CEO Succession Planning: Your 2025 Comprehensive Guide (+Free Template)
77% — that’s the number of unplanned CEO departures from organizations. That leaves many organizations in a state of avoidable uncertainty. How can you avoid this and ensure your company’s CEO succession planning sets it up for success?
CEO succession planning is more important than you may realize. According to Harvard Business Review, nearly $1 trillion of market value is wiped out every year in the S&P 1500 from poorly managed CEO and C-suite transitions.
The researchers estimate that better succession planning could help the large-cap US equity market achieve 20% to 25% higher company valuations and investor returns.
In this article, you’ll learn what CEO succession planning involves and how you can optimize the process in your organization.
Contents
What is CEO succession planning?
6 steps to develop a CEO succession plan
New CEO transition checklist
Free CEO succession planning template
CEO succession planning best practices
What is CEO succession planning?
CEO succession planning involves far more than simply identifying a potential successor. It’s a strategic process meant to ensure your organization’s long-term sustainability and success.
A CEO’s untimely departure or poorly orchestrated handover can have a significant negative impact, including decreased investor confidence, operational inefficiencies, and even a decline in market share. Conversely, a well-executed succession plan minimizes the risks associated with unexpected leadership changes and fosters a culture of continuity and stability.
Secondly, there must be a structured process for selecting the most suitable candidate and providing them with the training and development opportunities they’ll need to excel in the position. Finally, you must help plan a smooth leadership transition to ensure minimal disruption to your organization’s operations.
Many companies (even renowned organizations like Microsoft) struggle with CEO transitions. For example, when Steve Ballmer abruptly announced his decision to step down as Microsoft’s CEO in 2013, it became apparent the company giant lacked a thorough succession plan. This was despite reports from informed observers that Ballmer had been underperforming for years.
What is the role of HR in CEO succession planning?
Human Resources (HR) plays a pivotal role in CEO succession planning. They act as strategic partners to the board, investors, or senior leadership in identifying, developing, and preparing future leaders for the top job. HR’s involvement includes these critical functions:
- Succession planning alignment: HR should ensure their CEO succession plan closely aligns with the company’s long-term strategic objectives. This involves mapping out potential succession scenarios and identifying critical leadership gaps to address.
- Talent identification and assessment: HR leads the process of identifying potential CEO candidates both internally and externally. This involves conducting thorough assessments to evaluate candidates’ leadership capabilities, strategic thinking, decision-making skills, and cultural fit.
- Leadership development: HR designs and oversees comprehensive leadership development programs to groom potential successors for the CEO role. These programs may include executive coaching, mentorship, and exposure to strategic decision-making processes. Noel Tichy, a Management professor at the Ross School of Business and author of Succession, notes that by putting potential successors in charge of new projects, companies can accelerate change while assessing candidates’ suitability for the CEO position.
- Candidate readiness assessments: HR should also conduct regular assessments to gauge potential successors’ readiness for the CEO role. This includes evaluating their performance in various leadership roles, ability to navigate complex challenges, and commitment to the company’s vision, values and culture.
- Collaboration with stakeholders: To ensure alignment, HR must work closely with the board of directors, current CEO, and other key stakeholders to facilitate a smooth leadership transition. This involves promoting open communication, building consensus between parties, and managing potential conflicts.
What is the CEO’s role in the succession plan?
The time will come for the CEO to step back from their role and pass the baton of leadership onto their successor, which is why a CEO’s active involvement in succession planning is vital.
Ideally, the CEO should champion a culture where leadership development is a strategic priority. They must personally identify and nurture potential successors, providing them with challenging assignments and mentorship. This direct involvement not only signals the organization’s commitment to internal talent but also fosters a sense of ownership among potential successors.
The CEO also plays a key role in aligning succession planning with the company’s overall strategy. By working closely with HR, they can ensure potential successors have the skills and experience needed to navigate future challenges and capitalize on emerging opportunities.
This collaborative approach can help create a seamless leadership transition and maintain organizational momentum.
Learn the skills you need to develop the best CEO succession plan
Knowing how to strengthen and future-proof your talent pool is essential to effective succession planning.
In AIHR’s Talent Management & Succession Planning Certificate Program, you will learn how to map and review talent, build succession pipelines, and segment potential leadership talent into different development pools.
This online, self-paced Certificate Program will also teach you succession planning principles and key metrics, as well as how to build an impactful leadership competency framework.
6 steps to develop a CEO succession plan
Industry changes will bring new challenges and opportunities for your organization. That’s why effective CEO succession planning must be a continuous and strategic process to identify and groom candidates who can keep pace with the market.
Here are six actionable steps to guide you as an HR professional in developing a robust CEO succession plan:
1. Begin CEO succession planning early
Successful CEO succession planning takes years, particularly when you’re looking to develop the next CEO from your internal talent pool. You’ll need to identify potential successors as soon as the next CEO begins their role.
Next, consider what programs and initiatives you’ll need to help develop the next successor (e.g., leadership development and internal mentorship programs).
2. Create a CEO success profile
A CEO success profile must align with your organization’s changing priorities and challenges. You can begin by developing a comprehensive CEO success profile that outlines the essential skills, attributes, and experiences required for their future leader.
