CEO succession planning: broken

By Felix Salmon
June 17, 2010
lays out the gory details:

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If you make it to CEO of a major public company, chances are you’re pretty competitive. And if you’re that competitive, chances are you’re not going to stop being competitive just because you’re CEO. And if you’re CEO, there’s a very good chance that you’re chairman of the board as well. Put that all together, and you get one of the biggest problems when it comes to principal-agent disconnect: a lack of succession planning.

A new report from Stanford Business School lays out the gory details:

More than half of companies today cannot immediately name a successor to their CEO should the need arise…

While 69% of respondents think that a CEO successor needs to be “ready now” to step into the shoes of the departing CEO, only 54% are grooming an executive for this position…

A full 39% of respondents cited that they have “zero” viable internal candidates…

The majority of firms – 65% – have not asked internal candidates whether they want the CEO job, or, if offered, whether they would accept.

One look at Citigroup is all that it takes to see how crucial succession planning is. (Talking of which, who is Pandit’s designated successor? There isn’t one, because he’s too weak to have one.) But we live in a world of celebrity CEOs, where boards would rather hire in some star from elsewhere after being placed in the lurch than elevate an internal candidate suffering from familiarity-breeds-contempt syndrome.

Personally, I like the idea of forcing the CEO to never be the highest-paid person in the company. But I doubt that one company in 1000 pays more than one or two employees more than it pays its CEO.

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