I've worked with several dozen clients through the process of a CEO transition: The outgoing CEO who will serve as the Board's executive chair. The outgoing CEO who's ready to sit on a beach for a while. The incoming CEO who's succeeding a capable predecessor. The incoming CEO who's succeeding a dismal failure. The former CEO who sold the company and will be an executive with the acquirer. The former CEO who's taking another executive role under their successor. The investor and the C-level leader who aren't changing roles but have ringside seats and will be heavily impacted.
There's no one right way to orchestrate and execute this transition--every situation is unique, and there are a host of factors that merit consideration. But I've observed a sequence of stages that CEOs and companies tend to follow--see below. To be clear, there's nothing prescriptive about this framework--it's not a required order of operations, and it's not uncommon for a CEO and their colleagues to work through these stages in a different order.
Whatever path they followed, most of my clients who've navigated this transition were doing so for the first time, investors aside, and they've found it useful when I was able to normalize their experience by drawing upon my work with others in similar circumstances. While I've also worked with CEOs who've been removed from the business by their Boards (and with investors who've had to remove CEOs), that's a very different situation. In this post I'll focus on the CEO who's opting to leave, albeit often with mixed feelings.
1. The Dream
The starting point in this process is just an idea, a dream. The poorly-kept secret about CEO positions is that they can be profoundly stressful and lonely, and the compensation, power, status and other benefits may not outweigh the downsides indefinitely. [1] The calculus may start to shift after a period of time, and the CEO begins to imagine a life without the pressure, the problems, the visibility, the lack of empathy. [2] Even when everything's fine a CEO may begin to dream about something different: a big new idea, or an alternative industry, or an earlier stage of growth.
Sometimes this is just a fleeting fantasy, and merely thinking about leaving offers some respite. But in other cases that idea takes hold and becomes a goal--and yet while CEO positions are very difficult to obtain and hold, it turns out that they're also very difficult to leave. Even when a company has achieved a degree of sustained success, there's rarely a moment when it's obvious that the CEO should transition out. Sometimes a company's success leads to even greater anxiety about a CEO's potential departure--no one wants to take the risk that the business might stumble. And when a company is struggling, the CEO is undoubtedly reluctant to leave on a low note.
In all cases, the CEO is keenly aware of the commitments they've made to various stakeholders--employees, customers, investors--and that there's no way to leave without someone feeling disappointed, hurt, even angry. So it's common for this initial stage of the process to take a long time--but one way a transition can go wrong is when a CEO continues to defer acting upon this dream, waiting for that magical moment when the stars align and everyone will cheer them on as they depart.
This isn't impossible, but it's unlikely. And a risk that can increase over time is that the CEO's disenchantment builds to unbearable levels, leading them to conclude that they must leave and soon, which can result in any number of sub-optimal choices. [3] It's rarely a good idea to rush a CEO transition, which may entail not waiting too long to take the dream seriously.
2. The Inner Circle
Having done so, the dilemma CEOs face is that it's difficult to even raise the possibility of a transition with most stakeholders. Anyone with a stake in the company's success may value that stake over the CEO's well-being--and in the case of Board members and investors, this can be a professional obligation. This isn't to say that no one cares at all, but even stakeholders who truly want the best for the CEO as a person will likely be conflicted in some way.
And yet CEO transitions are group undertakings, not solo efforts, so inevitably the CEO must identify an inner circle and bring them into their confidence. It's easy to start with people who don't have a stake in the business and may even be bound by confidentiality agreements--family and friends, a mentor or coach. These figures can offer empathetic support and useful guidance, but eventually the CEO must involve people who can take action and whose approval may be needed to move forward.
There's no definitive guide to who should be included in this inner circle, but it's worth asking: How will the parties under consideration balance their competing interests? Can they be relied upon not only to be discreet, but also to provide objective advice? How will they feel about this news? How will they feel if they find out second-hand, or later in the process? In a word, are they trustworthy? [4] Yet trust develops slowly, and just as the best time to plant a tree is 20 years ago, the best time to begin testing for trustworthiness in a professional relationship is at the very start. [5]
The greater the trust, the more candid the CEO can be--but even within the inner circle it's necessary to bear in mind that news like this is the proverbial bell that can't be unrung. Once a CEO has indicated that they're open to a transition, this information will begin to have an effect on everyone else's plans and ambitions. It's a mistake to entrust this news too early or with the wrong people, but it's also a mistake to keep it too close for too long. When key stakeholders feel that they've been informed too late in the process, they may take it as an insult--and it may be a missed opportunity to enlist their support.