Marna van der Merwe, Subject Matter Expert at AIHR, says, “When you define the success profile, you should also include the value-based behaviors expected from the CEO as they set the tone for the culture.”
“It’s tempting to use the current CEO profile as the ideal profile for a successor. However, defining what ‘good’ looks like for the CEO role requires objectivity and close alignment with the organization’s goals and values. It’s an opportunity to ensure that the business is set up for future success.”
CEO success profile: 7 considerations
Here are some key considerations to bear in mind when creating your CEO success profile:
- Strategic acumen: The ability to develop and execute a clear vision, navigate complex business environments, and make informed decisions that fuel and sustain long-term growth.
- Leadership and communication skills: The capability to inspire and motivate teams, foster collaboration, and effectively communicate with diverse stakeholder groups.
- Industry expertise: A deep understanding of the company’s industry, its competitive landscape, and emerging trends.
- Digital fluency: Familiarity with and fluency in leveraging technology to drive innovation and business optimization.
- Future-focus: A keen vision of the future and the ability to help the organization prepare for it.
- Make or breakpoints: Use your CEO Success Profile to define what will make or break the CEO and your company. For instance, will the successor need to navigate a global expansion, lead a major merger or acquisition, or spearhead a turnaround strategy? Anticipating these challenges will help you tailor development programs accordingly.
- Cultural fit: A candidate who possesses all the right requirements but is a poor cultural fit is likely to prove unsuccessful.
HR tip
Consider the broader leadership team when creating the CEO success profile, and think about necessary but less developed capabilities the CEO must build.
For example, in an organization with strong digital capability and leadership, the CEO might not need a high degree of digital fluency. However, a CEO at an organization evolving into a digital-first organization that still needs to build digital capability would need a high level of digital fluency.
3. Ensure flexibility through scenario planning
According to Harvard Business Review, 63% of private organizations had no CEO succession contingency plan, and 69% with annual revenues of under $50 million had no succession plan at all.
CEO transitions are not always predictable. HR can help the organization prepare for a range of scenarios by developing contingency plans. This involves considering internal and external succession options, as well as interim arrangements for stand-in leaders in the case of an unexpected CEO departure.
These arrangements could include having an emergency CEO candidate. The candidate could be an experienced internal executive, board member, retired former CEO with extensive industry experience, or even a CEO who recently stepped down.
Whoever they are, they must be well-accepted by stakeholders (internal and external), the executive team, and employees.
4. Identify and assess talent
HR plays a crucial role in mapping out potential lines of succession. This involves identifying successors within your organization, typically through assessments that evaluate their skills, experience, and leadership potential.
While your CEO may guide the overall direction, you can provide valuable support by implementing assessments like 360-degree feedback, psychometric tests, leadership simulations, and competency-based evaluations.
An often neglected part of CEO successor identification is communicating the process to potential successors. Whether you identify individuals as successors or simply as high-potential individuals, communicate this transparently. This will ensure individuals actively participate in their own development, understand their opportunities, and can make informed decisions about their careers.
Vice Chair of Board & CEO Services at Korn Ferry Jane Stevenson advocates ‘cross-training’ generations of CEO successors through a mix of on-the-job training, intensive coaching, and mentoring.
This, she believes, will “help future CEOs blossom with individually tailored development plans geared to both individuals’ needs and what the organization will require in a future leader”.
5. Build a pool of internal and external candidates
While a strong internal pipeline is ideal, don’t neglect the potential value of external candidates, particularly if the business is looking to radically innovate or reinvent itself. Developing a large pool of candidates from diverse backgrounds broadens your options and fosters a more inclusive leadership model.
“If you’re building succession pools, think about alternative mobility opportunities for successors who might not move into the CEO role. Many organizations rotate executive leaders across various business units to ensure they remain stimulated and challenged while still building competence,” Marna explains.
6. Align culture, values, and aspirations
Effective CEO succession must take into account both company culture and future direction. You can contribute by facilitating dialogues with your current leadership to understand which aspects of the culture to preserve and what changes are essential for future growth.
New CEO transition checklist
The transition to a new CEO is a critical juncture for any organization, making proactive planning crucial to ensure a smooth, successful transition. This checklist provides a starting point for developing a strategic framework to onboard and support your new CEO and set the stage for their success.
Checklist: External CEO appointment
When appointing an external CEO, HR is crucial in bridging the gap between the new leader and the organization. Ensure your hiring and onboarding process incorporates the following factors:
1. Cultural alignment and integration
- Cultural immersion: Design a tailored program to introduce your new CEO to the company’s history, values, culture, mission, and operations.
- A cultural ambassador network: Assemble a network that can guide the new CEO in understanding the company’s operations and culture. This network should include the outgoing CEO, former CEOs, investors, and/or board members.
2. Stakeholder management and relationship building
- Introductions and meetings: Facilitate introductions between the new CEO and key stakeholders. Help them establish a regular communication channel for employees to communicate their vision and make change management easier.
- Relationship-building: Help involved parties build relationships with one another and understand the dynamics of the leadership team (who is accountable for what and how they work together).
