Out of the 80 new CEOs who were appointed among Fortune 100 companies in 2008, only 44 of them were promoted from within. Pretty much all of these firms would have had a CEO succession plan in place, but the fact that in 45 percent of cases these companies had to look outside to hire a CEO proves that these plans are obviously failing.
CEO turnover in and of itself adds to employee and shareholder anxiety, but this 'fail rate' contributes to even wider concerns among corporate stakeholders during the current recession. At a time when budgets are being slashed while a depressed housing market makes it harder to move around for better job opportunities, it is especially difficult to attract the right people to even the highest of jobs.
There is most certainly an art to CEO succession, it is a matter of having the necessary processes in place in order to find the right people from within your own business. If shareholders do not have enough faith in their own staff to take on some of the most important roles in a company, what hope is there? It helps workers to be driven by the possibility of working their way to the very top, to be rewarded for the skills they have developed in their time at the company.
Succession plans were not truly 'operational'
Heidrick & Struggles Vice Chairman Stephen A. Miles says that the failures "show that while these plans allowed companies to comply with corporate governance rules saying 'they do succession planning,' the plans were not truly 'operational.' They involve just checking the boxes, which is a real risk for shareholders."
So why aren't these CEO succession plans coming to fruition?
"Very often you will interview a CEO and he will enthusiastically state that he has one or two potential successors. And then you will independently interview the board of directors - and they will unanimously state that 'there is no one who can run this company.'
"Herein lies the problem: there is a real disconnect between the CEO and the ultimate 'jury' - the board - on the viability of the potential successors."
Honest evaluation of current talent
The problem for internal candidates is that board members and shareholders find it hard to envisage employees in a higher role after spending time in a lesser one. Decision makers will often tell staff they are "two or three years away" from being ready for a CEO position.
Boards must start the search for CEOs with an honest evaluation of current talent and have the necessary training schemes in place to produce a line of willing and able candidates for vacant CEO positions.
As Miles puts it, "it is this kind of forward-thinking, proactive leadership that can mitigate risk and maintain confidence among internal and external stakeholders."