If your CEO walked out tomorrow, would your board know exactly what to do in the first 72 hours?

Most don’t. In fact, 66% of executive successions within small and medium-sized businesses (SMBs) end up failing. And this is speeding up.

Over the last two years, the number of CEO exits in the US has spiked to its highest point in over two decades. Estimates indicate that roughly 1 in 9 CEOs are moving on right now.

Why it’s spiking is a matter of speculation.
Much of it is demographics—elder Baby Boomers finally handing over the reins. Some of it is burnout; executives wearied by shepherding their companies out of COVID and now, facing a new administration, feel personally done managing sudden changes.

There is an old saying, “Don’t change a horse in midstream.”
But when it comes to executive succession, an organization is always midstream. And sometimes the horse changes you.

The consequence of poor succession is not speculation.

Unfortunately, most organizations are not prepared. This is particularly true for those responsible for governance. I’m using the term “board,” but you can insert whichever group is responsible for governance: “partners, family offices, holding companies, etc.”

As I referred to above, most research suggests that 66% of SMB executive successions will end up being considered a failure. (Failure is broadly defined as the decision-makers regretting their choice or the appointee exiting within 18 months.)

That’s the bad news.
The good news is that we know why successions tend to fail.

Consider this contrast: Fortune 200 companies have a reported 33% failure rate when it comes to executive succession. That still seems high. But it is dramatically lower than the failure rate in SMBs.

What do they have that SMBs usually don’t?

Governance guardrails.

Publicly owned companies have regulatory requirements that force them to prepare for succession. They aren’t allowed to be passive on this topic.

That’s the two primary differences:1) The board owns the process. 2) They prepare.

The Board’s Mandate: It’s More Than Just “Hiring”

If you are sitting on a board, succession is one of your primary fiduciary responsibilities. Too often, boards view their role as simply “approving the successor.” That is an abdication of governance. It reduces what a core strategic decision is to a simple “staffing” decision.

To lower the failure rate, the Board must shift its mindset from approval to ownership. The Board:

1. Owns the Process, and Results, Not Just the Decision: Succession is a strategic governance question. It belongs in your hands, not the outgoing CEO’s. Owning the process means developing the capability to run it well. If your board has never led a CEO succession before, that is a risk factor. Preparation mitigates this. Download the Succession360™ Toolkit
2. Defines the Future Profile: Most boards hire a replacement for the past. Your job is to ensure the successor is chosen to lead the company’s future strategy.
3. Validates the “Safe” Choice: SMB boards often default to a “known entity” insider because they feel uncomfortable with looking outside and working with a recruiter. As a result, they often conflate someone who feels ‘safe’ with someone who is qualified. Benchmarking can help –objectively define benchmarks for the future profile to determine which candidate is the best choice, not just the easiest one.

4. Insist on Ongoing “Emergency” Readiness: A name is not a plan. The Board must ensure the organization has a practical continuity plan, including the readiness to deploy an Interim CEO, so a sudden departure doesn’t become a crisis. Download the Succession360™ Emergency Succession Plan which is part of the Toolkit.
5. Control the Timeline: You can’t always know when someone will exit (the Emergency Executive Plan covers that.) But boards can do two things: 1) Ask their executive how satisfied they are and how long they intend to stay. 2) Look for obvious clues that someone may be thinking about a transition – like nearing retirement age, major health issues, or family moving away. Waiting until the CEO formally gives notice is unnecessary additional stress on the system. The Board should attempt to officially begin planning for executive succession 1–2 years before an expected move.
6. Partners With the Outgoing CEO: While the outgoing CEO shouldn’t be allowed to choose a successor, they usually should be consulted about four things: 1) What skills the future role requires that is different than theirs, 2) unvarnished assessment of their current internal leadership bench, 3) operational continuity in the event of an emergency succession 4) how to structure their exit to honor their legacy without smothering the successor.
7. Support the Transition: The Board’s job doesn’t end with naming a successor. You must ensure that the outgoing CEO has completed or stabilized any organizational instabilities and provided sufficient onboarding and coaching to the incoming successor. Additionally, the chair of the board should plan on being available for closer than normal support for 9–18 months following the succession.

The Bottom Line:
When the board treats succession as a delegatable staffing question, the organization pays the price. When the board treats it as its responsibility and as a strategic discipline, the organization thrives.

Most boards agree with these principles but lack the tools to implement them. If you need a framework to get started, you can download my free Succession360™ToolKit here. It includes the templates and guides you need to plan for emergencies and plan an effective succession.

Take good care,

Christian