Seven Myths of CEO Succession

Many believe that the selection of the CEO is the single most important decision that a board of directors can make. In recent years, several high profile transitions at major corporations have cast a spotlight on succession and called into question the reliability of the process that companies use to identify and develop future leaders. In this Closer Look, we examine seven common myths relating to CEO succession. These myths include the beliefs that:1. Companies Know Who the Next CEO Will Be2. There is One Best Model for Succession3. The CEO Should Pick a Successor4. Succession is Primarily a “Risk Management” Exercise5. Boards Know How to Evaluate CEO Talent6. Boards Prefer Internal Candidates 7. Boards Want a Female or Minority CEOWe examine each of these myths and explain why they do not always hold true. We ask:• Why aren’t more companies prepared for a change at the top?• Would directors make better hiring decisions if they had better knowledge of the senior management team?• Would they be more likely to hire a CEO from within?• Would they be more likely to hire a female or minority candidate?• How many succession should a director participate in before he or she is considered “qualified” to lead one?Topics, Issues and Controversies in Corporate Governance. The Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important. Larcker and Tayan are co-authors of the books Corporate Governance Matters and A Real Look at Real World Corporate Governance.