When it comes to selecting a new CEO, most companies prefer to choose leaders from within the organization. Fundamentally, this is because their internal leaders have been part of the company’s evolution. They have helped build and sustain its culture and they have been groomed to lead in keeping with the strategic goals and long-term vision of the business. Having said that, an internal appointment isn’t always possible, and sometimes promoting insiders to CEO may not be the optimal decision.
As one board Chair put it: “Succession is complex, and it is not always obvious that the internal candidate will have an easier path then the external one.”
In cases where the mandate for change is great, the internal candidate might not be best placed for the task. There are also situations where unexpected departures disrupt the internal succession process, or development planning did not yield the expected or required growth.
Leveraging our unique position working with clients in CEO succession planning, we conducted extensive interviews with Group Chairs, CEOs, HRDs, among others, as well as ongoing research of succession trends in 216 companies (30BN+ in market capitalization and revenue). Our findings indicate that only 19% of CEO appointments have been external leaders over the last 10 years. In those same companies, tenure is notably lower for the externally appointed leaders than those who were internally promoted—with an average of 3.7 years versus 6.7, respectively.
So, the obvious questions are these: Why are externally appointed leaders not lasting as long? And, more importantly, how can we change this? What could be better addressed throughout the succession process and into the early days of an externally appointed CEOs tenure?
Based on our decades of work in CEO succession and new research on external CEOs, we have identified key elements of the CEO succession process, as well as four leadership competencies that go a long way towards increasing an externally appointed CEO’s success.
How to Ensure Distinctive CEO Succession Planning
During the succession process and through the early days of accelerated onboarding for the new leader, the company should make sure to focus on these points:
- Start as early as possible and reevaluate and update the succession process regularly. Years of experience have taught us that attention to the dynamism of the process itself and the shifting leadership mandate over time is as important as the final decision and, in fact, ensures better outcomes. Having a culture of succession planning is generally advantageous.
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Prioritize a “fit-for-purpose” CEO who truly understands and is committed to the mandate and is able to adapt to navigate and lead change as it arises. -
Ensure a fluid handover process where the outgoing CEO works closely with the incoming CEO to ensure a smooth transition of leadership. -
Choose an inclusive and relationally aware leader who is able to work collaboratively and cultivate collectivity across the organization and within the leadership team, embracing internal candidates and fostering goal-directed unity. -
Get integration right. Having both the Chair and the board commit to thoroughly integrate and show their support for the new CEO from the appointment through their early tenure. Implementing a rigorous accelerated onboarding program that recognizes the key components for ongoing development and sustaining this strong relationship beyond integration will also bolster CEO success.
As leaders shared with us during our conversations: “Start the process early and align on the strategic direction,” said one CHRO. “The board needs to support the integration of the new CEO into the organization,” underscored a former CEO.
Throughout the process, when assessing and developing potential future leaders, make sure these four competencies are high priorities:
- The potential CEO’s strategic vision and execution capabilities.
- Their “fit” with the organization’s culture (and willingness to learn and work within that culture) and their commitment to its purpose.
- Their capacity for building and growing relationships with the role’s many stakeholders, both internally and externally, and balancing those. This encompasses the whole gamut: from Chairs, boards and the Exco to teams and employees internally, and outwardly to shareholders, analysts and investors and other external groups.
- Their leadership strength in directing and managing organizational adaptability and change.
By overtly recognizing the pain points of assuming the top spot as an external choice, companies at large and boards, in particular, can go a long way toward maximizing these leaders’ chances of impact (and perhaps even longevity) from the get-go.
