Recent research indicates that 40 percent of companies lack a defined succession plan. The study, titled Succession and Good Governance: Keys to successfully implementing Succession Plans that support the sustainability and competitiveness of our companies, examines leadership continuity and governance practices. It is grounded in the work of Parangon Partners and IESE Business School, and reflects insights from a team led by senior partners and professors in the field of business administration.
The survey drew responses from more than 3,320 CEOs, managers, and executives across the country, shedding light on the preparedness gap in Spain’s business landscape. It shows that four in ten organizations have not established a formal plan to ensure smooth transitions and ongoing leadership effectiveness at the highest levels.
Additionally, the report notes a notable lack of due diligence in nearly half of the participating companies. The researchers explain that without periodic reviews of any action plan, organizations remain exposed to vulnerabilities during unexpected changes in leadership.
Over the past decade, the study reveals a significant turnover in chief executive roles, with more than half of firms changing their CEO within the last three years. This underscores the essential need to prepare for succession in key management positions and to embed continuity into strategic leadership decisions.
Experts emphasize that succession processes for senior roles must be clearly defined and consider contingency, immediate, and intermediate successors. When selecting leaders, it is important to weigh both performance and cultural alignment. The emphasis is on long term vision and team-building capabilities, as leadership success is often anchored in results and the ability to shape organizational culture.
The study also points out that the objectives of CEO succession can vary, with strategic renewal ranking among the most important. A new CEO is expected to infuse fresh perspectives and adopt new approaches to respond to evolving challenges and opportunities in a dynamic market.
Keys to successfully handling a robust backup plan
- Detailed transition planning: Define the duration and scope of the transition, identify key milestones, and determine how responsibilities and knowledge will be transferred.
- Focus on company needs: The board should clearly understand what the organization requires before discussing candidates and focus on what is needed rather than who will fill the position.
- Determination of requirements and competencies: Establish the essential requirements and competencies for the CEO role and other pivotal positions.
- Other key positions in the succession plan: An effective plan addresses not only CEO succession but also other critical roles such as general managers, division or business unit leaders, regional managers, and key specialty positions.
- Unexpected situations during the transition: The handover process may face internal resistance from employees or management loyal to the outgoing leader, creating uncertainty about new leadership.
- Succession plan review frequency: It is advisable to review the plan at least annually or whenever significant organizational changes occur. The survey notes that a substantial portion of firms do not plan to review regularly.
- Responsibility for leading the succession plan: This responsibility typically rests with the board of directors, often through the nomination and compensation committee or a dedicated leadership and talent committee.
- Internal candidates and performance impact: Research suggests that promoting internal candidates can have a less negative effect on performance and stock price compared with external hires, underscoring the value of individualized development plans for internal talent.