CEO succession planning is one of the most important responsibilities of a corporate board, and one of the most challenging. In the best of circumstances, directors are working thoughtfully to anticipate the future, develop potential successor candidates over several years, and to ultimately have one of them step into the top spot. In emergencies or other unexpected circumstances, there is a great sense of uncertainty as to whether the board is selecting the best leader, or just the best leader available right now. It is an expensive question to answer. By one estimate, replacing a ill-chosen or short-tenured CEO leads to a loss of $1.7 billion in shareholder value in addition to a loss of organizational confidence and momentum.
According to forthcoming research from Russell Reynolds Associates and The Conference Board, more than 60 percent of directors surveyed stated that their board had not reviewed or updated the succession plan for the CEO and other key executives in light of the health risks posed by the COVID-19 crisis. The sector with the highest share of corporate boards that did review the CEO succession plan is Consumer Staples (25 percent of all respondents in this sector), while the sector with the lowest share is Materials (11.1 percent). Interestingly, the largest companies were by far those with the highest shares of cases where the board of directors did not review the CEO succession plan (70.3 percent of those with annual revenue of $10 billion and over and 80 percent of those in the Financials and Real Estates sectors with asset value exceeding $100 billion).
Read the full paper, co-authored with Rusty O’Kelley, Margot McShane, Justus O’Brien, Dean Stamoulis, and Todd Safferstone, and published by Russell Reynolds Associates.