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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.

Our research shows that from 2000 to 2020, approximately 77 percent of CEOs were appointed from one of these positions: chief operating officer (COO), which is frequently combined with the president’s title, accounted for the lion’s share of appointments, at 50 percent; divisional chief executive officer (DCEO) came in at 19 percent; and chief financial officer (CFO) accounted for 8 percent of appointments. Another 13 percent of appointments were of experienced CEOs. Leapfrog appointments accounted for only about 5 percent, with the remaining percentage including appointments from comparatively new C-suite roles, most commonly chief technology officer, which unsurprisingly were concentrated in technology firms.

When CEOs depart during the Complacency Trap stage of the life cycle, generally from years six to ten, inefficiencies that have crept into the organization and problems that have been festering— such as an underperforming unit or product line— constitute much of the low-hanging fruit their successors immediately go after. This invites the question: If those problems are so apparent to new leaders and boards that appoint them, why haven’t they been more effectively addressed?

Research has found that 73 percent of PE CEOs are replaced at some point during the holding period, most often within the first two years, because PE boards demand faster proof that the CEO is meeting performance goals. Being replaced may lead to substantial financial loss for the CEO because, in PE deals, the CEO and some of the upper management team are usually required to invest personal wealth in the deal. In return, they’re granted a portion of the increase in equity realized at exit, the amount of which varies but is generally between 2 percent and 4 percent.

Chapter Eight: Succeeding with Succession

1. Eben Harrell, “Succession Planning: What the Research Says,” Harvard Business Review, December 2016, https://hbr.org/2016/12/succession-planning-what-the-research-says.

1. Claudio Fernández-Aráoz, Gregory Nagel, and Carrie Green, “The High Cost of Poor Succession Planning,” Harvard Business Review, May—June 2021, https://hbr.org/2021/05/the-high-cost-of-poor-succession-planning.