3. The Horse Race
Having mobilized an inner circle who can offer various forms of assistance, the CEO now needs to identify a slate of potential successors. In sufficiently large organizations with deep leadership benches, these candidates already occupy roles within the company as C-level officers, functional leaders or division heads, but even smaller, early-stage companies may have one or two viable internal candidates. With a sufficiently long timeline, the CEO may have filled some of these roles with this very possibility in mind. But you can't stockpile talent indefinitely--the challenge in building a deep bench is that the best internal candidates won't wait forever, and if they're kept waiting too long they'll grow restless and either leave or push for a transition before the CEO is ready. [6]
In many organizations the existing leadership team doesn't contain a candidate who would be an acceptable choice to all stakeholders with a say in the decision, which requires turning to outside talent. And in some cases stakeholders feel obligated to conduct an external search no matter who's on the bench in order to meet a standard of diligence. It's important to be aware at the outset that a CEO search will be more complex and fraught than those for other C-level roles.
The need for confidentiality is greater. The pool of candidates is smaller. The decision will be harder and more expensive to undo, so the stakes are higher. And while it's always the case that the best candidates for any role will be more selective, this is exacerbated in a CEO search because of the visibility of the position--a successful former CEO will be very reluctant to take on a new role if there's any chance that it might tarnish their record.
In any event, the right inner circle can play a helpful role at this stage of the process. Presumably they have the ability to assess senior executive talent, putting them in a good position to vet both any internal candidates and those identified by a search firm. They may also have personal networks from which additional candidates can be drawn. In the best case scenario, their discretion, judgment and integrity enable them to advise the CEO in a way that meets the leader's personal needs as well as what's best for the company.
But the process can go awry in various ways at this stage. Companies can take the idea of a "horse race" literally, pitting candidates against each other in a destructive competition. The process by which General Electric identified Jeff Immelt as Jack Welch's successor is a prime example. [7] Given the difficulty of this search, it's not uncommon for even the best firms to require more time than the CEO would like, and many of the external candidates will be C-level executives who've never been a CEO. (Some data suggests that more than 70 percent of CEOs are first-timers. [8])
All this may require decision-makers to take a leap of faith in a candidate's potential, knowing that a misfire will be costly and high-profile. And the inner circle doesn't always live up to the ideal--they often face intense pressures of their own, and it can be difficult to balance such strong competing interests.
4. The Covert Candidate
Ultimately the CEO and other decision-makers among the inner circle must settle on a leading candidate. A key for the CEO here is managing expectations, including their own. By this point in the process the CEO may be eager to move forward, and other stakeholders can have their own reasons for wanting to press toward a decision. But it can be a mistake to allow any particular preference to exert undue influence here, so it's advisable to proceed judiciously.
One way to slow the process down is to identify a leading candidate without telling them. This enables the CEO and other stakeholders to assess the candidate's suitability without making any commitments and maintaining maximum flexibility. The downside is that the covert candidate may pursue other plans for their career if they don't realize that they're in the running for the role, or become frustrated if they feel they merit consideration and are unaware of the ongoing process.
It's not uncommon for this step to occur sooner, particularly if a CEO has high confidence in a given candidate's viability as their successor or low confidence in the value of their inner circle as thought partners or sources of prospective candidates. A CEO may fill a C-level role with the express purpose of testing that person as a potential successor, well before they share that news with the candidate (or anyone else.)
5. The Overt Candidate
Despite the value of flexibility, at some point it becomes necessary to communicate to a candidate that they're in the running to be the CEO. If the candidate is being sourced externally, this is likely to be accompanied by a formal offer, or at least the beginning of a negotiation. But if the leading candidate is an internal executive, an offer may not yet be forthcoming. As noted above, it will be very difficult to undo a mistake, and it's likely that the candidate hasn't been a CEO before.
So the CEO and other decision-makers may want to assess the candidate's performance with the added weight of a succession plan on their shoulders before offering terms. In cases where the incumbent CEO exercises outright or effective control, they may skip directly to this stage, privately designating an internal executive as their successor, or bringing on a new C-level leader for this express purpose.
However they arrive here, at this stage the candidate will be put through their paces in any number of contexts--life will be an ongoing, slow-motion job interview. They'll be assessed on their ability to deliver results in their function, develop strong working relationships with various stakeholders, improve the dynamic on the executive team, and be an effective CEO proxy in public and private settings.
And yet informing the executive that they're a (or the) leading candidate, without making any binding commitments can leave them in a state of limbo. They may be sufficiently motivated by the prospect of becoming CEO to tolerate the ambiguity, in some cases for an extended period of time, but it's still difficult and stressful, and the uncertainty may eventually undermine their commitment to the role.
6. The Close
Whether an offer is delivered up front or an overt candidate finally passes the test (or signals that they're losing patience), eventually the process reaches a point where terms must be finalized to close the candidate. Note that this is neither the beginning nor the end of the negotiation--it's merely a particularly acute and explicit phase. In actuality both sides have been negotiating for some time--although not necessarily with the same degree of awareness and deliberation--and in some cases negotiations may continue well after one side (mistakenly) believes they've been concluded.
