This article originally appeared on The European Financial Review.
Boards and executive teams may lament the lack of a succession plan for the business, but struggle to find the time or approaches that will ensure a successful future. It can be stressful and disruptive to consider the departure of the CEO and the risks of business transition, but following some straightforward steps will help smooth the way.
Over the last 10 years, research has shown that more than 50% of corporate boards were not actively preparing successors to the current leadership. Almost 40% had no internal candidate who could be ready, in a crisis, to step into the CEO role if necessary. According to a 2015 study by Strategy&, even large public companies are unprepared to replace their CEOs, creating the likelihood of burning through as much as $1.8 billion in shareholder value by the time they find, hire, and onboard a successor. In this piece, I’ll explore the reasons behind this expensive oversight, how leaders and boards can think about it systematically, and what they can do to take steps now.
Why Leaders Hesitate to Act
Why would so many businesses be on such shaky ground? Succession planning is one of those nagging situations in which you’re always late – you want the fruit to be available today but haven’t yet planted the seed for the tree. Whether a business is growing and thriving or teetering on the edge of disaster, leaders and senior executives have too much to do, and there are often no obvious internal candidates at the time you’re thinking about the issue. Both leaders and boards may recognise the need to have succession practices in place, but the work of succession can be disruptive to the finely tuned balance of the status quo, and can take three to five years to implement. It’s no surprise, then, that many organisations skirt succession planning to focus on initiatives that provide quicker returns.