CEO Succession: Internal or External?
Updated: May 6, 2019
No one needs to be reminded that we live in an “activist” world. Business leaders see it every day in changing customer demands and expanding social expectations. They see it in new technologies and digital disruption, and in a faster than ever pace of change. They experience it first hand from more and more groups that don’t ask for greater responsiveness from businesses and organizations. They demand i
That trend reaches all the way to the very top of the business hierarchy, as the latest report from Spencer Stuart on CEO succession makes clear. CEO transitions last year fell very, very slightly from the previous year. But after three years of hiring new CEOs from within, last year saw an up-tick in the number of hires from the outside. What’s going on? And will that trend continue?
On one hand, companies and organizations in recent years have been paying a lot more attention to long-term succession planning. That can be a powerful mechanism for the patient development of the top leadership exactly right for each individual company or organization.
But in today’s exceptionally dynamic environment, such a careful developmental approach may be counterbalanced by a growing concern with having the breadth of perspective needed to understand this new activist environment. Perhaps the CEO also needs to bring the objectivity and diverse experience needed to recognize all the dimensions of change required for long-term success. Finding clarity – in the business environment, and the right business strategy –- has never been more difficult, or more important.
Those twin considerations seem to be in play in CEO transitions as never before. Spencer Stuart’s report insightfully noted that smooth CEO transitions generally lead to replacement from within. That is, when the CEO steps down while the things are running smoothly, the patient groom-from-within philosophy makes outside perspective somewhat less of a priority. But when the CEO steps down under pressure, the reverse is true.
The report noted that almost seven of every 10 CEO transitions among S&P 500 companies were based on a decision by the CEO to step down or retire. But the number of CEOs who resigned under pressure in 2018 was actually up from the year before – from 15 percent in 2017, to 22 percent last year.
There will be a lot of interest in seeing whether than increase is an aberration or a trend, especially among the executive search and board placement community tasked with helping define leadership needs and candidate options. Read the Spencer Stuart report – and take it to heart.