By this point a number of the key terms may have been initially addressed or even resolved--this is where a sophisticated go-between such as a trusted member of the inner circle or an experienced recruiter can play a helpful role. But even when preliminary dialogue has reduced the information asymmetry, one or both parties can still find themselves surprised by the contents of the offer (or the counter-offer.)
When this happens one party has usually misunderstood the other party's negotiating culture, a topic I've addressed before: "In a list-price culture, there's a high degree of transparency and very little flexibility. An opening offer may not be take-it-or-leave it, but there's relatively little gamesmanship in the process... In a haggling culture, the opposite is true. There's very little transparency and a great deal of flexibility. Opening offers are never take-it-or-leave-it, and gamesmanship abounds." [9]
There's no one right way to negotiate, and each approach has its pros and cons, but problems occur when the parties have different negotiating cultures and fail to realize it. Usually this becomes evident at earlier stages of the process, but sometimes this is a sudden (and surprising) discovery late in the game. At that point it's essential to attend closely to any potential ambiguities and misinterpretations, another topic I've discussed previously:
When an offer falls apart unexpectedly, the party caught by surprise was presumably under the impression that the issues under discussion were appropriate at this stage, that their stated positions were reasonable, and that progress was being made--but the other party had a very different interpretation of the situation. [10]
7. The Narrative
Once the candidate has been closed, it's time to spread the word about the impending transition and the incoming CEO, which is by no means a simple PR task. The key here is having all parties agree upon and effectively communicate the narrative that will explain what's happening and why to all interested parties. Crafting and conveying a compelling explanatory narrative is a critical skill in organizational life that's a common theme in my practice:
We depend upon narratives to navigate the world... Organizational psychologist Karl Weick called this "sensemaking": we rely upon narratives to "make sense" of ambiguous situations and pursue a plan of action in coordination with others. But our reliance on narratives means that in the absence of a coherent story we will feel lost and ungrounded. This poses a risk when we face rapid change that may overtake our existing narrative and render it out of date, as Weick noted: "People...act as if events cohere in time and space and that change unfolds in an orderly manner. These everyday cosmologies are subject to disruption." [11]
In some situations the narrative is evident and clear: A longtime CEO who's had a successful run is retiring and handing the reins to a trusted lieutenant who's an obvious successor known by all stakeholders and intimately familiar with the business. But it's rare that all the elements line up so neatly--it's much more common that a CEO transition raises some questions in the minds of stakeholders: Is the business struggling? Was the outgoing CEO struggling? What do they know that we don't? Why are they leaving us? Who is this new person we're supposed to accept as our leader? And what will our lives be like under their leadership?
Such questions come up with other executive transitions, but they're more fraught in the case of a CEO's departure because of the symbolic nature of the role--they embody the organization. [12] CEOs don't just make decisions and allocate resources--they offer reassurance at a primal level that the uncertainty surrounding the business can be rendered predictable. [13] So when a CEO departs, the disruption leads stakeholders to wonder whether events will continue to "cohere in time and space" and if change will "unfold in an orderly manner."
Thus the importance of a narrative that answers stakeholders' questions and enables them to make sense of the transition. Note that I'm not suggesting that anything in the narrative should be untrue or misleading. The narrative must be factually accurate, but it will inevitably focus on certain reasons for the transition at the expense of others. This is a function of the fact that public discourse has a limited capacity for nuance and complexity. The narrative must be true, and it's unlikely that it will be able to accommodate the whole truth. As noted above, CEO roles can be stressful and lonely, and that's often a factor in a given CEO's decision to leave--but few stakeholders will empathize with this reality, so it's rarely incorporated into the narrative.
One specific tactical challenge is informing anyone who will be directly affected but was not part of the inner circle or a participant in the hiring process. When this news is delivered effectively, these people understand why they weren't involved and appreciate getting a personal heads-up in advance of any broader announcements. The purpose isn't just to assuage their egos, but to minimize any rancor toward the outgoing CEO and to ensure that the incoming CEO is set up for success in these working relationships.
8. The Handoff
We're finally ready for the baton to be passed from the outgoing CEO to their successor. And yet there's no guarantee of a clean handoff, and there are many ways in which it can be bobbled or botched. In the best-case scenario there's a shared understanding among all stakeholders of the timeline, various parties' roles and responsibilities, and what will change--and what will not--under the incoming CEO. But sometimes these details are overlooked as the handoff approaches, or one or more parties will mistakenly (or conveniently) assume that a shared understanding has been achieved.
