Chief executives seem to have something added to their to-do lists every day. While it once may have been enough to lead the rest of the C-suite (who, in turn, managed everything else) and set a profitable strategy, modern CEOs must answer to a growing list of stakeholders each with their own expanding list of needs.
It’s understandable, then, if some matters get postponed. But there’s one task that shouldn’t get bumped too far down among a CEO’s priorities—that’s setting the stage for their eventual successor. Research published by Harvard Business Review extrapolates that poorly managed CEO transitions cost shareholders nearly $900 billion a year. And churn rates are at historic highs: A chief executive departs from a Russell 3000 company each and every day on average, another report shows.
Fortunately, corporate leaders appear to fathom what’s at stake, according to a new survey we conducted. Nine out of 10 C-suite executives agree that that succession planning is more important than ever because of today’s fast-changing business environment. Two-thirds also say that the most important factor in a seamless transition is having in place a formal plan that includes how to effectively communicate the change.
So far, this makes sense. After all, our survey-takers aren’t new to the C-suite, nor are they millennial startup founders: Half have been in their current role for more than five years. They work for 160 companies that have been in business a minimum of 15 years. The smallest companies have at least 1,500 employees and $500 million in annual revenue, while the largest have headcounts of 500,000-plus and revenue upwards of $100 billion. Nine out of 10 respondents also have lived through a leadership transition at their current employer or previously in their careers. These changes were triggered by a crisis in one of five events.
And yet three out of five respondents say their companies don’t have a documented plan for handling a leadership change. One in 10 say they don’t even have plans to have a plan. Meanwhile, two-thirds say they’ve already completed their own formal legacy planning to shape how they will be remembered personally, many with the blessing of their boards. It follows, then, that respondents—especially CEOs (70%)—strongly agree that a CEO or founder’s legacy can lead to transition issues, especially if the company is family led or a family’s name is part of the brand.
But there’s good news for CEOs struggling with prioritizing their tasks: This isn’t a binary choice of either burnishing their own legacies or onboarding a successor without a hitch. They can do both at the same time by developing a thorough understanding of their company’s past.
A corporate history can help an incoming exec (as well as everyone else in the C-suite) understand the organization’s culture and what binds its people. Documenting institutional memory also will explain why and how the organization has evolved.
In an encouraging sign, survey respondents understand the value in recording an organization’s history. Sixty-three percent say that it is very important to document the history and experience of the company and current leadership for the next leader.
“History is the mother of innovation for any type of company,” a CEO respondent says, while another respondent posits that history “is the most important part of any business plan, and that extends to succession.”
Eighty-five percent say a company’s heritage can be a playbook for new executives when challenges and opportunities arise. “History includes the roadmap to failures as well as successes,” one writes. Another notes: “It speaks to the company’s culture, and company culture is the go-to in reassuring both internal and external stakeholders of transition planning.”
When viewing a list of hypothetical situations, respondents say executive onboarding is where history and heritage can play the largest role, with 60% calling it very important. The key is to avoid concentrating on a founder’s personal legacy at the expense of effectively transferring institutional knowledge. Again, many know this. Respondents totaling 90% say that documenting company history is important or very important to the next leader, following the mold of Apple’s Steve Jobs, who detailed the company’s history in one of his final acts.
Asked which of five big-name CEO transitions was most successful, survey respondents first choice was Apple’s handoff from Jobs to Tim Cook, which was chosen by 38% of all surveyed execs and by 50% of those in tech. That’s even though Apple’s transition didn’t look like an immediate winner when Jobs resigned in 2011. Though Cook had been interim CEO for months, Apple’s share price plunged 5% on the news. Investor confidence didn’t improve for a while, either, as the stock lagged the S&P 500 for another two years, prompting headlines like “Can Apple Endure?” and “Has Apple Lost Its Way?” on investor sites.
Clearly, the legacy of Apple’s founder-CEO initially overshadowed the experience and promise of the company’s former COO. But Jobs also made sure behind the scenes to pass along Apple’s institutional knowledge and ethos to Cook over the 13 years both shared space on Apple’s executive floor. Given more time, Cook proved to be up to the task, and today Apple is the world’s most valuable company, with a market cap of well over $2 trillion.
Drawing on our work with clients we understand that a leadership transition is one of the most pivotal and vulnerable stages in an organization’s lifecycle. It’s a balancing act that requires changing and not changing at the same time and an awareness of what the organization and its leaders should take with them into the future and what they can or should leave behind. Understanding past experiences and the history of the organization can only help executives better navigate to the future.
Documenting history and preserving institutional memory as part of succession planning and a transition plan may not seem urgent, particularly when the entire world looks topsy-turvy. Sooner or later, though, every executive in the C-suite today will depart. For the sake of everyone they’ll leave behind—and yes, their own legacies, too—they should begin preparing before it’s too late.