Seven Myths of CEO Succession

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Myth #5: Boards know how to evaluate CEO talent. "Our 2013 survey found that CEO performance evaluations place considerable weight on financial performance (such as accounting, operating, and stock price results) and not enough weight on the nonfinancial metrics (such as employee satisfaction, customer service, innovation, and talent development) that have proven correlation with the long-term success of organizations," says Professor Larcker.

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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