When asked about the legacy they wish to leave behind, most CEOs refer to a successful, sustainable business. To this end, they strive, at least overtly, for an internal successor, but an orderly transition rarely occurs. The most common scenario is to rush through an openly competitive horse race once the CEO’s intentions are clear, and the unsuccessful candidates suffer a consequent loss of face. Internal candidates are often overlooked in favor of an external recruit, and research tells us that their success is variable. In one study, for example, external CEOs were more than six times more likely to be dismissed within three years.
So why is it so difficult to make a success of succession? Let’s consider the psychology—even the psychopathology—of the CEO and how the personality traits that often make them good CEOs, can also hinder their succession.
Success breeds success and….illusory superiority
A CEO’s confidence can grow during their tenure, and sometimes exceeds their accomplishments. Humility can be replaced by the illusion of superiority, and with that, difficulty in contemplating a worthy successor. A possible successor may even be seen as a threat, and their skills can be underrated by the CEO in order to maintain their feelings of superiority.
In one recent assignment, an incumbent CEO felt so threatened by a possible successor that the two could not establish eye contact with each other. In another, a CEO was asked what skills would be required of their successor. They cited extensive customer knowledge and insight—disregarding that five years before, when they were ascending to the role, they lacked those two skills.
The threat of strategic change
The successful CEO tends to believe there is only one strategy: their own. Their tendency to focus on their strategy often serves them well when it comes to delivering results. The down side is that they’re not motivated to acknowledge that there could be more strategic options beyond their own. Each option will likely require different needs from the leadership and also different qualities of the CEO, which may be (uncomfortably) different from their own. We see this dynamic often in owner-founder CEOs because of their emotional connection to the business, and it presents particular challenges to private equity investors in such businesses.
The role of a board in considering alternative future scenarios can be a critical counter-balance to such rationalizations. We sometimes see boards that anchor their thinking on the current CEO’s opinions rather than think broadly about the strategic options. But having a chair independent of the CEO helps. Even the most experienced chairs can lack candor in dealing with the confident CEO, often avoiding the issue of succession for fear of arousing emotion. And where there is no separation between chair and CEO, as is the case in many U.S. businesses, CEO succession can be prolonged and become particularly challenging to the business.
Enjoyment of power
When the CEO has an enjoyment of power this means that they can find stepping down increasingly unappealing. They may stall conversations about succession or avoid them altogether. This is particularly likely when the CEO has invested so much effort into a business that they have given too little attention to the important question of what’s next for them personally. As the center-stage CEO retains a tight grip on strategy and influencing the board, there are fewer opportunities to vet other colleagues for the role. This all feeds the notion that there is no valid internal successor and perpetuates the perceived omnipotence of the CEO.
Erosion of confidence in possible successors
We have seen many examples in recent years of potential successors deterred from expressing interest in the role of CEO because they believed they could not replicate the skills and style of the current CEO. They doubted their own charisma, not recognizing that they were also capable of building trust and confidence among stakeholders and outlining an inspiring vision in their own way.
This seems particularly true of female candidates who tend to be more open about their weaknesses than their male counterparts. In our experience, we have found that when the current CEO acknowledges there can be more than one path to success and encourages potential successors to share their perspectives and propose ideas, candidates feel comfortable expressing themselves.
The allure of the external candidate
External candidates have the great advantage that their recent failings are unknown, unlike those of internal candidates. This is what psychologists refer to as salience bias, or focusing more on what is known than what is unknown, and puts internal candidates at a disadvantage. For a succession process to be fair, internal and external candidates should be objectively evaluated, independent of the executive search firm.
The same confidence—born of experience and success—that makes a CEO a great leader, can often be what stands in the way of selecting their successor. We need to recognize that the CEO is inherently compromised when it comes to considering their successor.
The chair or board has a unique role to play in CEO succession and can play the objective party during the selection process. Recognizing the CEO’s psychological influences will be helpful in navigating through the ambiguity and avoiding common pitfalls.
The best advice we can offer a CEO considering their succession:
1. Plan ahead. Know what you want.
2. Recognize yours is not the only way. Being open to others’ strategies will build confidence among your team members.
3. While contemplating what skills your successor will need, consider the journey you have been on. Think about your early skills. Does your successor have similar potential, if not, what are their actual skills?
4. Create opportunities for possible successors to succeed—in strategy, with the Board, in leadership.
5. Seek advice. Solicit input from your Chair, the Board or skilled external counsel.
6. Ensure that internal candidates are evaluated fairly against external candidates.