Planning for leadership transitions is crucial to the stability and success of any organisation. According to a research report by the Deloitte Leadership practice, 86% of leaders consider succession planning an urgent or important priority.

Despite this overwhelming consensus, only 14% of the same leaders believe their organisations are doing succession planning well or frequently enough. This gap between recognising the importance of succession planning and executing it effectively is a common problem. If it’s critical, why isn’t it being done more consistently, efficiently and successfully?

CEO succession planning is one of the board’s critical responsibilities. It’s even more important in the current unstable economic and geopolitical environment. In 2024, CEO turnover reached a record global high. According to PwC, ‘In today’s complex environment, in which disruptions are the norm and emergency successions are ever less surprising, the board’s engagement in CEO succession planning has become essential.’

PwC argues that even the most well-run companies can struggle without the right person in the CEO position. Furthermore, the impact of the Covid-19 pandemic on working practices means boards need to reassess the skills and attributes a CEO needs.

The right time to start

This guide explores the fundamentals of CEO succession planning, the common challenges boards face, and best practices for ensuring a smooth and effective transition of leadership.

Succession planning is the strategic process of developing talent within an organisation to ensure that when an important leader, such as a CEO, leaves or retires, there is a qualified replacement ready to step in. The primary goal is to create a pipeline of successors who are well-prepared to take on critical roles, ensuring continuity and minimising disruption.

Succession planning can extend to other leadership roles within the C-suite and even critical personnel further down the organisation. When it comes to finding the CEO’s successor, the board of directors plays a central role in guiding the process and making final decisions.

Lining up the next chief executive should start well in advance of the current CEO’s departure. In fact, it’s a continuous process that involves identifying and developing potential successors over time. PwC advises that succession planning should start of the first day of a new CEO’s tenure.

The challenges of CEO succession planning

Although most directors consider succession planning essential, many boards still struggle to do it effectively. According to Deloitte, there are several reasons why boards often fail in this critical area:

1. Lack of urgency: Succession planning takes years to develop, but often the board only feels a sense of urgency when a leadership transition is imminent.
2. Perceived threat to the current CEO: Boards may hesitate to discuss succession planning openly, fearing it will be interpreted as a lack of confidence in the current CEO or management team.
3. Unclear accountability: Often boards aren’t sure who should lead the succession planning process. Should it be the board itself, a specific committee, the CEO, or human resources?
4. Subjectivity and politics: Even when objective data is available (for example, executive assessments), boards can be swayed by subjective factors such as personal preferences, ‘likeability’ or tenure.
5. Lack of established processes: Without clear procedures and tools in place, boards may approach succession planning haphazardly, leading to inconsistent or inadequate outcomes.

While the last point can be easily addressed by establishing clear processes, the first four challenges are deeply rooted in human nature.

Procrastination, fear of difficult conversations, and personal biases often prevent boards from tackling succession planning head-on.

Overcoming resistance

The concept of force field analysis from change management can help boards understand why succession planning is so often delayed. In this model, change occurs when driving forces (reasons to act) outweigh resisting forces (reasons not to act). In the case of succession planning, boards are often held back by resisting forces such as the discomfort of addressing the CEO’s departure or the politics of selecting a successor.

Rather than focusing solely on strengthening the driving forces, such as by emphasising the importance of succession planning, boards should also focus on mitigating the resisting forces. This might involve creating a more supportive environment where succession planning doesn’t feel like a threat but, instead, is considered as a strategic priority for the long-term success of the organisation.

Approaches to succession planning

According to Deloitte, boards can take several approaches to succession planning, each with varying levels of process orientation and human sensitivity:

1. Competitive approach: This process-driven method focuses on identifying and promoting top performers but often neglects the human elements, such as the emotional impact on those passed over for promotion.
2. Compliant approach: This approach also prioritises process but tends to focus on meeting minimum governance requirements rather than considering the specific needs of the organisation.
3. Comfortable approach: This method takes human factors into account but decisions are often based on intuition and personal preferences rather than structured processes.
4. Centred approach: This balanced method relies on sound processes and tools while also considering human factors such as emotions and relationships. This approach seeks to create a succession plan that leaders are eager to participate in.

Boards should aim for a centred approach, which integrates formal succession planning processes with the emotional and psychological needs of the individuals involved. This approach ensures not only that the succession plan is effective but also that it’s embraced by those who will be most affected by its outcomes.

Best practices for effective succession planning

To achieve the centred approach, boards should adopt the following best practices:

1. Make succession planning valuable for those involved. A succession plan should create opportunities for leadership development and career progression for the individuals affected by it. This helps foster engagement and ensures a smooth transition.
2. Establish clear accountability. Identify who is responsible for driving the succession planning process. Whether it’s the board chair, a specific committee, or the CEO, there should be a clear leader overseeing the process.
3. Focus on future needs. Succession planning should be based on the future direction of the organisation, not just current needs. Boards must identify the skills and attributes that will be critical for future leaders to possess.
4. Set short-term goals for long-term success. Breaking down the succession planning process into smaller, manageable tasks with near-term milestones ensures that progress is made over time.
5. Build transparency and trust. The succession planning process should be transparent, with clear communication to all stakeholders. This helps build trust and reduces the likelihood of conflict or confusion.

