If there’s one word to describe the world of corporate leadership, it’s unpredictable. It can be argued that there is no greater influence on a company’s success than the CEO, the figurehead and biggest name to attribute towards the company’s overall direction and performance. As a CEO, they are often solely responsible for analysing every aspect within the business, from company culture and processes to strategic direction, markets, and investments.
Yet, in recent years, CEO turnover has been escalating at unprecedented rates, with 622 CEOs announcing during Q1 2024 that they would soon quit (a 50% increase compared to Q1 2023). According to recent data, less than 1 in 10 UK businesses have an adequate plan or process in place should their incumbent CEO be forced to resign from their post atop the company hierarchy.
CEO succession planning is one of the most critical and yet most frequently overlooked aspects of the post. Establishing a succession plan doesn’t just steer the company towards its goals, but also ensures a smooth transition for the future once they step down. Given that recent reports also suggest low confidence in managers and bosses, making your mark as a CEO with dignity is a constant challenge. Leaving with your head held high, whatever the circumstances, will also be quite telling of how well you’ve done in the post.
This short guide will walk you through the crucial steps of succession planning as a CEO, covering various exit strategies and providing insights on how to make your eventual transition as straightforward, hassle-free, and seamless as possible.
The Importance of Succession Planning
Not only has there been a surge in CEO turnover, but according to the Financial Times, half of business owners have precisely no exit strategy. This trend underlines just how important having a robust succession plan in place is.
Many organisations find themselves drastically unprepared when the time comes for a leadership change. As a CEO, your legacy isn’t just about your achievements and accomplishments during your tenure, but also about the state in which your company is left for your successor.
A well-executed and properly planned succession strategy can maintain stakeholder confidence, preserve company culture and values, provide or maintain a competitive edge in talent retention and recruitment, and ensure business continuity.
Ultimately, CEOs – particularly those that have gone public – have a lot riding on their reputations with every key business decision closely inspected and scrutinised. It’s undeniably preferable for CEOs to bow out gracefully and with their reputations intact than to be forced to resign for underhanded, illegal or immoral activity.
CEOs who purposefully evade tax obligations, are linked to criminal or suspicious activities, or otherwise jeopardise the safety and stability of their workforces (among other examples) will no doubt be viewed less favourably by the public. Sympathy and empathy will instead be higher for those CEOs who leave with decorum and respect and have led their companies by example, paving the way for their successors to continue the same trend.
Therefore, whatever the scenario that sees a CEO step down from their post, establishing a succession plan is a pivotal step that businesses can ill afford to overlook.
Key Steps in Succession Planning
1. Start the Process Early
The most effective succession plans are proactive, with the process ideally beginning as soon as you step into the CEO role. A long-term strategy allows you to pinpoint and develop potential future candidates internally, thoroughly evaluate the company’s future needs based on its performance, and cultivate a supportive team and culture around the potential successor.
2. Align with Corporate Strategy
Any succession plan should be closely tied to the company’s long-term vision and corporate strategy. Ask yourself:
How might the company change in the next 3 to 5 years?
What attributes and experience will be crucial for future leadership?
What kind of person will be the best fit alongside the other executives?
3. Develop a Talent Pipeline
Leadership development is a function to develop and cultivate throughout your organisation, from the top down. This involves identifying high-quality employees at various levels, providing growth opportunities, offering mentorship and executive coaching programmes, and encouraging cross-departmental job rotations to broaden your team’s skill sets and experience.
Challenging economic times have led to the quick removal of underperforming CEOs, with those lasting less than two years accounting for 15.1% of those leaving, which is a drastic increase from 9.6% of departures on average since 2019. Therefore, positioning key talent to step in at short notice is vital.
Establishing this will bring employees closer to the strategic direction of the company and position certain individuals for progressing into roles with greater responsibility.
4. Define Clear Criteria for Your Successor
It’s crucial to work with your board and stakeholders to establish the right criteria for your ideal successor. This would include close assessments of leadership style, values, industry experience, technical abilities, innovation mindset, and track record.
Mentoring and training internal talent is undoubtedly crucial, but so is benchmarking against external candidates. Internal candidates’ readiness and skills should always be closely assessed, but periodic reviews and headhunting of external talent will also be a valuable use of resources. Recent reports suggest that internal CEO hires are on the rise, with 2023 being a record year.
Exit Strategies and Scenarios
As you plan your succession, it’s important to remember that various exit scenarios could occur. This could be (but not limited to):
Planned retirement
Company mergers
Acquisitions or buyouts
Initial public offerings (IPO)
Liquidation
Unexpected departure
Certain exit scenarios will mandate varying levels of due diligence, leadership planning, and crisis communication strategies for stakeholders, staff, and partners. Interim leadership may be necessary before an eventual successor is identified as well.
Whatever the reason for your succession, be it genuine or a means of ‘saving face’, timing is everything. You, the board, and other leadership experts will need to consult on the most appropriate strategy to ensure that the company does not take a hit, be it on the stock market or in terms of customer or staff loyalty.
Making the CEO Transition Easier
Regardless of the exit scenario, there are several steps you can take to ensure a smoother transition:
Ensure all financial records are up-to-date and easily accessible.
Prepare detailed financial projections for the incoming leader and team.
Develop a comprehensive communication plan for all stakeholders.
Maintain transparency about the reasons for the transition and the next steps.
Plan for extensive meetings with your successor to discuss processes, relationships, projects, goals and stakeholder expectations.
Describe the company values, culture, and success to the new CEO.
Keep the board actively involved throughout the succession process.
Offer support to your successor but avoid micromanaging them.
Be available for consultations but allow space for the new leadership team to implement their strategies.
Work with the incoming CEO to develop a ‘first 100 days’ strategic plan.
Schedule regular check-ins to address any questions or challenges.
Next Steps
Succession planning is an incredibly complex and crucial aspect of your role as a company CEO. It will likely take months to formulate and will likely require constant adjustments and amendments, depending on the eventual exit scenario you will face. However, as you embark on this journey, keep in mind that adaptability is key. Businesses and markets are constantly evolving, and your succession plan should align with your company’s circumstances and challenges most pertinent at the time that you depart.
This year is deemed to be a year of pivotal, landmark leadership changes. Your legacy as a CEO isn’t just about the successes and failures you had during your time leading the company; it’s also about how well you prepared it for continued success under new leadership.
