Over the past four years, an average of 11.3% of Russell 3000 companies changed CEOs each year, according to the latest report on CEO turnover rates by The Conference Board. That works out to a chief executive departure each and every day.
Operating in this state of constant churn, you’d think organizations would be well-prepared to manage a change at the top — especially given that badly managed C-suite transitions at S&P 1500 companies wipe out nearly $900 billion in market capitalization a year.
Trouble is, they’re not.
It’s not that businesses don’t know what’s at stake. According to a survey conducted earlier this year, 9 out of 10 C-suite executives agree that succession planning is more important than ever. Two-thirds of the survey pool — composed of corporate America’s leaders, including CHROs — say that the most important factor in a seamless transition is having a comprehensive plan in place. What’s more, 9 out of 10 CEOs we polled also agree that succession planning is mostly their responsibility.
And yet 3 out of 5 respondents say their companies don’t have a documented plan for handling a leadership change. This should be a clear signal to CHROs: CEOs need their help in preparing for an eventual leadership change.
Company History vs Personal Legacy
Eighty-five percent of respondents say a company’s heritage can provide a playbook for new executives when challenges and opportunities arise. Indeed, a researched and documented corporate history can help the incoming exec (as well as everyone else in the C-suite) understand the organization’s culture and what binds its people. It also explains why the organization has evolved as it has.
And while the central purpose is to pass along institutional memory and intellectual capital, this document is as much about moving forward as looking back. “History,” as one survey respondent says, “is the mother of innovation for any type of company.”
Crucially, however, this can’t just be a documentation of an outgoing leader’s personal legacy, a disconnect we uncovered in our survey. While 57% of respondents say that their organizations don’t have documented succession plans, a much greater percentage of executives say that they have taken proactive steps to formally create and reinforce their personal legacies (64% have done so, while 33% are considering it).
Except, a CEO’s commitment to solidifying personal legacy is not itself going to get a business through a transition. A succession plan is vital — and companies shouldn’t let the former overshadow the latter.
Examples From Apple to USAA to Verizon
Asked which of five big-name CEO transitions was most successful, respondents’ cited Apple’s handoff from Steve Jobs to Tim Cook. That Apple comes out on top might seem to contradict the advice to play down the aggrandizement of an outgoing CEO and play up the more prosaic transfer of institutional memory to the next chief executive. Jobs, after all, was an egotistical iconoclast, who painstakingly managed his legacy until the end.
Yet even as he continued to take centerstage, Jobs also made sure behind the scenes to pass along Apple’s thinking and ethos to Cook over the 13 years both shared space on Apple’s executive floor.
Meanwhile, USAA and Verizon have also used history in their succession planning particularly well. Their approach to succession demonstrates how an organization can effectively satisfy the outgoing CEO’s desire to burnish his legacy while meeting its own need to capture and relay institutional memory to its new leader.
Let’s start with USAA, which is known for offering banking, insurance, and investment products and services to active-duty members and veterans of the U.S. Armed Forces and their families. The military has a strong influence on the company’s ethos, culture, and management style. Although the organization is nearly a century old, Wayne Peacock, who became CEO in early 2020 after more than 30 years with the company, is USAA’s first chief executive without a military background.
Like many military organizations, USAA also has established a playbook for how it captures and deploys institutional memory during a period of leadership transition. When the company begins to execute a succession plan, it conducts oral histories with its leaders and collects materials for USAA’s archives. It also produces a monograph that documents the significant milestones, insights, and other events from the most recent era of leadership. The approach balances recognition of the individual’s personal legacy with the long-term need to capture, preserve, and communicate USAA’s institutional memory.
Sure enough, when Peacock took the helm as the coronavirus pandemic began, he drew from the company’s response to previous crises, specifically 9/11 and the Great Recession, as the basis of his playbook for USAA’s COVID-19 response.
Then there’s Verizon. The company’s leadership has taken a similar tact, which is embodied in former CEO Ivan Seidenberg’s approach to writing a book on his experiences.
When Seidenberg began his research, he was struck that the books CEOs wrote disproportionately covered their own individual legacies versus their organizations’ institutional memories, explaining:
“Most of the books by CEOs that I have read are about the philosophy of the CEO, what they thought was right or wrong. That was less interesting to me than what they accomplished, what they left behind. It literally took dozens of people to create this institutional framework that is Verizon. I wanted to make sure that the word got out, that all of the people who had some part in this were recognized for their contribution.”
The book project Seidenberg led included interviews with nearly 50 colleagues and essays from noted management consultant Ram Charan. The result was a book that is far more focused on providing a historical record of the company’s first decade.
Verizon also leaned into institutional memory during its second CEO transition, from Lowell McAdam to Hans Vestberg. McAdam had always wanted to form a company museum. The notion also appealed to Vestberg, who had been CEO of Swedish company Ericsson, known for its formidable use of its history. With the future of the business in mind, the project evolved to encompass a company museum and archives program designed to be scaled on digital platforms. It will be updated and maintained over time to preserve and share with employees, customers, and other stakeholders the history that Verizon continues to make.
Ultimately, sooner or later, every executive in the C-suite will depart. For the sake of everyone they’ll leave behind — and yes, for their own legacies, too — they should begin prepping for that day now.