CEO Succession Planning: A Strategic Guide for Boards & Leaders

A CEO leaves without warning, and within days the questions start. Who is running the business? What do we tell investors? Is the strategy still intact? Boards that haven’t prepared tend to answer these badly, and under pressure.

The cost is real. According to a Harvard Business Review analysis, poorly managed CEO or C-suite hires cost almost $1 trillion of market value each year on average on the S&P 1500. It's NOT an HR issue. It is a governance issue, which should lie with the Board.

CEO succession planning can be a continuous process used to ensure that the current leader is not ending up in a job he wasn't anticipated to exit when he actually does leave, be it through retirement or surprise. The steps in this guide, the ownership of each step, a seven-step process, and a readiness framework to use at the next committee meeting are described.

What is CEO Succession Planning?

CEO succession planning is a process whereby a board of directors identifies, evaluates, and grooms future leaders, prospective CEOs, to ensure the company never finds itself without a quality leader. In practice, it covers four things:

• Defining the skills and experience the next CEO will need, based on where the company is heading

• Weighing internal and external candidates against that definition

• Preparing interim cover for an emergency

• When the time is right, implement the search, selection, and onboarding process.

Consider it more of a discipline than a document. The plan is not that important; what's more important is practising the act of revisiting.

Why CEO Succession Planning Matters?

The CEO establishes direction, investor story, and in turn builds culture. When that seat changes hands badly, all three wobble at once. Someone taking over in an unprepared position would begin their tenure at a disadvantage, which won't go undetected by the share price. Boards that begin years ahead usually get a calmer handover.

Key Benefits of Effective CEO Succession Planning

•     Strategic continuity: The CEO profile is linked with the 5-year strategy, making sure he/she is appointed to the business you are becoming, not to the business you've been.

•     Risk management: When it matters, there's a ready interim alternative to improvisation, with drafted stakeholder messages.

•     Talent pipeline: Assessment creates real bench strength, particularly as future leaders receive interest in their CEO roles and responsibilities, like P&L ownership and sending them overseas.

•     Board accountability: Boards are known to be held to higher standards than ever when it comes to their actions around the next move for their CEO.

•     Stakeholder confidence: The level of employee, customer, and partner stability remains intact when there is a development plan in place, even when a head is not ever announced.

A plan on paper guarantees nothing. If one has become obsolete, it can be worse than having none at all, as it can be a false sense of security. The idea is to do it as soon as possible and then come back to it continuously until it's resigned.

Who Is Responsible for CEO Succession Planning?

The board owns it. The Nominating/Governing committee will generally drive this, and some boards set up a succession committee; then a transition occurs. Everyone else helps out, and every role must be documented.

Board/Nominating Committee

Makes the final decision on grooming the next CEO, reviews the progress of pipelines, and sets the criteria for the next CEO. Numerous boards designate the chair or lead director as the liaison with management, and have the CEO update the board regularly regarding the pipeline.

Current CEO

Not the decision-maker, but the mentor/talent developer. Educates the CEO on core business topics, exposes them to both capital projects and P&L, and communicates progress to the CEO on an annual basis (individually) minimum.

CHRO / HR and Leadership Team

They run assessments, provide performance data and organisation development programmes – the board gets what they get when they ask for it, not their views.

External Advisors (Executive-Search Firms, Assessment Specialists)

Executive search companies and assessment specialists add a level of objectivity and sector understanding. They will be able to compare their recruiting staff and applicants with external candidates, conduct psychometric testing, and offer guidance on voting matters on governance. 

The Taplow Group will frequently provide boards with input at this point, including a worldwide talent market map and finalists' review.

Board Chair / Lead Independent Director

Makes succession a priority, conducts executive sessions when management is not present, and typically facilitates the transition process from outgoing to incoming CEO.

The CEO Succession Planning Process: 7 Key Steps

Don't regard it as a linear sequence. The detail differs with size, sector, and timeline, but the sequence stays the same.

Step 1: Align With Future Strategy

Begin by pasting where the business is heading. What will it be like in three to five years, what new markets, a digital transformation, acquisitions? That response will give you an idea of what kind of CEO you need to be. Many boards run a strategy workshop to draw out the leadership implications.

Led by: Have CEO/CHRO input on board.

Output: Written CEO success criteria, linked to strategy, reviewed every year.

Step 2: Define the Success Profile

Make a strategy into a definite profile. Describe and include hard requirements: International experience and/or transformation experience; or soft requirements: Judgement under fire; Cultural fit; Bringing people with you.

