The role of chief executive officers (CEOs) has always been a high-stakes position, but recent trends indicate that it’s also an unstable one. In the third quarter of 2023 alone, CEO departures in the United States surged by 47 per cent compared to the same period in 2022. This is not a localised phenomenon; similar trends have been observed globally, with significant CEO turnover rates reported in 2022 and 2023 by executive search firm Russell Reynolds.
Between 2022 and 2023, the rate of CEO changes in India has accelerated, particularly due to rising pressure on performance. In 2023, several factors influenced CEO exits, including companies seeking talent aligned with sustainability goals and digital transformations. Boards are also responding to higher expectations from stakeholders to drive diversity and ensure robust succession planning. According to Deloitte's recent Executive Remuneration Survey, there is a stronger focus on "pay for performance," with a substantial portion of CEO compensation now variable and linked to performance.
Looks like enterprise boards have to be proactive and dynamic in their approach to CEO succession planning. Here are some emerging trends to watch out for:
Shorter Tenure, Faster Turnover: Research from Equilar in 2023 shows that nearly 39 per cent of CEOs serve between one and five years, with 13 per cent clocking in just one year in their role. Unlike in previous decades, when boards might have only reviewed succession plans annually, today’s environment demands regular and agile revisits to these plans. Bboards are now looking three to five years down the line when evaluating leadership needs.
This change means that succession planning has become a more frequent topic on board agendas. Regular updates on, talent trends and team changes are now considered best practices, replacing the old model of discussing these issues once a year. A brief check-in at each board meeting, coupled with an in-depth review annually, ensures that plans stay relevant in an era of accelerated CEO churn.
Going Beyond The "Name In An Envelope" Model: In response to increased CEO churn, boards are rethinking how they cultivate talent at all levels of the organisation. Instead of relying on a “name in an envelope” approach – a single, pre-selected successor – boards are broadening the focus to include candidates at one or even two levels below the CEO. This new stance extends beyond the CEO role, as boards increasingly take an interest in the entire top team.
This deeper view allows boards to build a broader talent pipeline, preparing leaders who might step into the CEO role or other critical positions as needs arise. Interestingly, this focus on succession is not limited to a CEO’s final years in the role. Today’s boards begin discussing succession almost as soon as a new CEO takes the helm. By addressing this issue from “Day Two”, boards are ensuring that no time is lost in preparing for future transitions. This approach benefits both the enterprise and the current CEO and helps build continuous leadership development that aligns with strategic goals.
Redefining The CEO Role For The Future: Another trend in succession planning is a shift away from the traditional tendency to model successors after the incumbent CEO. In the past, boards might have looked for qualities and skills similar to those of the outgoing CEO. Today’s boards are more willing to shake things up. They recognise that the next CEO may need different skills to navigate the challenges posed by rapid advancements in technology, AI, and sustainability – areas that may not have been priorities for the current CEO.
This openness to fresh perspectives has led to considering candidates from outside the company. With industries undergoing changes at a breakneck pace, boards need to realise that an external hire may be better suited to meet the demands posed by the changes. Expanding the candidate pool beyond internal talent can lead to better competitiveness and innovation, even if it means that the next CEO has a different skill set or background than their predecessors.
Establishing A "Living" Succession Plan: Boards are embracing the idea that evolves alongside the organisation’s needs. This involves more frequent discussions and updates to ensure that succession plans remain aligned with changing business needs. They acknowledge that this isn’t a static exercise, and treat it as an integral part of governance. This can ensure much smoother leadership transitions.
For instance, instead of treating succession planning as a single, annual item on the agenda, boards can update it regularly, keeping it dynamic and relevant. The benefits are twofold: it allows swifter responses to unexpected departures and ensures an emerging leadership that is ready to step into key roles.
Finally, boards are increasingly mindful of the specific competencies that future CEOs will need to succeed. Beyond technical competence, boards are placing a premium on leadership attributes such as adaptability, digital literacy, and a commitment to sustainability. The coming years will bring more complexity than ever and boards will have to prioritise candidates who can manage the changes more effectively. A Deloitte study shows that digital fluency, strategic thinking, and ethical leadership are among the top attributes that boards look for in today’s CEO candidates. This shift reflects a broader recognition that companies must not just respond to current challenges but anticipate and prepare for future ones.
With CEO turnover at unprecedented levels, boards are under pressure to implement forward-thinking succession strategies. Arguably, proactive succession planning has moved from a “nice-to-have” to a strategic imperative. Boards that invest time and resources into nurturing the next generation of leaders will be better equipped to navigate the challenges and opportunities that lie ahead.
Professional boards must see the writing on the wall: succession planning isn’t just preparing for the future; it’s anticipating the future and setting the stage to thrive within.
Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the publication.