According to PwC, boards can also take the following steps to make succession planning successful:

1. Have a well-defined emergency succession plan in place: this plan should identify strong interim candidates who could step into the CEO role quickly, for example, a senior executive such as the CFO or the COO. These candidates could spend time with the board and CEO to develop their understanding of the business. If there isn’t an obvious internal candidate that could take on the role in an emergency, the board should discuss whether a former CEO or director could step in on a temporary basis, and consider how comfortable that person would be to step in and for how long.
2. Start succession planning from a new CEO’s first day: if the board makes it clear to a new CEO that succession planning is a critical part of the board’s job, directors can avoid worrying that the CEO will feel threatened by the process.
3. Have a diverse and strong talent pipeline: a weak pipeline can lead to a scramble to fill the CEO role. The first step in developing a pipeline is a thorough assessment of the company’s leaders—beyond the CEO’s direct reports—to identify potential CEO candidates.
4. Use a data-driven evaluation process: leveraging data when evaluating candidates aids impartiality and objectivity. Taking an analytical and evidence-based approach reduces bias in the selection process.
5. Communicate the succession process to stakeholders and champion the chosen candidate: the board should describe the succession planning process in the company’s proxy statement or annual report. When a new CEO is hired, the board should communicate its support for the candidate to the media, employees and other stakeholders.
6. Have a strong onboarding plan to support successful CEO transitions: the plan should help the new CEO understand company goals, strategy, and culture. Directors should spend time guiding the new CEO. Onboarding details should be shared with important stakeholders and senior business leaders.

Managing expectations

One way to reduce resistance to succession planning is to take a people-centric approach. Acknowledge that those involved—whether it’s the current CEO, potential successors, or the management team—have personal stakes in the outcome. Address the question “What’s in it for me?” to ensure their buy-in.

For instance, potential successors who aren’t selected as the next CEO may feel disappointed or disengaged. Boards need to manage these individuals with care, ensuring their talents are retained, and their contributions are valued. Similarly, the current CEO needs to feel confident that succession planning isn’t a reflection of diminished trust in their ability but, rather, a proactive step to secure the organisation’s future success.

What can a director do?

Directors can help facilitate succession planning by leading board discussions, asking the right questions, and ensuring the process is managed effectively. They could conduct a force field analysis to identify the forces driving and resisting succession planning within the board and management team. Directors can use this analysis to reduce barriers to successful succession planning, such as concerns about personal biases or unclear accountability.

Directors can also incorporate non-threatening questions into board discussions, such as:
• “What skills and capabilities will our next CEO need to succeed?”
• “How should we prepare for the future leadership needs of our organisation?”
• “Who in the C-suite is being trained as a potential successor for the CEO?”

These conversations help build momentum for succession planning while minimising the emotional friction that can derail the process.

Diversity and the talent pipeline

Developing a talent pipeline from within the organisation to fill management, C-suite and boardroom positions is an important way to ensure senior positions are held by people from a diverse range of backgrounds. While there is now better female representation at board level in the UK, for example, to date this has been achieved predominately through appointing female non-executive directors.

When the most recent FTSE Women Leaders Review was published in February 2024, there were only 10 female CEOs in the FTSE100. FTSE Women Leaders Review is aiming for 40% female representation in leadership positions (defined as the executive committee and their direct reports) and increasing appointments of women to the ‘four key roles’ of chair, senior independent director, CEO and finance director by the end of 2025, or sooner.

According to the FTSE Women Leaders Review, directors can develop a talent pipeline by:

1. Focusing on retaining and promoting talented senior women within the organisation.
2. Providing opportunities to broaden and develop talented women’s skills internally.
3. Nurturing the talent pipeline and reviewing attrition rates, challenging where these are high.
4. Reviewing opportunities to create shadow boards or board apprenticeship programmes.
5. Encouraging women and men to take up non-executive positions early in their careers, for example, at a charity or as a school governor.

Women reflect just one area underrepresented in senior positions. When succession planning, directors should take a similar approach to developing a talent pipeline that can bring a range of diverse perspectives into the boardroom, to the CEO role, and to other senior positions.

For example, different age, ethnicity, race, sexual orientation and socio-economic backgrounds should be represented at senior levels to ensure the organisation makes decisions that reflect its customer base, its employees, and society’s expectations.

In conclusion, CEO succession planning is a vital responsibility that boards cannot afford to neglect. By approaching it with a clear process, considering human factors, and maintaining a long-term focus, boards can ensure a smooth transition when leadership changes occur. With thoughtful planning and a commitment to transparency, organisations can create a succession plan that benefits both the company and its future leaders.

Further resources

The holy grail of effective leadership succession planning – Deloitte Leadership practice

How the best boards approach CEO succession planning – PwC

Force field analysis – the Open University

FTSE Women Leaders Review: How to bring about change

Women hold 42% of board seats at big UK firms, but just 10 are FTSE 100 bosses – The Guardian