Take CEO Succession Planning Off the Back Burner

CEO transitions have always been high-stakes moments for companies, and they’re becoming more so. Pressure from a widening circle of stakeholders has added to CEOs’ enormous responsibilities, and when controversies arise, they’re under intense scrutiny as the public face of an organization. But succession planning for this critical role often fails to get the attention that boards acknowledge it needs.

While many CEO transitions offer an unparalleled opportunity for strategic renewal and value-enhancing change, they can also be rife with pitfalls. Given that the median tenure of S&P 500 CEOs has been falling and now stands at under five years, navigating CEO transitions is a near inevitability for boards.1 And yet, it’s one for which many boards don’t adequately prepare.

A 2019 survey by the National Association of Corporate Directors found that public-company directors ranked CEO succession planning as one of the most important governance areas — and they also named it one of the top priorities to which they most needed to devote more time. More than half (57%) of directors identified this area as needing improvement.

In our own survey of board directors, a quarter of them thought that their board had poor or below-average CEO succession-planning practices, 39% were neutral on the matter, and just 36% thought that their boards had an above-average or excellent process. In contrast, roughly two-thirds of board directors thought that their processes were above average or excellent for other core governance responsibilities, including regulatory compliance, financial planning, and board composition decisions. (See “How Boards Rate CEO Succession-Planning Effectiveness.”)

Although CEO succession planning doesn’t necessarily guarantee a positive succession outcome, our exploratory analysis of a set of CEO transitions suggests that having good processes in place can increase the likelihood of a positive outcome.