Life can be unpredictable. Things happen. Look at organizations such as Coca-Cola and McDonald’s that have had to endure the sudden and unexpected loss of a CEO and then pick up the pieces so business can go on as usual.

In June, the Rock Center for Corporate Governance at Stanford University and Heidrick & Struggles conducted a survey of 140 North American CEOs and directors — the 2010 Survey on CEO Succession Planning — which revealed that 51 percent of companies weren’t able to identify a new CEO immediately, and some 39 percent had no internal candidates ready in case of this kind of event. This highlights the need for a more efficient, long-term succession planning process.

Every major corporation claims to have a succession plan — and on paper they might be able to check off that box — but if pressed, many would fail to name a CEO or other leader should the reigning one become incapacitated, said David Larcker, James Irvin Miller professor of accounting and director of the Corporate Governance Research Program at the Stanford Graduate School of Business. Larcker was the primary conductor of the aforementioned survey.

Dual Competencies Required

Succession planning can be viewed in two related but separate buckets. The first is more of a continuous, long-term plan that should start at least several years in advance of the actual transition.

“You want to look at who is eligible in the next couple of layers below the CEO, but companies that do this right are actually looking several layers below and starting to identify high potentials a couple of years after they join the company,” said Ana Dutra, CEO of Korn/Ferry Leadership and Talent Consulting. “In the process of doing this identification and development, companies need to start working on retention as well, because even across this high-potential pool, there are a couple of people they are at risk of losing along the way.”

The second bucket to consider is having a contingency plan in place, so if a CEO was hit by the proverbial bus, the company’s leadership can identify who will take over immediately.
“Companies that do it right address both pieces [of the puzzle]: Who takes over immediately if the CEO drops dead? And: How are we going to think and execute on succession planning strategically and throughout the organization?” Dutra said.