Recruiting CEOs: getting succession right← Back
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The 15th annual study conducted by PWC’s Strategy&, called ‘CEOs, Governance & Success: Getting CEO succession right’ suggests that in the past 15 years companies are improving at planning the succession of their chief executives.
The study, which is conducted amongst the top 2,500 public companies worldwide, establishes that on average a company loses $1.8 billion more in shareholder value through a forced succession than a planned succession.
Successful companies who plan turnovers are more likely to recruit a new CEO from within the company. In the past 10 years, 27% of companies facing a forced succession recruited a new CEO from outside the company, whilst only 20% of companies in the process of a planned succession hired an external candidate.
In addition the report suggests that chief executives that have been recruited from outside the company are not only more likely to be forced out of their job, but also tend to have shorter tenures.
Strategy& recommend that CEO succession needs to be treated as a process rather than an event, with the board taking control of the transition rather than it being left in the hands of the current chief executive. Furthermore companies need to look ahead and hire to capabilities that they will need in the future. Co-author of the study Ken Favaro comments: “Top performing companies have boards that make CEO governance and succession an ongoing agenda item at board meetings, and they hold executive sessions (without the CEO) on the topic. They can typically get in front of issues before they become disruptive, so they reduce the chances of a forced succession event.”
Strategy&’s 15-year study indicateds that the disruption caused by the departure of one CEO, and the hiring of his or her replacement, can be minimized if the succession is planned right.