Former Procter & Gamble CEO A. G. Lafley famously declared, “If I get on a plane next week and it goes down, there will be somebody in this seat the next morning.”
As a board member, how confident are you in your organization’s succession plan? Poorly managed transitions wipe out a whopping $1 trillion of shareholder value for S&P 1500 companies each year. Clearly, it is prudent to pay attention to strategies to avoid and mitigate such problems.
This guide provides a board-level framework for assessing and mitigating CEO succession risks, including:
- A diagnostic checklist to uncover hidden vulnerabilities in your succession strategy
- A risk assessment matrix to quantify and prioritize potential threats
- Key performance indicators to monitor succession readiness over time
- Actionable strategies to address identified risks and enhance leadership continuity
As stewards of organizational resilience, board members play a pivotal role in succession planning. This article equips you with the tools and insights to elevate your oversight of this crucial process, ensuring your organization is prepared for seamless leadership transitions in any scenario.
Let’s begin by examining the critical components of effective succession risk assessment and how you can leverage them to safeguard your organization’s future.
Essential Tools for Quantifying Succession Risks
Case Study
In November 2012, computing giant Hewlett–Packard’s (HP) stock prices fell by over 12% or $3 billion in a matter of days in the aftermath of its disastrous writeoff of approximately $8.8 billion of its recent $11 billion-acquisition, Autonomy, a purported tech innovator.
These developments came a bare year after the hasty appointment of Léo Apotheker as successor to dismissed CEO Mark Hurd. When Apotheker was named CEO, HP had not only not foreseen the exact extent of its financial losses, it had failed to forecast the risk associated with a hasty CEO succession.
Quantifying risk is an essential preliminary to managing and minimizing it.
While most boards today have succession plans, few rigorously assess the practicality or comprehensiveness of their plans, less still the board’s own readiness to execute the plan.
This section of the current article is designed as a simple yet effective guide to help you evaluate your organization’s CEO succession risk. Going beyond superficial templates, the tools provided here are geared to help you evaluate your organization’s true preparedness for executing a smooth and successful change of CEOs.
Key components include:
- Strategic alignment: How well does your board understand the evolving strategic needs of the organization, and how does this inform your succession criteria?
- Collective capability: Does your board possess the diverse skills and experiences necessary to effectively evaluate and select the next CEO?
- Decision-making dynamics: How equipped is your board to make critical decisions under pressure, particularly in scenarios like an unexpected CEO departure?
- Stakeholder management: How prepared is your board to navigate the complex stakeholder landscape during a leadership transition?
CEO Succession: A Diagnostic Checklist
The checklist below helps you identify potential gaps in the overall succession planning process.
Use it to assess the overall readiness of your succession plans and processes. For each item, mark “Yes,” “No,” or “Partial.” Items marked “No” or “Partial” may require further attention and could inform your risk assessment process.
Governance and Policy Framework
| Yes | No | Partial | |
| Is there a formal, board-approved CEO succession policy in place? | |||
| Does the board have a designated committee responsible for succession planning? | |||
| Is there a defined process for regularly reviewing and updating the succession plan? | |||
| Are the roles of the board, CEO, and CHRO in succession planning clearly delineated? | |||
| Is there an emergency succession protocol for unexpected departures? |
Strategic Alignment
| Yes | No | Partial | |
| Has the board articulated the future leadership needs based on the organization’s long-term strategy? | |||
| Is there a process to regularly reassess leadership criteria against evolving business challenges? | |||
| Are succession planning discussions linked to broader strategic planning sessions? |
Talent Development and Pipeline
| Yes | No | Partial | |
| Is there a structured program for identifying and developing high-potential internal candidates? | |||
| Does the organization have a leadership competency model aligned with future needs? | |||
| Are potential successors given opportunities to interact with the board and key stakeholders? | |||
| Is there a process for objectively evaluating the readiness of internal candidates? |
External Market Readiness
| Yes | No | Partial | |
| Does the board maintain relationships with executive search firms specializing in your industry? | |||
| Is there a process for continuously monitoring the external talent market? | |||
| Has the board discussed criteria for deciding between internal promotion and external hiring? |
