls can make succession decisions that will stand the test of time. (See “The Optimum CEO Succession.”)
Passing the baton is a complex process for several reasons. First, the labor market for CEOs bears little resemblance to the labor market for other executives. Both the number of open CEO positions and the number of people capable of running large, complex organizations are few. Second, most candidates already are employed and thus difficult to identify or uninterested in another position. Third, the risks involved in making the wrong choice and having to remove a CEO are enormous. Not only can dismissal cost tens of millions of dollars in severance compensation, but the disruption to the organization can result in lost opportunities.
Finally, the search for a new CEO occurs under a spotlight. A change in leadership affects many stakeholders, including... To read the complete article, login or sign-up using the form below.
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