Led by: Board committee, authority of the CEO and CHRO.

Output: Any document that provides a capability profile, regularly updated.

Step 3: Assess Internal Candidates

Identify who might be able to “step up” and check them against the profile through 360° reviews, structured interviews, and psychometric instruments. Sort them honestly: ready now, ready soon with development, or longer term.

But good performance in an existing role does not necessarily make one a good CEO, and promotions should not be based on “good staffing” practices. Provide all the serious candidates with a development plan, for example, new geography and/or a broadened P&L.

Led by: The CEO, CHRO, and Board.

Output: A ranked internal pipeline with readiness levels.

Step 4: Benchmark External Candidates

If you have an internal option, check externally! In either a retained search or discreet talent mapping, a market scan reveals what talent is on the market and whether it is rare or where the company itself lacks it. It's also a reality self-test.

The Taplow Group has the expertise to identify potential candidates confidentially, and provides boards with an objective assessment of their "fit". It's best when used as an activity, not just as a starting point when a search begins to take place.

Led by: The best executive search firms​ determine the scope, and the Board and CEO define the scope.

Output: An external talent report and (if necessary) group shortlist.

Step 5: Develop Multiple Successors

Don't use only one heir. Provide cross-functional exposure for each high-potential leader and put time in front of the Board. When two candidates are running, make sure to demarcate the roles and require that they remain on board even when the employees who advance to the promotion positions are disappointed, as unpromoted executives tend to walk away without a future once they are eliminated from a job offer. Even if the favourite changes, a bench of two or three will also serve as your back-up.

Led by: The CEO acts as a mentor and has regular meetings with the CHRO and occasionally with the board.

Output: Two to three high-potential leader(s) development plans.

Step 6: Prepare Emergency Succession

Most boards wait till some crisis compels them, but CEOs do quit. Identify and announce replacement candidates (for CFO, COO and/or senior director or, if there’s a crisis, the chair) and outline the first day transition. Get those people to meet directors and the CEO before they need to, to get them up to speed on the problems. Draft the stakeholder messages in advance too.

Led by: The Board committee, CEO, and the Communications team.

Output: Annual Review of an Emergency Plan written.

Step 7: Select and Transition the New CEO

If a departure is called, then take it to execution. Use a success profile to assess all finalists, internal and external, against the same success criteria to eliminate bias; do try to thoroughly verify references.

Once chosen, onboarding matters as much as selection. External hires need strategy briefings, introductions to key investors, customers and regulators, and ideally a board mentor for the first months. Internal appointees need clarity on how their responsibilities shift and who fills their old seat. The outgoing CEO should brief the successor properly, and the board should back the new mandate visibly.

Led by: Full board, outgoing and incoming CEO, CHRO.

Output: A handover plan, a communications strategy and a 90-day review.

Revisit steps one to three every year, or whenever strategy shifts. Egon Zehnder’s guidance is to begin up to two years before an expected retirement. Just as important, make “who’s next?” an ordinary boardroom question rather than a taboo one.

Internal vs External CEO Succession

Neither route is better by default. The board’s job is to match the type of candidate to the situation.

The choice between an internal and external successor can also influence diversity in the workplace.

Common CEO Succession Planning Mistakes

There have been at least a couple of such cases where most boards have been personally affected by it.

• Starting too late: Many boards do not make the effort to consider moving forward without a resignation, at which point few choices remain. Discuss and agree on successors when the CEO is in a strong position.

• Treating it as a one-off: It’s a cycle. Update the plan once a year; update the profile when strategy or values change; dedicate agenda time to the plan instead of considering it a few minutes towards the end of a meeting.

• Relying on a single heir: When there is no backup, if they fail at one point, the board is exposed.

• Confusing performance with readiness: Having a terrific COO/CFO doesn't imply having a terrific CEO. The role requires investigator skills in investor relations, management on the board, and enterprise-wide judgement. Be technical and scientific in assessment and stress testing.

• Deferring to the incumbent: But there are situations now where the CEOs naturally favour their protégé. The board should corroborate statements made by the CEO when interviewing/mentoring the CFO only.

• Getting communication wrong: Uncontrolled leaks cause discomfort and anxiety for employees and investors, and no communication fosters uncertainty. In a proxy statement or annual report, of course, include the phrase: "Succession is a priority, but without specifying candidates.

• Hiring for yesterday: Then the leader is a product of a wishlist, separate from the strategy, resulting in a person who fits in the past.

