Four Reasons CEO Succession Plans Fail

Why do so CEO Succession Plans Fail?

I’ve had several interesting conversations with clients over the last two weeks about getting involved in coaching a new CEO who is struggling with their new role and responsibilities. Two of these clients are privately held businesses and both have been in business over 20 years.  In both cases, the CEOs are replacing the founder of the business. Finally, the people they promoted came from inside the organization and were successful in their prior roles as VP Sales and Marketing and Chief Financial Officer, respectively.  These are all good things. So what would cause them to fail in their jobs?  So why do CEO succession plans fail?

This situation is interesting but not the first time it’s happened in mid- market privately held businesses. I’ve read in several leading professional journals that over half the people promoted into the position of CEO following a founder fail.  I have a former client, who sits on several boards, tell me they should have flipped a coin and we might have had better odds selecting the right successor. Let’s see if we can figure out why it happened and then, next week, share a process to help you increase the odds of successful succession. This week, let me share several reasons why succession plans fail. Do you see in your own organization in what I’ve seen in others?

Based on my observations, there are four key reasons why CEO succession plans fail. Over the past 20 years I’ve interviewed over 17,000 senior level officers and CEOs. I’ve done many executive searches from Fortune 10 international organizations to privately held startups. I’ve also served as an executive in many of the world’s most successful privately held businesses. I believe this provides me a unique opportunity, not only to see what fails, but what successful leaders have done to attract, build, and retain high performing leadership teams in their organizations.

The first reason succession plans fail because is companies fail to plan for succession. Many entrepreneurs spend more time planning their yearly vacations than they do planning their future after they retire.  Because of this, many more mature organizations never plan to bring in a new CEO.  The management team insolates the leader and many times they wait until they owner is unable to work. This means that much of the knowledge the CEO has is never transferred to the successor.

The second reason succession plans fail is because there is no selection process to choose a successor. Many founders just assume that their children will take over their business when its time. They avoid the conversation with their potential successor or, many times, just ignore the facts. I had a client who thought his son would come into the business when he was ready to retire.  There was no discussion to determine if the son was interested or qualified to run the business.  When discussed with other members of the leadership team, they all told me to stay away from the topic if I hoped to continue working with the client.  In many family businesses, the people most impacted by the lack of a succession plan choose to ignore the elephant in the room.

The third reason succession plans fail is because the person who is made CEO has no experience running the business without the former CEO directing their actions. They are very capable of implementing other people’s ideas but have limited exposure to making decisions that impact the future of the business. Most founders who have successfully grown their organizations have developed many critical skills to help their organizations keep growing. With the rapid pace of change happening in most successful mid-market businesses, the new CEO needs different skills than the founder to succeed over the long term.  Many new CEOs find the role different than they expected moving up through their career. The rise of mid-market executive councils and advisory teams have begun to impact organizations strategies but struggle to keep up with the changing business environment.

The fourth reason succession plans fail is lack of buy-in from the many stakeholders the CEO now serves.  Many private businesses have been built by strong leaders whose management style was intimidating. The multi-generational workplace has required certain skills to successfully manage and lead these organizations moving forward.  External stakeholders require a different approach to building lasting relationships with their best partners and clients if the hope to remain a market leader.

So now we’ve seen the four reasons why CEO succession fails. Next week, I share a system I’ve used for the past twenty years to help organizations get the right CEOs in place and to help build a growing, thriving business. See you here next week.