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As the current workforce is rapidly aging, companies have to rethink and reevaluate their succession strategies. The cost of a bad hire at any level of the company is an issue. A bad hire for a CEO or other leadership position can have a major detrimental impact on a company.
How COVID-19 Has Changed Succession Strategies
- Only 7% of respondents said COVID-19 has not had any impact on their organization’s succession planning (I4CP, 2020)
- 70% reported that leadership development programs have been rescheduled or delayed (I4CP, 2020)
- 40% of talent reviews that are a part of the organization’s succession planning are now being conducted virtually, and 33% said that they have delayed or rescheduled such meetings (I4CP, 2020)
- 46% of board members reported not having an effective plan process for CEO succession (HBR, 2020)
- Industries which are most in need of planning a succession program are media, leisure products, and metals and mining (HBR, 2020)
Reasons for Failed Succession
- On average, boards spend only two hours on CEO succession planning (Stanford, 2014)
- Only half of companies provide support or on-board training to newly appointed CEOs (Stanford, 2010)
- Over half of leaders (51%) have weak confidence in maintaining clear and consistent succession programs (Deloitte, 2014)
- The majority of firms have not asked potential internal candidates if offered a CEO position whether or not they would accept it (Stanford, 2010)
- 77% of CEOs did not participate in their company’s performance evaluation of the top executives (Stanford, 2014)
- Only 55% of directors claim to know the skills, capabilities, and shortcomings of their senior executives well (Stanford, 2014)
- 39% of respondents said they do not have any viable internal candidate for CEO (Stanford, 2010)
Succession Planning Has Positive Effects
- Almost all employers (94%) said that having a succession plan positively impacts their employees’ engagement levels (Talexes, 2017)
- More than half of employees claim they would be “significantly more engaged” at work if their company has a succession plan (Hireology, 2015)
- Over 90% of younger workers (aged 18-to-34) report that working at a company with a clear succession plan would improve their levels of engagement (Talexes, 2017)
- Companies in top-performing quartiles had planned successions 79% of the time, and also 79% hired for CEO positions internally (Strategy-business, 2015)
High Turnover Rate
- 75% of CEOs whose companies’ stock rose during their first year were still in the same job two years later; however, 83% of CEOs whose companies’ stock fell during their first year were not at the same position (HBR, 2007)
- CEO turnover in the world’s 2,500 largest companies is at 17.5%, which means that every year corporations must appoint a new executive (Strategy & PwC, 2018)
- The rate of forced turnovers is at 20% (Strategy & PwC, 2018)
- Annual turnover among senior managers rises dramatically when a new CEO is appointed, especially if it is an outside hire (HBR, 2016)
Succession Strategies
- 86% of leaders believe succession planning is an “urgent” and “important” priority, yet only 13% believe they do it well (Deloitte, 2014)
- 69% of respondents say that a CEO successor should be “ready now” to take over, 54% said they are grooming an executive for the position (Stanford, 2014)
- 79% of employers surveyed note that they have succession plans in place for mid-level management positions (Talexes, 2017)
- 81% of employers reported using some form of software for their succession planning process (Hireology, 2015)
- Only half of companies (50%) have written down the skills required for the next CEO (Stanford, 2010)
Cost of a Bad Company Leadership Hire
- 40% of new CEOs fail to meet performance expectations in the first 18 months (HBR, 2016)
- Large companies that underwent forced succession would have generated $112 billion more in market value had they planned the succession better (Strategy-business, 2015)
- Companies that have to fire their CEO lose an average of $1.4 billion in shareholder value, compared with companies with a succession plan (Strategy-business, 2015)
- Companies in the lowest performance quartile have poor succession practices, and force out CEOs twice as much as companies in higher quartiles (Strategy-business, 2015)
- Second-generation leaders of family-owned businesses have a 60% failure rate, and the succession from second-to-third generation has a 90% failure rate (EDSI Solutions, 2020
Different software and services can help companies with their succession planning needs. Companies can see the top Succession Planning Solutions on the Shortlister platform.
Written by SHORTLISTER EDITORIAL TEAM
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