Many companies lack structured, fair, and future-oriented succession processes and overly rely on external candidate search when time is of the essence, thereby missing the opportunity to identify and develop internal leadership talent and potential. It is high time for a rethink. Companies need to ask themselves: Do we have, or do we know, people who are suitable for top positions? Who will be leading our company in three or five years?
“Unfortunately, we don't have anyone ready who could do this job at the moment.” All too often this is the response we hear when the topic of C-level succession planning comes up at board level. For many board chairpersons and personnel committee members, CXO changes – and especially CEO changes – do not occur often during their tenure and are uncharted territory for everyone involved. When they look at the pool of potential successors, these boards and committees typically find a lack of suitable internal candidates.
This situation poses enormous risks: succession decisions at C-level are the most critical hiring decisions a company will ever have to make. C-level management teams are the key drivers of future success and corporate culture. The composition and dynamics of top-level management teams determine the future viability of the company – and is therefore moving further up the critical agenda of decision-makers. A recent survey of board members of S&P 500 companies shows that three out of ten board members currently consider succession planning at the CXO level to be one of the most difficult aspects of their job and one of the most important challenges this year.
Filling executive positions reactively “with someone from outside” is not always the best solution. Empirical evidence shows that externally-recruited board members tend to remain in office for significantly shorter periods than internally-appointed CXOs. This contributes to a general increase in C-level turnover: terms of office are becoming shorter and leadership cycles more irregular.
This applies to CEOs as well. A recent analysis by Egon Zehnder shows that on average, almost one in three CEOs will leave the company without notice, leaving behind a company with no contingency plan for their succession. But it also applies to the entire executive team. In October 2024, market research institute Gartner conducted a survey of 200 CXOs and found that nearly 60 percent of them were considering leaving the company within two years (by 2026). The average tenure of CIOs and CTOs is already well below four years.
At the same time, the latest AllBright report shows that the number of women on boards is stagnating or even declining: men are once again being recruited more frequently. In our opinion, this is also a consequence of “knee-jerk”, ad hoc appointments, which often rely on supposedly “tried and tested” profiles.
Building a talent pipeline for succession
Building a talent pipeline for succession
Forward-looking succession planning for C-level positions and the extended management team is therefore becoming increasingly important – and should always be a top priority as a strategic management task. After all, relying on finding the right talent quickly on the market at the critical moment of replacement involves considerable risk.
Succession planning strategies that primarily focus on external candidates carry hidden risk factors: timing, integration, present bias, and more-of-the-same bias. The timing factor feeds into higher CXO turnover and more volatile leadership cycles. There is a real risk that the external talent market will not provide what the company needs at the critical moment.
The integration factor poses a potential risk because externally recruited management talent with the right technical skills may require too long an onboarding period. It takes time for new hires to fully assimilate corporate culture and grow into the role to become a respected figure of authority.
When filling positions with external candidates, companies often tend to base their decisions on skills and profiles that were needed in the past, rather than on the future viability of the management team.
There is also a strong impulse under pressure to rely on talents who resemble the existing management team (replacement bias), with the result that more diverse talent is overlooked.
Considering how critical smooth transitions are for corporate success, internal succession planning should be treated as a business case that requires leadership time and responsibility.