Knowledge Transfer and Continuity
| Yes | No | Partial | |
| Is there a documented process for capturing the incumbent CEO’s unique knowledge and relationships? | |||
| Are there mechanisms in place to preserve institutional memory beyond the CEO role? | |||
| Is there a structured approach for onboarding a new CEO, whether internal or external? |
Stakeholder Management
| Yes | No | Partial | |
| Has the board identified key stakeholders (e.g., major investors, crucial partners) in the succession process? | |||
| Is there a communication strategy for keeping stakeholders appropriately informed during a transition? | |||
| Does the board have a plan for managing potential stakeholder concerns or opposition to succession decisions? |
Board Capabilities and Dynamics
| Yes | No | Partial | |
| Does the board possess the diverse skills and experiences necessary to effectively evaluate CEO candidates? | |||
| Is there a process for educating board members on effective succession planning practices? | |||
| Has the board discussed how to manage potential conflicts of interest in the succession process? |
Organizational Culture and Change Management
| Yes | No | Partial | |
| Is there a defined process for assessing a candidate’s cultural fit and ability to lead change? | |||
| Has the board considered how to maintain or evolve organizational culture through leadership transitions? | |||
| Is there a plan for supporting the organization through the uncertainty of leadership change? |
Performance Evaluation and Compensation
| Yes | No | Partial | |
| Is there a robust process for setting and evaluating CEO performance metrics? | |||
| Has the board considered how CEO compensation might evolve under different succession scenarios? | |||
| Is there a mechanism for linking long-term incentives to successful succession planning? |
For areas identified as potential concerns in the checklist, use the matrix in the next section to quantify and prioritize specific risks.
Risk Assessment Matrix: A Strategic Tool for Succession Planning
Case Study
The abrupt departure of Coca-Cola CEO Doug Ivester in 1999 after just two years at the helm spotlighted glaring deficiencies in the company’s succession risk evaluation process. Despite a decade’s grooming by predecessor Roberto Goizueta, Ivester struggled to navigate CEOship, resulting in sharp drops in shareholder earnings and equity (56% to 35%).
Later analyses revealed that Ivester’s missteps – ignoring anti-American sentiment among European partners, dismissing a public food contamination scare in Belgium, demoting a high-achieving African American executive – were in keeping with his internal image within the organization as an overbearing, detail-oriented executive, good at finance but not cut out to be a high level leader.
The risk assessment matrix below is a powerful tool designed to provide boards with a comprehensive, at-a-glance view of the critical risks associated with CEO succession. Its value lies not just in identifying risks, but in prioritizing them and guiding resource allocation for mitigation efforts.
Here’s how this tool can help.
Hierarchical risk structure
The matrix intelligently categorizes risks into primary and secondary levels. This structure acknowledges the interconnected nature of succession risks, allowing boards to address root causes rather than just symptoms.
Quantitative risk scoring
By assigning probability and impact scores, the matrix provides a data-driven approach to risk prioritization. This objectivity can be crucial in board discussions where opinions might otherwise vary widely.
Visual risk levels
The color-coding (from green to red) offers an immediate visual cue of risk severity. This can be particularly useful in quickly identifying areas that demand immediate board attention.
Using this matrix
The matrix allows for comparison between immediate risks (like Transition Timing) and longer-term risks (like Strategic Continuity).
The varying risk levels across categories can inform the board’s overall approach. For instance, if Leadership Fit risks are high but Organizational Resilience risks are low, it might suggest focusing resources on candidate selection and development rather than organizational restructuring.
While this is a board-level tool, consider incorporating input from key executives, especially in areas like Operational Readiness and Compliance risks.
Use it as a foundation for succession scenario planning exercises. How do the risk levels change under different succession timelines or with different candidate profiles?
Importantly, this should not be a static document. We recommend reassessing these risks quarterly, or more frequently in volatile business environments.
Key Performance Indicators: Your Succession Planning Dashboard
While the Diagnostic Checklist and Risk Assessment Matrix provide comprehensive snapshots of your succession planning health, Key Performance Indicators (KPIs) offer a dynamic, real-time view of your organization’s succession readiness.
