For many years it was a widely held belief that CEOs lasted, on average, seven years. This point has been thoroughly debunked in recent years. Most CEOs are lucky to make it to five years in the role. And, as our annual Disruption Index shows, with more than 70% of CEOs worried they’ll lose their jobs, time at the top looks likely to shrink further.

This raises many interesting challenges for business leaders, boards, and investors - most notably that of succession and succession planning. Even in private equity, where the notion of succession historically has been much less of an issue, given the investment and return timeline, the topic is gathering momentum as hold times lengthen.

So, what’s the problem?

Peter Drucker summed it up well, as he did with so many things:

“Succession planning often results in the selection of a weaker representation of yourself.”

This is still pervasive, if not well acknowledged. CEOs, if left to anoint a successor, have been known to pick someone who will continue their legacy without exceeding it. And boards, when they step up and fulfill their rightful role and obligation, have selected charismatic candidates over the right candidate far too often.

The reality is that many organizations lack the rigorous assessment process as well as the criteria to pick effective leaders. Role descriptions are crafted and sent out into the world in the hope that a parade of suitable candidates will materialize. Executive recruiters burnish their credentials of “finding” past CEOs with not even a glance as to how they worked out. This rag-tag “short slate” is then scrutinized through a very imperfect process filled with uncoordinated interviews and biases galore on display: ‘I like him!’ Read: ‘he’s just like me!’ Subjective assessments abound and objective selection falls victim to poor process and political power posturing in the boardroom.

What’s needed is a much more thorough process, with objective selection criteria. Something more akin to a formal matchmaking process, than the ‘playing the field’ many businesses still take. This is something that we are asked to do more and more for clients, including private equity clients (and we are not recruitment specialists!)

So, what do we do?

We start by getting the stakeholders’ mindset to focus five years into the future. What is the business strategy? What is the value creation plan? Is it sound? What will the operating model be like? Next, we break down the future role using a Role Accountability Matrix (RAM). This is a specialized process and tool we have developed that keeps multiple predictive factors simultaneously considered by multiple stakeholders. This enables us and our client to define clearly what the CEO’s mission should be, the key outcomes that they’re expected to deliver, over a specified time period, through whom, and with which competencies.

This objectivity forces the organization to reflect deeply on its direction, culture, maturity, and capabilities. Taken to its ideal conclusion, it allows the business to find someone who is ‘best of need’ and, more significantly ‘best of need right now’.

Right time, right leader

When planning succession, businesses need to align with their strategy and the world in which their business works. This latter point is especially pertinent now. As AlixPartners’ Chief Executive Simon Freakley discussed with William Lewis and Matt Murray during a recent AlixTalks, many of today’s CEOs and leaders came into their role either pre-pandemic or as a consequence of the pandemic. Few have experience in leading businesses through fractured geopolitics and stubbornly persistent problems like inflation. As with Presidents and Prime Ministers, wartime and peacetime require very different skills.

It would be unrealistic for an organization to be able to ‘read the runes’ and predict the future - now more than ever. 78% of business leaders have told us they experienced severe disruption in 2022, reflecting the unpredictability of the world right now. So, what they need is to think long term and short term and, increasingly importantly, who’s going to be occupying their seat once they’ve left.