Taking the drama out of succession planning

The hit TV series 'Succession’ vividly depicts the dramatic power struggles when finding a suitable heir. But the stakes are just as high in real-world corporate dynamics – and often with far less humour.

While new leadership can herald fresh ideas and perspectives, the consequences of poor succession planning can be enormous. So why then do so many businesses still fail to implement effective strategies?

Backed by our survey of 500 C-suite professionals across several sectors, we’ve explored the rising number of C-suite departures, the importance of succession planning, the costs of neglecting it, and why some organisations struggle to put plans in place.

CEO turnover reaches peak levels

The sheer range of today’s business challenges, combined with heightened accountability and burnout, has made it increasingly difficult for leaders to maintain their captaincy. And for some, a pre-emptive resignation is a more desirable career choice than having their profile associated with underperformance.

CEO turnover is at an all-time high, with more than 1,800 having announced their departures by October 2024, according to outplacement firm Challenger, Gray & Christmas, representing a 19% increase from the previous year. This attrition points to the growing instability at the highest levels of corporate leadership, alongside the mounting expectations leaders are landed with.

The pressures of navigating complex macroeconomic environments – including technological transformation, geopolitical tensions, and DE&I dilemmas – have made the role of a CEO more demanding than ever. However, it’s these very challenges that make strong leadership such an imperative; and in an already disrupted business environment, the cost of fractured top management can be dire.

The hidden cost of poor succession planning

Companies that fail to prepare for a leadership transition face significant disruption, including the loss of intellectual capital, decreased employee morale, and diminished investor confidence.

According to Harvard Business Review, poorly managed C-suite transitions could be haemorrhaging nearly $1 trillion in value annually among the S&P 1500 companies. This high cost stems mainly from underperformance by ill-suited external hires, the loss of institutional knowledge, and the lower performance of inadequately prepared internal successors.

A well-executed succession plan can minimise risk, enhance organisational agility, and improve overall performance. It provides a roadmap for leadership transitions, ensuring that the right people are in place to guide the company through future challenges. But short-term mindsets and competing interests may be frustrating forward planning.

Barriers to succession plans

Effective succession planning isn’t just about identifying potential leaders; it's about ensuring business continuity, maintaining strategic direction, and fostering a culture of leadership development. Despite its importance though, many organisations struggle to carve out the time and resources for a suitable strategy.

The rapidly changing business environment makes it difficult for companies to predict future leadership needs accurately, while some boards assume they will recognise the right successor when the time comes, leading to a lack of proactive planning. This absence of a systematic approach is common hurdle; only 43% of Chief People Officers believe their organisations have a successful strategy for C-suite succession, according to Russell Reynolds Associates.

Another challenge is the tendency to focus on short-term performance rather than long-term leadership development. Companies often prioritise immediate results over investing in the growth and development of potential leaders, while busy executives may be tempted to put succession plans on pause. However, this can lead to a lack of prepared candidates when leadership changes become necessary.

Inside or out? How leaders are choosing the next in line

When asked to disclose their current succession plans, our C-suite responses suggest that leaders are keeping their options open. Over half (51%) say they have designed a leadership development programme, with a similar figure (47%) stating they have identified potential internal candidates. And looking externally, 44% have identified a suitable talent pipeline, while 42% said they had worked with a talent expert when scouting for a suitable successor.

The willingness to look internally and externally suggests a twin desire to maintain intellectual capital within the organisation and find the next rising star, while still being open to the external talent pipeline.

Best practices for succession planning

When planning for your next leader, it’s vital to proactively adopt a strategic and systematic approach, considering both internal and external candidates, and ensuring board sponsorship. In summary, organisations should:

1. Start planning today: Develop a script today to avoid drama for tomorrow. Succession planning should begin well before a leadership change is anticipated, allowing for the identification and development of potential leaders, and providing the time to assess skills gaps and scrutinise the external market for promising candidates.
2. Identify and develop internal talent: Organisations should identify high-potential employees and invest in their development through training, mentorship, and challenging assignments. This might require a culture change, ensuring that your organisation has the pathways and opportunities in place to let emerging leaders rise to the challenge.
3. Assess for future skills: While technical know-how is arguably more important than ever for future leaders, don’t discount in-demand soft skills when discovering versatile candidates. Our surveyed C-suite professionals rated problem-solving (35%), communication and interpersonal skills (32%) and critical thinking (30%) to be the most important. The ability to interpret fast-moving information in a chaotic business environment, and power to persuade increasingly polarised stakeholders in flatter organisational structures, is key for future leaders, and the identified core skills above reflect this requirement.
4. Involve the board: The board of directors should play an active role in succession planning, ensuring that any plans are aligned with the company's strategic goals, culture and values. Communicating the importance of planning – and the costs of failing to do so – will be crucial when buying their support amid competing interests.
5. Keep your options open: While internal candidates may have valuable institutional knowledge, external candidates can bring fresh perspectives and new skills – particularly when looking beyond the “usual suspects”. Once you’ve ascertained potential internal leaders, evaluate any talent gaps and consider working with an executive search expert to tap into broader talent pools and diversify your leadership search.

Succession planning is no longer ‘a nice to have’; it’s imperative for the long-term success and stability of organisations. And given the rising rate of CEO turnover, a well-executed succession plan could be one of the most important investments your business makes this year – possibly preventing your own corporate cliffhanger.

Looking to find the right leader for your organisation? Hays Executive is a market leading executive search and talent advisory business, providing a full suite of services including board and C-suite search, succession, leadership assessment and development, benchmarking and career transition.

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