These metrics serve as an early warning system, allowing boards to identify trends, measure progress, and make data-driven decisions between more comprehensive assessments.
Consider implementing these five strategic KPIs:
1. Leadership bench strength ratio
Measures the depth and readiness of your leadership pipeline, highlighting potential gaps in critical roles.
Calculation: (Number of ‘ready now’ internal candidates) / (Number of key leadership positions)
Target: ≥ 1.5
2. Succession plan vitality
Ensures succession plans remain current and aligned with evolving organizational needs and market conditions.
Calculation: % of succession plans updated within the last 6 months
Target: 100%
3. Development program ROI
Quantifies the effectiveness of your leadership development investments, driving accountability for talent development.
Calculation: (Value of roles filled by internal promotions – Cost of development programs) / Cost of development programs
Target: > 200%
4. Board Engagement Index
Measures the board’s active involvement in succession planning, promoting ongoing engagement beyond annual reviews.
Calculation: Average hours per quarter board members spend on succession-related activities
Target: Varies based on organization size, priorities, and number of top roles covered by succession plans.
5. Stakeholder Confidence Score
Provides an external perspective on your succession planning efforts, helping identify potential reputation risks or communication gaps.
Calculation: Aggregated rating from annual surveys of key stakeholders (e.g., major investors, crucial partners) on succession readiness
Target: ≥ 4 out of 5
Use these KPIs to track progress on addressing gaps identified in your Diagnostic Checklist. Reviewing these quarterly ensures that succession planning remains a dynamic, ongoing process rather than a periodic exercise.
Evaluating Organizational Readiness: Beyond the Basics of CEO Succession Planning
Plumbing the Depths: Assessing the Talent Pipeline
Case Study
Yahoo!’s troubles with CEO succession are widely cited as an example of critically deficient leadership succession planning. From Carol Bartz’s lackluster two-year stint (2009 to 2011) to Scott Thompson’s resignation in 2012 over falsified credentials to successor Marissa Mayer’s failure to revitalize the company, leading to plummeting market value and its eventual acquisition by Verizon in 2017 for a fraction of its value of a decade earlier, the “revolving door of CEOs” as it has been termed by industry analysts starkly highlights the organization’s poor talent development and management.
A CEO succession plan is only as good as the talent pool on which it depends.
Although organizations are globally adopting a more proactive approach to talent and leadership identification and development, there is still a wide spectrum of variability in the comprehensiveness of these approaches.
Leadership Pipeline Quality Index (LPQI) for evaluating organizational talent
The LPQI consists of four key components, each rated on a scale of 1-5, where 1 is poor and 5 is excellent:
- D: Diversity and inclusiveness
The variety of backgrounds, experiences, and perspectives represented in the pipeline.
- E: Experience and exposure
The depth and breadth of candidates’ experiences across different roles and functions.
- R: Readiness
The preparedness of potential successors to step into CEO/ other leadership roles.
- A: Alignment with future needs
The extent of alignment of potential candidates’ vision and working style with the organization’s future strategic needs.
Make use of the LPQI to assess the depth and well-roundedness of your organization’s leadership pipeline. To score the LPQI, follow the instructions below:
- Rate each of the 4 LPQI components (D, E, R, A) outlined above on a scale of 1 to 5.
- Calculate the average of the 4 components.
- Interpret the LPQI score as follows:
- 4.5 – 5.0: Excellent pipeline
- 3.5 – 4.0: Strong pipeline, but at least 1 domain (D/ E/ R/ A) needs strengthening
- 2.5 – 3.0: Workable pipeline, but 2 or more domains need improvement
- <2.5: Weak pipeline, requires significant attention and improvement
Evaluating Leadership Development
Potential and development are arguably two equally important faces of the leadership coin. Having indexed where your organization stands with respect to its talent pool, it’s time to gain clarity on the quality of your in-house talent development program.
Leadership Development Effectiveness Index (LDEI) for organizations
The LDEI incorporates five essential parameters for evaluating the effectiveness of any program aimed at developing human potential in organizations:
- Structured program (S):
A well-defined, comprehensive leadership development program.