CEO Succession Planning Checklist for Boards

To put theory into practice, boards can use this checklist. These actionable items should be on the board agenda and part of its governance calendar:

Succession Ownership

Verify who leads succession (nomination/governance) on the board and how the chair and the board, the CEO, and advisors are divided regarding their duties related to succession. Make sure the CEO and the CHRO are aware of what to expect of each other (e.g., “tasks” such as “identify and develop potential” relating to the CEO).

CEO Success Profile

Outline (and refresh on an ongoing basis) the traits that the future CEO will need to be successful in the changing strategy. These can also involve attributes of a business such as business skills, leadership style, or the type of scenarios that the business requires (e.g., “must be able to excel in M&A” or “must be able to deliver digital transformation”). Document these criteria clearly.

Internal Candidate Readiness

Review the bench: Who is “ready now,” “ready with development,” or “longer-term”? Identify gaps. Use systematic assessments (performance metrics, feedback from boards/managers) to rate each. For each promising leader, set personalized development goals (stretch assignments, international roles, board exposure) and track progress.

External Benchmarking

Assess the market for outside talent. Even if no active search is planned, map potential external candidates. Do there exist any leaders in competitors, or in other subject-related industries who fit the profile? Definitely follow the pressing headlines in the industry and use search or leadership consulting firms for trading knowledge that is confidential.

Leadership Development

Make sure to have a succession plan in place for an ongoing executive development program, including for CEO proxies (such as a head of division/COO); also include identified successors. Provide mentoring from the current CEO and training for areas of deficit and external Board development opportunities (such as Board meeting presentations).

Contingency Planning

Have a clear emergency plan in place. Identify possible interim CEOs (CFO, COO, an experienced board member or director, etc.), and pre-plan some necessary measures should there be a sudden change in the CEO. Keep this plan up to date on an annual basis and inform key executives in a non-public way about this plan.

Communication Strategy

Identify when and how to communicate with other stakeholders regarding succession. This includes internal communication to staff and/or an external communication plan (e.g., press release or proxy statement disclosure). Strike a balance between transparency (description of the process and timeline of the board) and confidentiality (confidentiality of the candidate's personal data).

Onboarding/Transition Plan

Plan a transition (for eventual handover to the CEO). This can involve joint appointments, induction events, and first-year success markers, etc. If the new CEO is outside the company: Schedule meetings with Board members, investors, and big clients. In the event of a vacancy being created in the office, determine who will be occupying the seat. Have a 90-day review point for the Board to evaluate progression to transitions.

Regular Reviews

Put succession on the calendar. The succession plan should be reviewed by the full board at least once a year (or more frequently if business is undergoing significant change). Ensure that there are minutes that document plan review and updates. Having this element visible always and avoiding it from being "slipped under the radar" during times of CEO strength.

How Executive-Search Advisors Support CEO Succession

While no one will claim that a good search partner replaces a sound board process, there are several places where it is valuable:

• Market mapping: Identifying both active and passive candidates; providing boards with a benchmark for internal talent, with all the information provided in a confidential manner.

• Objective assessment: Structured tools / independent reference checks throughout the candidate network, reducing subjective bias.

• Confidential approach: Careful outreach to senior executives - fit and interest will be pre-qualified for a formal board interview.

• Succession expertise: Designing pipelines, development programmes and experiences from a number of sectors.

• Onboarding support: Ongoing After Placement Activities, including regular meeting time with each director or a post-placement first 100 days plan.

Well-governed boards can conduct all but a portion of the process themselves, and not every entity requires outsiders at each and every step. Advice meant to bring the stakeholders to seriousness on the matter is not decision-making for the board.

CEO Succession Readiness Framework

Keep this as an ongoing checklist for your next Governors' meeting. Give the areas a green or red score, and amber for anything in between, and repair the reds first. Also ensure that a development programme includes those named successors as well as CEO back-up e.g., divisional heads, and that there is an annual review, which is minuted.

Final Thoughts

The key to effective succession planning for a CEO is foresight, not response. Cultivating leadership in a routine fashion can accept a change of leadership, whether a planned one or one that occurs spontaneously, with little impact on momentum. It's as simple as that: get ready before it's an emergency.

At The Taplow Group, our board advisory and global executive search specialists welcome conversations with boards and nomination committees on this subject.  Whether you are looking for a new leader or are facing a leadership change, we are happy to discuss it with you in private quarters.