While every organization inevitably must replace its CEO, most firms are
ill-prepared for succession. In this article, HBR senior editor Eben
Harrell reviews the most salient studies of succession planning and
offers context from the experts. Some key takeaways: • Though turnover
among CEOs is rising, only 54% of boards are grooming a specific
successor, and 39% have no viable internal candidate. The consequences
of poor planning are serious: Companies that scramble to find
replacements forgo an average of $1.8 billion in shareholder value. •
Grooming leaders takes years but pays off: Chief executives who have
gone through executive development at “CEO factories” like GE deliver
superior operating performance. But directors need to get more involved.
The majority don’t understand the capabilities of the executives below
the CEO, and only about a quarter participate in their evaluations. •
The trend toward external hires is growing, and outsiders command higher
median pay. But studies suggest that on the whole, insider CEOs deliver
better returns. • More researchers are studying the traits of the ideal
CEO. So far they’re finding that younger CEOs outperform, that
execution matters more than interpersonal strengths, and that a military
background makes leaders more honest, but this line of inquiry is in
its early days, and the jury is still out. [ABSTRACT FROM AUTHOR]