There's no one optimal timeline, and a host of factors can affect the pace of the transition following any public announcements. But in my experience most transitions take too long, for several predictable reasons. Organizations tend to solve for optionality, which results in a longer period of overlap between the incoming and outgoing CEOs. The short-term risk of a transition that's too abrupt is more vivid and salient than the long-term risk of a transition that's too drawn-out. And even when an incumbent CEO is ready to move on, they've likely felt a degree of ambivalence throughout the process, and those emotions may intensify as the handoff approaches.
It's also common for different parties to have divergent or even incompatible perspectives on their roles and responsibilities, and a critical figure here is the outgoing CEO. They often retain a Board seat, and although it's increasingly rare for them to become executive chair in large companies [14], it's not unusual at smaller scales. But in those cases it's essential for the outgoing CEO, their successor, and all other Board members to clarify and agree upon the executive chair's duties. I've seen cases where a newly installed executive chair feels under-utilized by their CEO successor--and others where a new CEO feels intruded upon by their predecessor.
And even when the incoming CEO is a longstanding internal leader and the transition promises to be smooth and seamless, it's almost always the case that the newcomer will want to make some changes and put their own stamp on the role. The outgoing CEO may fully expect this and even approve in principle--but when they see their preferred management practices altered or abandoned, they may well offer some resistance. Outgoing CEOs usually want their successors to succeed, but they typically feel some chagrin at being succeeded.
9. The Hard Part
The handoff has been made, and the transition is complete. It's taken a lot of time and effort to get here--and yet this is where the real work begins, and for many leaders it can be confusing and disheartening to realize how much remains to be done. A useful analogy is moving house--given how much work it takes to find and secure a new home, and then pack up and transport our possessions, we imagine that the process will be over when the moving truck drives away. But then we look around at the stacks of cardboard boxes, and we realize that we have no idea where to find the silverware, and it dawns on us that we're still very much in the midst of our labors.
In some ways the outgoing CEO has it easy--at the very least, they're usually relieved to be free from operational responsibilities. It may even feel like "school's out" and "summer vacation" has begun, and they're delighted to see a long stretch of empty dates on their calendar. But this feeling rarely lasts as long as they think it will, and it's not unusual for former CEOs to soon find themselves at loose ends. They don't miss the stress and pressure, but they're surprised to discover the extent to which leadership has become a part of their identity, and they do miss the opportunity to be of service in this capacity. As I counsel former CEOs in my practice, it's essential to prepare for this moment [15] and avoid rushing into another leadership role prematurely. [16]
The challenges facing the incoming CEO will vary widely depending on the circumstances, but I've never seen a situation where everything goes as planned, so it pays to expect the unexpected. Turning around an underperforming business is hard--but it's also hard to take over a smoothly running machine and feel the pressure of ensuring continued success. An incoming CEO who's new to the organization must integrate with the surrounding culture to gain credibility and traction [17], while a CEO who's been promoted from within can be surprised by the change in how they're perceived, even by longtime colleagues.
Stakeholders who were involved in hiring the new CEO or endorsed their candidacy generally have a set of assumptions and expectations that formed the basis for their support. But even when such ideas are well-founded, leaders are reliably more complex than our reductive images of them, and it's always possible that a stakeholder's perception was based in part on wishful thinking. Stakeholders can feel let down, or even betrayed, when any gaps appear between their hopes for the incoming CEO and the reality. In some cases stakeholders need to ask whether their assumptions and expectations were accurate to begin with, but in others these gaps can serve as the basis for more candid conversation about the new CEO's leadership and their plans for the business.
While I've highlighted the many potential pitfalls in this process, my intent isn't to dissuade CEOs or their colleagues from pursuing a transition. Leaders and organizations may fear and resist change, in part because they believe that an individual CEO is "irreplaceable." I've seen leaders have a profound impact on company performance, and I believe that great leadership can make a difference. [18] But as I wrote recently, "I launched my coaching practice in 2006, and I've never seen a company fail because of the departure of any one individual. I've concluded that organizations are often far more resilient than leaders think they are." [19]
Footnotes
[1] Watch That Next Step (CEO Problems)
[2] The Difficulty of Empathizing Up
[3] Extending Your Personal Runway
[6] Talking About Promotions (with Very Ambitious People)
[7] GE Powered the American Century—Then It Burned Out (Thomas Gryta and Ted Mann, The Wall Street Journal, 2018)
[8] Why Today's CEOs Aren't Prepared for the Job (Joel Trammell, Texas CEO Magazine, 2023)
[9] Culture, Compensation and Negotiation
[11] The Importance of Shared Narrative
[12] Leader as Avatar
[13] Leadership and Transference
[14] 2022 S&P 500 CEO Transitions (Spencer Stuart, 2023)
[15] You Quit. You're Free. Now What?
[16] Don't Take That Job
[17] Conform to the Culture Just Enough
[18] What Do Great Leaders Do?
[19] Fear of the Empty Chair, Part 3 (On Attrition)
