Seven Myths of CEO Succession

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Myth #1: Companies know who the next CEO will be. "The longer the succession period from one CEO to the next, the worse the company will perform relative to its peers," says Professor Larcker. "But, shockingly, nearly 40 percent of companies claim they have no viable internal candidate available to immediately fill the shoes of the CEO if he or she left tomorrow."

The CEO's departure is, sooner or later, inevitable – but are companies prepared for it?

With CEOs turning over at a rate of 10 to 15 percent per year – from jumping to another firm to resigning due to poor health or poor performance, or just retiring – companies would be expected to be well-prepared for CEO succession. But governance experts from Stanford and The Miles Group have found a number of broad misunderstandings about CEO transitions and how ready the board is for this major change.

In their recent piece for the Stanford Closer Look Series, David Larcker and Brian Tayan of the Corporate Governance Research Initiative at the Stanford Graduate School of Business and Stephen Miles of The Miles Group name seven myths around CEO succession – myths shared by corporate boards as well as the larger business community.

"The selection of the CEO is the single most important decision a board of directors can make," say the authors, but turmoil around these decisions at the top "have called into question the reliability of the process that companies use to identify and develop future leaders."

 

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