Eight Myths About CEO Succession

 
 
By Dennis McCafferty  |  Posted 04-18-2014 Email Print this article Print
 
 
 
 
 
 
 
 

With the turnover rate of CEOs ranging from 10 percent to 15 percent in any given year, you might conclude that organizations are prepared for replacing their top leader at any given moment. But you'd be wrong. The majority of companies don't really have an effective succession game plan, according to a recent article from David Larcker and Brian Tayan of the Corporate Governance Research Initiative at the Stanford Graduate School of Business and Stephen Miles of The Miles Group. To demonstrate their point, the article's authors have developed a list of top "myths" about the succession process. Success, they argue, depends upon much more than a healthy financial book and a rise in the company stock price. "Many believe that the selection of the CEO is the single most important decision that a board of directors can make," according to the article, which was published in the Stanford Closer Look Series. "In recent years, several high-profile transitions at major corporations … have cast a spotlight on succession and called into question the reliability of the process that companies use to identify and develop future leaders." The following list of top CEO succession myths, along with the realities behind them, was adapted from the article, along with additional myths from the CD Consulting Group. For the Stanford Closer Look Series article, click here. For more about CD Consulting's list, click here

 
 
 
  • Myth 1: Companies Always Know Who the Next CEO Will Be

    Reality: Two of five don't have a viable internal candidate to immediately fill the shoes of a CEO if he or she were to leave tomorrow.
    Myth 1: Companies Always Know Who the Next CEO Will Be
  • Myth 2: Succession Is all About Risk Management

    Reality: While leaving the position open can bring on risk, the long-term goal here is about building shareholder value (i.e., "success planning" as opposed to risk avoidance).
    Myth 2: Succession Is all About Risk Management
  • Myth 3: Boards Know How to Spot a Strong CEO

    Reality: Actually, board members place too much weigh on expenses and revenues, stock price and other fiscals, and too little on customer service, innovation, talent development, employee engagement and additional success drivers.
    Myth 3: Boards Know How to Spot a Strong CEO
  • Myth 4: It Should be Obvious as to Who the New CEO Will Be

    Reality: This is true but only if you pursue it the wrong way, such as thinking in terms of available people first instead of strategy. Determine the ultimate objectives, then find the best match.
    Myth 4: It Should be Obvious as to Who the New CEO Will Be
  • Myth 5: Boards Prefer Internal Candidates

    Reality: Often, they don't get enough exposure to internal candidates and express initial hesitation that they're "untested," regardless of whether they eventually promote these candidates.
    Myth 5: Boards Prefer Internal Candidates
  • Myth 6: CEOs Hired From the Outside Usually Deliver

    Reality: They get weaker financial results, leave sooner and are more expensive to bring onboard.
    Myth 6: CEOs Hired From the Outside Usually Deliver
  • Myth 7: There Is a Best Model for Succession

    Reality: One size doesn't fit all, and business moves too swiftly for any one model to remain static. Boards must constantly re-assess what's needed from tomorrow's top leader.
    Myth 7: There Is a Best Model for Succession
  • Myth 8: Boards Seek Diversity in a CEO

    Reality: The numbers don't lie: Less than 5% of Fortune 500 companies have women CEOs. Just 14 (less than 3%) are African-American or Latino.
    Myth 8: Boards Seek Diversity in a CEO
 
 
 
 
 
Dennis McCafferty is a freelance writer for Baseline Magazine.

 
 
 
 
 
 

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