CEO succession is the board's most consequential decision. It shapes the company's trajectory for a decade. Yet many boards discuss succession in the abstract but never make specific commitments. "We should start thinking about this" is not a succession plan.
Two components every board needs
Emergency succession. If the CEO cannot serve tomorrow — health emergency, sudden departure, misconduct — who steps in? This plan should be documented, reviewed annually, and known to the chair and senior independent director. It costs nothing to maintain.
Planned pipeline. Internal candidates being developed, external talent being tracked. The board should discuss the pipeline at least annually. Pipeline candidates should present to the board on matters beyond their own remits, so directors can assess their range.
The hardest part
The hardest part of succession is not identifying the successor. It is the willingness to act on a CEO who is underperforming. Boards delay this decision by two to three years on average — and the delay costs the company years of recovery. The chair who cannot have this conversation with the CEO is not chairing.
A case in point
A family-controlled industrial company lost its CEO to a sudden health emergency. No emergency plan existed. The CFO stepped in but lacked operational experience. Within three months, two major contracts were lost. The board took five months to recruit a permanent replacement. Estimated cost: $40 million in lost revenue and delayed projects.
A documented emergency succession plan, reviewed annually, would have prevented this. It would have cost nothing.
Chair and board succession
The chair's succession should be led by the senior independent director and the nomination committee. The chair should not be directly involved in the sensitive parts.
Board renewal requires a view of every director's remaining term, the skills that will be lost at rotation, and the recruitment needed to replace them. Boards that fail to plan renewal discover the gaps when it is too late to fill them.
This article is adapted from The Director's Craft by Peter Burchardt. Read the full chapter in the book →