- Alignment with strategy (A):
Leadership development well-matched to the organization’s long-term strategy.
- Diverse learning methods (D):
Incorporation of varied learning methods (e.g., mentoring, job rotation, formal training).
- Regular assessment (R):
System for consistent assessment and feedback on participants’ progress.
- Executive Involvement (E):
Active participation of senior executives in the leadership development process.
To calculate an LDEI for your organization, follow the steps outlined below.
- Rate your organization on each of the 5 LDEI parameters (S, A, D, R, E) outlined above on a scale of 0 to 4, where:
- 0 – Doesn’t exist / Not incorporated
- 1 – Exists in basic form, but poorly implemented
- 2 – Partially implemented with significant gaps
- 3 – Mostly implemented, with minor improvements needed
- 4 – Well-structured, fully functional part of the program
- Calculate the average of the 5 parameters.
- Interpret the LDEI score as follows:
- 18 – 20: Excellent – World-class leadership development program
- 15 – 17: Very Good – Strong program with minor areas for improvement
- 12 – 14: Good – Solid program with some significant enhancements needed
- 8 – 11: Fair – Basic program in place, requires substantial improvements
- 0 – 7: Poor – Inadequate program, needs complete overhaul or creation
Candidate-Level Risk Evaluation: Looking Beyond Resumes
Case Studies
A mass data breach in 2017 that resulted in the digital identity theft of over 140 million US citizens exposed the lack of integrity among senior executives of credit reporting major Equifax.
Social outrage and legal backlash targeted key management figures including the CEO and CIO, the former for not ensuring adequate security of sensitive consumer data, the latter for delaying publicizing the matter in order to sell his own shares in the company in anticipation of a price crash.
In 2019, fast food leader McDonald’s faced a storm of controversy following evidence that CEO Steve Easterbrook was guilty of sexual misconduct with a company employee.
Fresh evidence emerging one year later revealed Easterbrook’s history of similar misconduct and spotlighted the company board’s neglect of due diligence in the initial investigation of the dismissed CEO, for which the SEC held the company guilty of an Exchange Act, Section 14(a) violation.
The episode also underscored the inability or unwillingness of many organizations to carry out adequate risk profiling of potential CEO candidates.
Time and again, the actions of CEOs have landed organizations in soup, sometimes spectacularly. As the above cases show, risk profiling of current and future CEOs in both the professional and personal spheres is equally important.
Candidate Risk Profiling
The following detailed checklist can be used for evaluating the potential risk to the organization of hiring a given CEO candidate. Keep in mind that this assessment, while comprehensive, should be conducted ethically, legally, and with respect for privacy rights.
| Candidate Risk Evaluation Parameter | Risk Level | ||
| Low | Moderate | High | |
| Professional Conduct: | |||
| □ Workplace integrity record | |||
| □ History of ethical decision-making | |||
| □ Compliance with industry regulations | |||
| 2. Financial Integrity: | |||
| □ Personal financial management | |||
| □ History of financial improprieties | |||
| □ Conflicts of interest | |||
| 3. Legal Standing: | |||
| □ Criminal record | |||
| □ Civil litigation history | |||
| □ Regulatory violations | |||
| 4. Personal Conduct: | |||
| □ Known sexual conduct and allegations | |||
| □ Substance abuse history | |||
| □ Public behavior and reputation | |||
| 5. Health Status: | |||
| □ Physical health condition | |||
| □ Mental health stability | |||
| □ Work-life balance management | |||
| 6. Political and Social Views: | |||
| □ Public statements on controversial issues | |||
| □ Political affiliations and activities | |||
| □ Social media presence and content | |||
| 7. Leadership Style: | |||
| □ Past leadership effectiveness | |||
| □ Team management approach | |||
| □ Ability to handle stress and crises | |||
| 8. Diversity and Inclusion Stance: | |||
| □ Track record on promoting diversity | |||
| □ Incidents of discrimination or bias | |||
| 9. Environmental and Social Responsibility: | |||
| □ Stance on corporate sustainability | |||
| □ Involvement in social causes | |||
| 10. Media Relations: | |||
| □ Past interactions with media | |||
| □ Public speaking skills and history | |||
| 11. Intellectual Property Issues: | |||
| □ History of respecting IP rights | |||
| □ Any past violations or disputes | |||
| 12. Personal Relationships: | |||
| □ Family stability | |||
| □ Professional network integrity | |||
| 13. Cultural Fit: | |||
| □ Alignment with company values | |||
| □ Adaptability to organizational culture | |||
| 14. Educational Background: | |||
| □ Verification of claimed qualifications | |||
| □ Ongoing professional development | |||
| 15. Global Perspective: | |||
| □ International experience | |||
| □ Cultural sensitivity | |||
| Checklist Interpretation: The candidature of any individual who receives 3 or more checkmarks (or ticks) under the ‘High’ column or 5 or more checkmarks/ ticks under the ‘Moderate’ column must at the very least be subjected to closer scrutiny and further discussion by the board. | |||
Crisis Handling and Strategic Leadership
The ability of potential leaders to navigate future crises is easy to either overlook or assess inaccurately. While there is no proven metric for reliably estimating this quality of a CEO candidate, their professional track record remains the next best yardstick.
