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The Life Cycle of a CEO— Claudius A. Hildebrand & Robert J. Stark

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Introduction

In fact, Dave hadn’t been the first choice for the CEO position, or even the second or third choice. Word was five others had been offered the job before him. What’s more, a couple of years earlier he’d been unceremoniously fired from his position as divisional president at a leading competitor. No one would have suggested from his educational background, either, that he was CEO material. Not only did he not have a degree from an elite school, but it also took him six years to graduate. He hated college and he’d dropped out for a time.

As Dave’s first year in the CEO seat progressed, the sneering assessments of that Florida night prevailed on the Street; the company’s stock slid 40 percent.

Results show that the boards’ priorities have been on target: DCEO appointments had 10 percent better odds than COOs of being among the top-quintile performers.

2. Launch

Indeed, in a recent global survey of 422 CEOs, 68 percent shared that they believed they hadn’t been fully prepared for the role. They believed they had the required strategy and operations skills, but the gap in their preparation lay in what they discovered is unique to the CEO role: how unexpectedly emotionally challenging it is and the great intellectual agility it requires. They had underestimated how different the job is from any other leadership role they’d had in ways that are profoundly disorienting in the early days.

The study analyzed the fortunes of nearly four hundred CEOs appointed to the helm of S&P 500 companies within the decade of 2004 to 2014. A set of the fifteen most effective early moves was identified. And out of those, the highest performers relied most on these five: operational improvements, launching new products, improving customer relationships, increasing employee engagement, and culture change.

In a 2019 survey of 222 CEOs of companies around the globe, 76 percent reported that there was not a leader within the company who was ready to take over their role, and 60 percent said that their company lacked a succession plan. A 2021 study by Stanford researchers found additional evidence of the lack of preparedness, revealing that 22 percent of CEO appointments from 2017 to 2021 were interim— effectively placeholders while boards searched for a permanent successor. In another 10 percent of cases in which the departure of the CEO was announced, the board didn’t even have a good interim candidate to appoint. The transition was delayed considerably while the board searched for a successor.

Inadequate succession planning comes at great expense. A study of CEO transitions at the world’s 2,500 largest public companies determined that the average cost in shareholder value of a poor succession decision— defined as needing to fire the CEO— was $1.8 billion per company. The cumulative value destruction is staggering. Researchers who evaluated the total annual cost of poor CEO transition by the S&P 1500 estimated it comes to nearly $1 trillion. Insufficient onboarding support for new CEOs alone amounted to missed opportunities of $109 billion in value creation.