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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.

8. Succeeding With Succession

One way in which we hope our CEO Life Cycle findings will held bend the curve of success for CEOs is by shedding light on these junctures so that CEOs can anticipate and prepare for them and boards can address these problems. In this chapter, we focus on another way the board relationship is often problematic: when a board is not closely involved with a CEO throughout their tenure, they are missing the opportunity to ensure that a strong bench of talented leaders who could be the next CEO are identified and their abilities are developed.

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.

Notes

Chapter Four: Reinvention

1. Rose Gailey, Ian Johnston, and Andre LeSueur, “Aligning Culture with the Bottom Line: How Companies Can Accelerate Progress,” Hedrick & Struggles, www.heidrick.com/en/insights/culture-shaping/aligning-culture-eith-the-bottom-line-how-companies-can-accelerate-progress#RefN2

1. Nigel Travis, The Challenge Culture, Kindle ed. (New York: PublicAffairs,2018), 34.