- Feedback mechanisms: Implement feedback mechanisms to gather insights from stakeholders and the new CEO to address any concerns or challenges.
“An important stakeholder for the new CEO is the board. HR has a role to play in ensuring the new CEO engages with the board and understands the mechanisms and governance associated with the board interaction.”
3. Strategic alignment and priority setting
- Strategic review: Conduct a comprehensive review of the organization’s current short-, medium- and long-term strategic priorities and goals.
- Strategic alignment sessions: Organize sessions with the leadership team to ensure the new CEO understands and aligns with the company’s current strategic direction.
- KPIs: Help the new CEO set KPIs. Provide the support they need to fulfill them and measure their success in the short and medium term.
Checklist: Internal CEO promotion
Promoting an internal candidate to the CEO role presents its own unique challenges and opportunities. Here’s how HR can play a vital role in supporting the transition:
1. Role clarity and expectations
- Job description review: Ensure the CEO role description is clear, comprehensive, and aligned with the organization’s vision and strategic objectives.
- Performance expectations: In conjunction with the board, set clear performance expectations and goals for the new CEO. After this, align with them on these expectations before they accept the position.
2. Leadership development and coaching
- Executive coaching: Provide executive coaching to support your new CEO’s development and growth during the transition phase and beyond.
- Leadership development programs: Offer continuous leadership development programs to enhance your CEO’s skills and capabilities.
- Stakeholder management: Strong relationships among the leadership team are essential to ensuring strategic alignment and a smooth transition. Foster transparent communication among stakeholders to ensure stability during the leadership change.
3. Change management and communication
- Change management plan: Develop a comprehensive change management plan to address potential challenges and ensure a smooth transition.
- Communication strategy: Create a communication strategy to keep employees informed and engaged throughout the appointment and transition phases.
Should you appoint insiders or outsiders?
A landmark Harvard Business School study examined the impact of different types of CEO succession on operating returns in 200 organizations over a 15-year period.
They compared four scenarios: a firm doing reasonably well after promoting an insider,a firm doing poorly after promoting an insider, a firm doing reasonably well after appointing an outsider, and a firm doing poorly after appointing an outsider.
On average, the researchers found that insiders didn’t significantly change their company’s performance. The reason they gave for this was that “similar people working in similar ways at the same company will produce similar results”.
When it came to appointing outsiders, the impact was more extreme. On average, at companies that had been doing poorly, outsiders added significant value. However, at companies that had been doing reasonably well, outsiders destroyed massive value.
These findings indicate that organizations seeking a new CEO should hire external candidates only in exceptional cases when a significant cultural change or turnaround is required.
Free CEO succession planning template
AIHR has developed its own CEO succession planning template, which defines candidate selection criteria and pinpoints the skills and experience required to lead the company. It includes:
- An overview of operations for the next three to five years
- The next CEO’s ideal characteristics and profile
- Internal succession candidates
- External succession candidates
- A candidate recruitment or development plan.
CEO succession planning best practices
The following best practices can help you with effective CEO succession planning so you can facilitate a smooth transition for the new CEO and the rest of the organization:
Involve the current CEO
Maintain trust by establishing open and honest communication with the current CEO to discuss succession planning goals and strategies. You can then help them envision their legacy and how their successor can build upon their achievements.
After this, encourage them to actively mentor potential successors and provide valuable guidance and insights to ensure a smooth transition into the role of the new CEO.
Involve the board
Board members and investors should help oversee succession planning to ensure alignment with long-term organizational objectives. Start by appointing a dedicated board committee to oversee succession planning activities, then define clear roles and responsibilities for the committee members.
The committee should regularly update the rest of the board and other key stakeholders on the progress of succession planning initiatives. Additionally, to avoid bias and gain a broader perspective, you can engage external consultants to independently assess your succession plan.
Implement a ‘CEO-in-training’ program
Empower potential candidates to take on interim leadership roles across the company’s various divisions to gain cross-discipline expertise. This hands-on experience can prepare them well to assume the CEO role.
Be sure to conduct regular talent assessments to identify the most suitable candidates for the role. During the selection process, incorporate Diversity, Equity, Inclusion, and Belonging (DEIB) principles to ensure a diversity of perspectives, backgrounds, and experiences in your talent pool.
Develop contingency plans
In the event of a sudden CEO departure, a contingency plan ensures the company can quickly install a new leader and remain stable. This prevents chaos, maintains investor confidence, and keeps the business running smoothly.
By identifying potential successors and having a clear process for their takeover, you can help the organization avoid confusion and keep everyone aligned. It also shows employees and stakeholders that the company is prepared to handle sudden leadership changes.
To sum up
CEO succession planning is a safety net to help you and your organization navigate leadership changes. Identifying and prepping potential successors in advance can help you avoid the uncertainty of poorly managed transitions, maintain investor trust, and keep operations running smoothly.
Working closely with the board, current CEO, and other key players can help you align your CEO succession planning with the company’s big-picture goals. Take action by creating a detailed CEO success profile, implementing leadership development programs, and having contingency plans in place.
Learn more
Related articles
Are you ready for the future of HR?
Learn modern and relevant HR skills, online
