CEO Succession Crisis: Lessons Learned

By Davis, George E. | Management Review, April 1999 | Go to article overview

CEO Succession Crisis: Lessons Learned


Davis, George E., Management Review


In today's complex business environ-ment, a smooth CEO succession is be-coming more difficult. A thoughtful process is needed to develop an effective successor at the CEO level. Ideally, poten-tial successors are given multiple line and staff responsibilities. The finalist then serves as COO, which provides the experience of managing the corporation as a whole. It also allows the CEO and the board an op-portunity to more closely mentor and eval-uate the potential new CEO.

But no matter how well-thought-out the plan is, it isn't always going to work.

When the incumbent CEO is close to re-tirement and the smooth succession plan fails, quick action on the part of the CEO and board is critical. At this juncture, in-vestor, management and employee con-fidence is at stake. Should you go outside the company for someone who can save the day, or find a successor from within? Companies seem to prefer going outside to creating a "horse race" among viable internal candidates. There are many reasons for this. The horse race ap-proach involves identifying inside candi-dates and informing them they are po-tential successors to the CEO. Those who accept are then evaluated intensely by the CEO and the board during a known, compressed time period. In such a race, there can only be one winner, which means the other candidates may be per-ceived as losers. If you decide none are capable and go outside, all will be per-ceived as losers. As a result, some or all of the candidates may leave the company.

Political infighting also may occur as managers align themselves with the can-didates.

Important business decisions may not be made as the company waits for the outcome.

While hiring from the outside may be your fallback choice, it is not necessarily a panacea. It sends a negative message to executives about their capabilities, and some may decide to leave. When an out-side successor is brought in, it is unlikely that he or she will hit the ground run-ning.

Consequently, business momen-tum may be slowed.

Ultimately, the decision on where to seek the right successor should be based on your company's unique situation. A study reported in a recent Harvard Busi-ness Review article examined a number of companies that had gone through a change in CEO. The study concluded that if a company was in a crisis, going outside yielded better long-term business results. If the company was not in a cri-sis, staying inside yielded better results. …

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