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The High Cost of Poor Succession Planning

Many large companies fail to pay enough attention to their leadership pipelines and succession practices. That leads to excessive turnover at the top and destroys a significant amount of value—close to $1 trillion a year among the S&P 1500 alone, say the authors of this article. The biggest costs are underperformance at companies that hire ill-suited external CEOs, the loss of intellectual capital in the C-suites of organizations that executives leave behind, and for companies promoting from within, the lower performance of ill-prepared successors. Companies and their boards can (and must) do better. The solution isn’t that complicated: Firms need to start succession planning well before they think they need to; make sure they identify and develop rising stars; appoint the most-promising executives to the board to help prepare them to take on the top job; and look at both internal and external candidates. In addition, when working with search consultants, firms should avoid perverse incentives like contingency and percentage fees.

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