The Shocking State of Business Succession Planning

The Shocking State of Business Succession Planning

By | August 24, 2020

Leadership matters. CEOs can account for a 30% variance in their organization’s profitability, and research suggests that top management has an even greater impact on organizational performance than the CEO. It follows, then, that executive selection and business succession planning should be among the most important considerations for any organization.

Yet, the research and statistics collected below tell a different, and rather unnerving story. Most organizations are unprepared to replace the individuals in their highest leadership positions. Here are 21 statistics on the state of business succession planning.

C-level Successions Are More Common Than You Think

1. CEO turnover in 2019 was the highest it has been in nearly 20 years. Source

2. The median tenure for CEOs at large-cap companies is only 5 years. Source

Yet, Most Companies Are Unprepared for an Executive Succession

3. Only 54% percent of public companies are actively developing CEO successors. Source

4. 40% of companies report not having a single internal candidate to replace the CEO should he or she exit the position. Source

Companies Spend a Huge Amount on Business Succession Planning With Little Results

5. Companies around the world spend $370 billion per year on leadership development. Source

6. Yet, five out of six HR managers are dissatisfied with the results of their leadership development programs. Source

7. 74% of public and 52% of private companies reported that maintaining a robust talent pipeline is the most challenging aspect of CEO business succession planning. Source

8. And while 86% of leaders believe leadership business succession planning is of utmost importance, only 14% think their organization does it well. Source

Most Leadership Selection is Haphazard

9. Only 35% of organizations have a formalized business succession planning process. Source

10. At 73% of companies, the most common method for identifying individuals as potential candidates for leadership positions was a single nomination by their direct manager. Source

Most Leaders Are Unprepared for the Job

11. 74% of executives were not prepared for the challenges they faced in senior leadership roles. Source

12. Only 32% of global leaders felt that their organizations adequately supported new leaders. Source

13. Only 27% believe their organizations provide the necessary resources to support their move into a C-level role. Source

Many New Leaders Fail

14. 46% of leaders underperform during their transition to a new role. Source

15. 50% of leaders reported that it took them six months to become effective in their new roles. Source

16. 20% said it took more than nine months to become effective. Source

17. 60% of executives fail within the first 18 months of being promoted or hired. Source

Failed Leaders Are Costly

18. The direct cost of replacing a failed executive is close to 10x his or her salary. Source

19. Large companies that underwent forced CEO successions would have generated $112 billion more in market value in the year before and the year after their turnover. Source

20. Direct reports perform 15% worse under a struggling leader and are significantly more likely to become disengaged. Source

21. Disengaged employees cost companies 34% of their annual salary in lost productivity each year. Source

Design Principles for More Successful Business Succession Planning

The failure rate for CEO successions is unacceptably high. But it doesn’t have to be. By following a simple set of design principles, including making business succession planning an organizational priority, aligning stakeholders, infusing data into the selection process, and providing new leaders with development and support, organizations can make their succession processes smooth and successful.

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