Organizations whose leadership training and development incorporates elements such as international roles, portfolio rotations and troubleshooting assignments gain a significant advantage in grooming candidates to be successful CEOs.
Red Flags in Candidate Evaluation
Aside from the obvious markers provided by the above candidate risk assessment checklist, a comprehensive candidate evaluation should bring to light more subtle warning signs of a potential candidate’s likelihood of being a poor fit as CEO.
Research shows that the following can be critical indicators of future CEO failure:
- Poor self-awareness
Can be indexed by inconsistent narratives that either distort or embellish past experiences and achievements.
- Deflection of responsibility
Failure to assign accountability is evidenced by misattributions of organizational successes and failures.
- Micromanagement tendencies
Struggles to delegate or trust their team is often manifested when candidates exhibit excessive focus on low-level details rather than strategic thinking or broader vision.
- Resistance to feedback
Difficulties in personal growth and adaptability are signaled when candidates respond with defensiveness or dismissiveness to subtly presented constructive criticism or alternative viewpoints.
Hidden Reefs: The New CEO Transition Phase
Case Study
Disney’s transition from powerhouse CEO Bob Iger to protegé Bob Chapek has been widely cited as an example of organizational failure to put in place clearly delineated roles and responsibilities during a CEO succession, as well as an inability to provide the incumbent CEO with adequate support and autonomy.
When Chapek took over as CEO in February 2020, Iger continued as Executive Chairman. The ensuing two years were marked by strategic disagreements between the leaders, with key executives continuing to report to Iger instead of Chapek, culminating in Chapek’s step down in 2022, followed by the board’s invitation to Iger to return as CEO.
An all-too-often overlooked aspect of succession planning is the transition phase following the new CEO’s ascension to the position.
Use the following checklist to evaluate your organization’s readiness not only for onboarding the new CEO, but for navigating the choppy waters while the incumbent settles into their role and responsibilities.
Organizational competitiveness
CEO compensation package is market-competitive
Strategies are in place to retain other high-potential internal candidates
Organizational culture supports smooth leadership transitions
Adequate technological and logistical support available for new CEO
CEO‒Organization dynamic
Roles and requirements of incumbent CEO clearly defined
Reporting structure and hierarchy around CEO documented
Decision-making protocols outlined
Support structure (key team members, mentors) for incumbent identified
CEO KPIs: metrics and monitoring
System for ongoing evaluation of incumbent CEO performance
Time-to-productivity metrics established for new CEO
Regular review and course correction protocols for incumbent performance
Implementing Your Risk Assessment Findings
You’ve mapped out, measured, and quantified the risks associated with your succession planning. The next step is translating these insights into actionable strategies.
Prioritizing and Actioning Risk Mitigation
- Categorize risks based on their potential impact on business continuity and strategy. Use the Risk Assessment Matrix scores to inform this prioritization.
- Assign board-level sponsors to major risk areas. This ensures high-level accountability and leverages individual board members’ expertise.
