Shorter-tenure CEOs: Trend or Anomaly?
Updated: May 6, 2019
Just how important is succession planning for the CEO position? Ask any company director, or any of the top executive search and board placement leaders, and you will get exactly the same answer: Not just extremely important. It’s critical.
More and more companies and organizations have made long-term succession planning a high priority, with considerable time and resources devoted to mapping out the right succession plan. But a recent report by Russell Reynolds highlights not just how important that work is, but also how it can all go wrong.
Russell Reynolds looked at CEO transitions among S&P 500 companies over a 12-year period (2003-20015) – 688 CEO transitions, with 40 percent experiencing two or more CEO successions in that period. The real news, however, lies below the simple numbers. Roughly one in seven new CEOs lasted less than three years in the post. And among CEO hires from the outside, just over 17 percent of placements lasted less than three years, and 11 percent never made it to two.
With so much time and effort put into CEO succession planning, what’s behind these disappointing numbers? A number of factors may be at work.
One problem may be succession planning that confuses process with critical thinking. Effective succession planning isn’t a mechanical checklist of steps – a one-size-fits-all formula that reduces the process to a series of boxes to be checked. It demands absolute clarity – in understanding the nature of the business, its brand and culture, the competitive environment, long-term needs, and all the other factors critical to long-term success. And in this case, “success” involves not just the performance of the business, but the ability of the new CEO to step in quickly and effectively.
Studies by Spencer Stuart and others indicate that the lack of cultural fit accounts for almost two-thirds of new-hire failures. The CEO position is not immune from that simple fact of business life. To integrate more seamlessly into the top spot, CEOs must connect with all the people who contribute to organizational performance, from the board room to the mail room. They must be able to communicate, and to persuade, and to convince and motivate. They must generate trust-based relationships across multiple audiences, internally as well as externally. They must ‘fit in.’ Assessing ‘fit’ is a much more complex task than simply checking a box, especially when external candidates are increasingly in demand as a source of superior leadership.
Crafting a solid succession plan will take considerable time. The best succession planners view it not as a project but as a rigorous continuing effort to thoroughly assess leadership needs, objectively evaluate internal and available external talent, invest in substantive developmental efforts – and to be willing to adapt and redirect thinking in response to changes in the business and the world around it. The world changes constantly, and so must the succession process.