Chapter 2: Forgetting to create sufficient optionality when determining the talent universe

Trap 1: Having a skewed perception of internal candidates

Boards are often at risk of developing skewed perceptions of internal candidates, either due to gatekeeping from the incumbent CEO or CHRO, or as a result of pigeon-holed interactions.

Gatekeeping can be both to the candidates’ benefit or their detriment. In one instance, the incumbent CEO or CHRO could be enthusiastic about the process, consciously creating opportunities for internal candidates to grow, but unintentionally presenting them to the board with a positive bias. When the board meets these chosen successors, it becomes obvious that, in reality, they are not yet equipped for the role. On the flip side, the incumbent CEO might stay in their seat longer to actualize their organizational vision, by extension, derailing internal development conversations.

Internal candidates are also more likely to be pigeonholed in their day-to-day responsibilities, such as routine updates on a function or business line, which makes it difficult to properly present their enterprise vision for the organization to the board. The board then develops a narrow view of the individual as a functional leader, which can cause them to undervalue these candidates’ full capabilities and potential, and struggle to see them as CEO material.

On the other hand, because internal candidates are more knowable quantities, hold institutional knowledge, and may also have internal power brokers advocating for them, boards can also incorrectly overvalue internal candidates.

Trap 2: Making assumptions about the external talent landscape

Having a data-driven understanding of how to measure success can help boards better calibrate their view of internal talent. Our Global Leadership Monitor survey found that 47% of board directors and CHROs who have been involved in a CEO transition in the past three years did not engage in external benchmarking.

In a world experiencing uncertainty and high fluctuation, boards that do not cast a wide net risk selecting only from their known networks, and may miss out on candidates who bring diversified perspectives or thought leadership in nuanced fields (such as disruptive technology, political risk, or the climate challenge).

Boards that only run internal succession processes are at risk of not only limiting their options, but also doing their internal talent a disservice. When internal candidates are developed in a vacuum—not measured against current talent trends, cross-industry dynamics, or functional peers—organizations may fail to identify and craft the interventions needed to best develop their internal succession options.

Trap 3: Overvaluing the job proposition

Talent markets are not unidirectional; they are matching markets, which means that both the organization and potential candidates are simultaneously offering and acquiring something of value. While it’s critical that boards create a very clear definition of what they want to acquire (e.g., certain skills, experience), this should be calibrated to the reality of how the corresponding offer will be perceived by candidates, both internally and externally.

Organizations may have an established and capable pipeline of internal candidates, some of whom are uninterested in becoming CEOs due to personal reasons or different career aspirations. To avoid this, boards should also consider internal candidates’ personal priorities and motivations as they build out the internal pipeline.

More likely, boards will experience this value imbalance in the external marketplace. Part of the endowment effect speaks to the psychological dynamics in which people tend to overvalue items that they are already associated with or in possession of, compared to items that they have no ties to. When this occurs, boards may fail to critically appraise organizational reputation, strategic direction, or senior leadership team culture and values, leading them to expect a higher volume or a higher caliber of interested external candidates.

Methodology

Data sourced from Russell Reynolds Associates’ H1 2023 Global Leadership Monitor, which surveyed 500 CEOs, board directors, and CHROs on the state of CEO succession and stakeholder perspectives, and interviews with 14 of our Board and CEO Advisory Partners consultants.