7 Myths of CEO Succession

Selecting the chief executive officer of a company may be the single most important decision that a board of directors can make. The CEO is responsible for decisions that impact corporate performance, including strategy, organizational design, and incentives; in addition, he or she also influences workplace productivity and culture.

But how reliable is the process that companies use to identify and develop future leaders?

Below, Professor David Larcker, Stephen A. Miles, and Brian Tayan (MBA ‘03) highlight and debunk seven common myths about CEO succession. (Read the full Stanford Closer Look Series case study here.) 

Myth #1: Companies Know Who the Next CEO Will Be
A 2010 study shows only 54% of companies are grooming a specific successor to the CEO position.

Myth #2: There is One Best Model For Succession
Companies generally use one of four approaches: CEO-in-waiting; internal development; external recruit; and inside-outside approach. (Learn more about each one here.)

Myth #3: The CEO Should Pick a Successor
The CEO should advise on succession, but the final decision rests with the board.

Myth #4: Succession is Primarily a “Risk Management” Issue
Succession planning gives companies the opportunity to build value.

Myth #5: Boards Know How to Evaluate CEO Talent
Research shows a significant percentage of directors – 21% – report having only moderate or little understanding of the strengths and weaknesses of the current CEO.

Myth #6: Boards Prefer Internal Candidates
Directors tend to view insiders as junior executives and therefore less qualified than external candidates who currently have CEO experience.

Myth #7: Boards Want a Female or Minority CEO
“Diversity” ranks high on the list of attributes that board members formally look for in CEO candidates, and yet female and ethnic minorities continue to have low representation among actual CEOs. 

10 Business Books to Read This Summer

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Moneyball by Michael Lewis

"When the odds are stacked against you, you need to change the way the game is played."

— Craig Hanson (MS ‘07), Founding Partner at Next World Capital

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The Innovator’s Dilemma by Clayton Christensen

"It’s an inspiring book for entrepreneurs."

— Ryan Caldbeck (MBA ‘05), Cofounder of CircleUp

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They Call Me Coach by John Wooden

— Evan Reas (MBA ‘09), Cofounder of Circle

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Creative Confidence by David and Tom Kelly

"You don’t have to be an artist to be creative. It can be developed and learned."

— Caroline Hu Flexer (MBA ‘01), CEO & Cofounder of Duck Duck Moose

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The Black Swan by Nassim Nicholas Taleb

— Brian Spaly (MBA ‘07), Founder of Trunk Club

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The Second World War by Winston Churchill

"Volume 1 is important for anyone to read. In the 1930s people ignored what was going on, and things spun out of control."

— John Crean (MBA ‘92), CEO of Sonoma Creamery

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The Road to Serfdom by Friedrich Hayek

"It should be a must-read. I spent almost four years in post-socialist Eastern Europe. Read that book if you want to understand what happens when central planning takes over and eliminates the individual impulse to get things done."

— John Crean (MBA ‘92), CEO of Sonoma Creamery

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Good to Great by Jim Collins

"The sequel to Built to Last.”

— Vikram Sharma (MS ‘02), Founder and CEO of QuintessenceLabs

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Influence by Robert Cialdini

"It’s a survey of psychological tests and conclusions about how people make decisions, and how you can use that to influence thinking."

— Sam Yagan (MBA ‘05), CEO of Match.com

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Lean In by Sheryl Sandberg

"It was brave of her to have written that book. She doesn’t need to prove anything about how strong she is. I related to many of the mistakes, lessons and anecdotes she wrote about. I have always been passionate about supporting and promoting women. "

— Shan-Lyn Ma (MBA ‘06), CEO and a Cofounder of Zola

"When you match the drive that got you here with the dreams you have for your life, anything is possible. Love what you do, love who you are with, and never stop smiling." –Recent graduate Khalid Al Ameri (MBA ‘14) on a takeaway from his Stanford GSB experience. #GSB14 High-res

"When you match the drive that got you here with the dreams you have for your life, anything is possible. Love what you do, love who you are with, and never stop smiling." –Recent graduate Khalid Al Ameri (MBA ‘14) on a takeaway from his Stanford GSB experience. #GSB14