How Companies Can Prepare for Sudden CEO Turnover

Chief departures often come suddenly, leaving companies unprepared. To mitigate risk, boards must take steps to prepare for uncertainty.

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If it seems like CEOs are departing in droves lately — they are. The year 2018 saw the highest U.S. CEO turnover rate since the last recession, and thus far 2019 has continued to be a year of uncertainty for the top job within companies.

These departures often come suddenly in high-profile, contentious situations, and we don’t have to look far back in the headlines — see WeWork, Juul, eBay, and Renault — for recent examples. In fact, one study found that just more than half of CEOs who leave are being fired rather than choosing to pursue other opportunities or retire.

Far too often, companies are unprepared for these shake-ups. They find themselves scrambling to select new chief executives with the skills, knowledge, and experience to take the helm in troubled times. The fact is, preparing for the possible sudden departure of a top executive often isn’t prioritized in companies or simply isn’t on the radar.

But this lack of preparation comes at a price for businesses. Chief departures can signal fear and uncertainty within the ranks, and often managers and employees feel a lack of direction for moving forward. Individuals and teams may not know which projects to pursue and which to put on hold. Morale can also take a hit if there are concerns that new leadership might radically restructure or institute layoffs during the company’s transition.

One study estimated that it costs organizations an average of $136 million to suddenly lose a CEO rather than having a planned retirement with an organized succession plan. This study, published in the International Journal of Financial Research, specifically focused on companies in which the CEO suddenly became ill or died. When a CEO is fired amid controversy, the cost to an organization’s reputation and market may be even higher.

As Robert Hooijberg and Nancy Lane of IMD in Lausanne, Switzerland, have observed through their research, more than half (58%) of boards do not have emergency succession plans in place. Fifty-two percent also say they would hire an outsider if they had to bring in a new CEO, with only about one-third (35%) of board members saying an internal candidate would most likely be chosen.

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