- Develop a multi-layered approach:
- Short-term: Address immediate vulnerabilities identified in the Diagnostic Checklist.
- Medium-term: Implement structural changes to improve KPI performance.
- Long-term: Align succession planning with evolving strategic objectives.
- Balance internal development with external talent acquisition:
- Use the Leadership Bench Strength Ratio KPI to inform decisions on internal vs. external focus.
- Consider engaging executive search firms for proactive talent mapping, even if not immediately hiring.
Implementation Timeline and Oversight
- Create a phased implementation plan aligned with your organization’s strategic planning cycle. This ensures succession planning is integrated with broader organizational strategy.
- Establish quarterly board reviews of the Succession Plan Vitality KPI and progress on risk mitigation efforts.
- Conduct annual deep-dives using the full suite of tools (Checklist, Matrix, and KPIs) to reassess and adjust the succession strategy.
- Set clear expectations for management’s role in executing the plan, with regular updates to the board.
- Develop tailored communication plans for key stakeholder groups.
- Investors: Focus on how succession planning supports long-term value creation.
- Employees: Emphasize opportunities for growth and organizational stability.
- Regulators: Demonstrate robust governance and risk management practices.
- Use the Stakeholder Confidence Score KPI to gauge the effectiveness of your communication strategy and adjust as needed.
For public companies, carefully manage disclosure requirements. Consider discussing your succession planning process in proxy statements to demonstrate good governance. Prepare response strategies for potential activist challenges related to succession planning.
Integrating with Broader Talent Strategy
1. Ensure succession planning extends beyond the CEO to include other key executive roles.
2. Use the Development Program ROI KPI to assess and improve your leadership development initiatives.
3. Consider implementing job rotations or special project assignments for high-potential candidates to address gaps identified in the Risk Assessment Matrix.
4. Regularly reassess the future leadership skills required in light of industry disruptions and technological changes.
Staying Compliant: Transparency in Succession Risk Assessment
An imperative prerequisite for an organization planning succession risk assessment is consulting with legal counsel to ensure that the assessment process balances thoroughness with legal and ethical considerations.
Regular reviews and updates of the assessment process are likewise crucial for maintaining compliance with evolving regulations.
The checklist below can act as a compliance screener to ensure that your risk evaluation process meets all regulatory and legal requirements.
Legal and Regulatory Compliance Checklist for Succession Risk Assessment
To verify that your organization’s CEO succession risk assessment process meets with legal approval and is ethically sound, ensure that it meets the criteria listed below:
Obtain explicit consent for collecting and processing personal information
Ensure secure storage and handling of sensitive data
Comply with data protection regulations like GDPR, CCPA, or relevant local laws
Adhere to equal employment opportunity laws (e.g., Title VII of the Civil Rights Act)
Avoid discriminatory practices based on protected characteristics like age, gender, race, or disability
Follow Fair Credit Reporting Act (FCRA) guidelines for background checks
Provide candidates with copies of reports and opportunity to dispute findings
Comply with SEC regulations for publicly traded companies and align with Sarbanes-Oxley Act requirements for executive accountability
Respect non-compete and non-disclosure agreements from previous employers
Ensure proper handling of intellectual property rights
Ensure proper disclosure of any potential conflicts of interest
Adhere to HIPAA regulations when handling health-related information
Limit health-related inquiries to job-relevant information
Be aware of state laws restricting social media screening in hiring processes
Avoid accessing private social media accounts without consent
Comply with local labor laws when assessing international candidates
Be aware of cross-border data transfer regulations
Next Steps: Keeping Risk Assessment Current
Just as succession planning should ideally be an ongoing and integral part of organizational SOP, succession risk assessment must be treated as an indispensable part of regular operations reviews.
Annual reviews of risk assessment procedures are a necessary minimum. A shorter review cycle of 4 to 6 months is recommended for large organizations subject to local, regional as well as international fluctuations in regulatory, financial and social pressures.
Elevate your succession planning strategy. Explore how Paradigm Personality can fortify your board’s risk assessment process. Contact us to discuss tailored solutions that safeguard your leadership continuity.
