CEO Succession: How Many Leaders Does a Company Need?

By Kerry J. Sulkowicz
Featured on BNET Insight | BNET Blog

How many CEOs does a company really need? The answer, obviously, is one, but with corporate boards increasingly focused on succession planning, it’s worth considering how realistic it is to have more than one CEO-in-waiting. Do those who are truly “CEO material” really want to stick around until their day comes? Have we gone overboard with succession planning? Boards take succession very seriously. Along with ensuring that a business remains profitable, the hiring and firing of a CEO is arguably their most important job. Prompted in part by Sarbanes-Oxley and the wave of corporate governance scandals that preceded it, boards are insisting that their CEOs develop or hire at least one, if not more, CEO succession candidates, even when they have a capable CEO who is several years from retirement.

The most frequently cited reason I’ve heard for this, in numerous conversations with directors, is some version of the “hit by a bus” scenario: the need to have a senior executive in place who can take over in the unlikely, tragic event of the CEO’s death. Boards are more reticent about acknowledging a second, far more common event: a CEO’s failure. Why? Because the board that has to make the hard decision to fire a CEO is usually the same board that picked him or her in the first place. Admitting this possibility involves acknowledging responsibility for a mistake in people judgment.

It’s hard to argue with the need to protect a company from being leaderless, as well as with the desire to nurture future leaders. On the plus side, the devils you know are often better than the ones you don’t, so it can be a lot safer to promote an insider to the top job than to gamble on a relative unknown. Having one clear heir apparent can be demotivating to a few others who see themselves in the role, but can be equally reassuring about the continuity and stability of the company.

Let’s take a look at the downside to preparing several of them at the same time. Having more than one candidate often sets up a horse race between them. No matter how mature they are and how much the CEO tells them that distracting competitive tensions won’t be tolerated, it’s unavoidable. On a deeper level, some of the best CEOs I know are truly entrepreneurial (a terribly overused word these days, like “leadership” itself), and they are much more likely to climb a different ladder, from top job to top job, rather than putting in the long years of working their way up in one company.

The CEOs I know who were elevated from within often joined the company at a high level to begin with, jumping up a notch within an industry, or stuck it out at one place primarily because they knew that, barring some stupid mistake, they would eventually inherit the corner office. They’re not being arrogant; it’s a combination of healthy self-regard and organizational clarity. Contrary to some prevailing wisdom about leadership, companies don’t need many leaders. They really just need one, with maybe one to spare.