What Great Boards Know About CEO Succession

CEO succession is among the most critical responsibilities of a board, with tremendous stakes for a company’s future. A rocky transition can unsettle investors, destabilize strategy and erode value. In fact, analyses estimate poor succession planning erodes market value annually among S&P 1500 companies. High-profile succession failures have forced some boards to reinstate former CEOs to stabilize their companies.

By contrast, a well-executed CEO succession preserves strategic momentum and stakeholder confidence. For experienced directors, the mandate is clear: ensure CEO transitions are handled with a long-term strategic view, an intentional plan as well as process and an approach that empowers the full executive team to ensure alignment and drive results.

Succession as Strategy Execution
Effective CEO succession is not just a hiring decision; it’s a forward-looking strategic move. Boards must anticipate the leadership qualities needed to navigate the company through its next era. As business environments evolve, the skill set that succeeded in the last decade may not fit the next. Savvy boards begin by defining the future strategic context and the type of leader who can execute the company’s vision three, five or 10 years ahead.

This future-focused mindset helped guide Merck’s leadership change in 2021, for example. When longtime CEO Ken Frazier stepped down in 2021, the board appointed Rob Davis, the company’s CFO and a trusted internal leader with a strong understanding of both the business and its strategic pipeline. The succession was announced nearly a year in advance, giving stakeholders confidence in continuity. With their selection, Merck’s board signaled not just stability, but strategic consistency, emphasizing global expansion and R&D leadership. The market responded positively and Merck continued to perform at a high level, demonstrating how succession planning and strategy execution work together.

Where Discipline Meets Foresight
The best boards approach CEO succession as a proactive process rather than a one-time event. This doesn’t mean an active search is underway years in advance, but rather that the board — often with the incumbent CEO — establishes a succession planning framework early. That framework includes identifying high-potential leaders, providing them with growth opportunities and regularly reassessing the company’s future leadership needs.

Morgan Stanley’s 2023 transition from longtime CEO James Gorman to Ted Pick is a definitive example of strategic, board-led planning. Gorman announced he would step down years prior to doing so, giving the board time to observe and evaluate a group of seasoned internal candidates. Rather than rush the process, the board intentionally elevated all three executives into broader roles in advance, allowing them to prove their capabilities in real-time — a case of succession “tryouts.” After a thorough evaluation, Pick emerged as the strongest choice to lead the firm into its next chapter, with a focus on global expansion and institutional growth. The board, while the ultimate decision-maker, emphasized the process had been highly collaborative with Gorman.

This succession was not only a strong leadership move, but also a signal of cultural and strategic continuity. It also allowed the other two senior executives to remain in high-impact roles, ensuring the broader leadership team remained intact and committed. As Gorman noted, “Succession is not a zero-sum game. It’s about creating the best possible team.”

Effective CEO succession starts with a forward-looking view of the leadership needed for the company’s next phase. Boards invest early in internal talent while calibrating the external market. Success for the board hinges on a transition that is clear and intentional. It instills confidence across stakeholders.

CEO Succession Is a Team Sport
Once a new CEO is in place, the board’s work isn’t complete. The leadership transition must extend beyond the top job to ensure the broader executive team is empowered to execute under its new leadership. Strategic directors aim to assess the post-succession dynamics of the top team to reflect the new CEO’s operating style and strategic priorities. However, the board’s role is not to manage the team, but to ensure conditions exist for the CEO’s team to lead well. Without this post-succession calibration, even a well-chosen CEO can struggle to gain traction.

Boards can ask:

• Are key stakeholders (employees, investors, partners and more) seeing clarity and unity at the top?
• Does the leadership team reflect the skills and focus areas needed for the future?
• Is the new CEO empowered to shape their team while preserving institutional strengths?

What the Best Boards Remember
Successful CEO succession is a standing strategic priority that blends foresight, discipline and judgment. The best boards partner with the sitting CEO to develop future leaders while retaining clear oversight of the final decision. As governance advisor Ram Charan has emphasized, a CEO’s legacy is defined not only by their performance, but by the strength of the enterprise they leave behind — and the readiness of the leader who follows.

In this time of rapid change, succession is one of the board’s most powerful tools for resilience. When handled well, it ensures strategic continuity, preserves stakeholder confidence and equips the next leader to grow from their first day. It’s not just a change in who leads, but how the board sets the course for what’s next.