3 succession scenarios every CEO should plan for

Succession planning has always been important, but not critical. Now, in 2024, it has evolved from “should do” to “must-do” and “cannot wait.”

Many external factors make it increasingly pertinent for organizations and leaders to identify their next-in-line. First, we are entering an unprecedented era of retirements, with 4.1 million Americans poised to leave the workforce annually until 2027.

Second, there’s a growth cycle on the horizon and subsequently, we can expect an uptick in workforce velocity. When the job market picks back up, workers of all levels will have options for better opportunities in greater quantities — C-Suite included.

And third, on the other side of the upcoming growth cycle, economists predict the emergence of a multi-year economic downturn starting in 2030. Ahead of this projected slump, many CEOs are considering their five-year strategy, which may include a merger, acquisition, or exit.

With a potential increase in CEO movement, organizations must have a continuity plan in place to ensure the company will continue to perform through change. In today’s always-on world, companies cannot afford to fall behind or lose traction due to a leadership departure. As the collective responsibility of both the current CEO and board, strong succession plans encompass the following three scenarios:

1. Operational

Operational focuses on having a plan in place to maintain business continuity rather than reacting in the moment when unexpected leadership changes occur. This essential part of your strategic plan ensures there are no interruptions to business, protecting your customers, employees, and profits. And it applies to organizations of every size because, at any point in time, anyone could resign or have unexpected health reasons that require them to step away.

2. Aspirational

This scenario requires leaders to have a strategic vision for the company’s next three to five years and assess whether they have the right team in place to help get there. Building the leadership team of the future means identifying gaps and hiring for those skills or developing those skills within your existing team. According to the Q1 2024 Vistage CEO Confidence Index, nearly three in five CEOs invest in leadership development to prepare their future leaders.

3. Transactional

Transactional scenario planning refers to the literal transaction of the business, due to buying and/or selling. Of those CEOs surveyed in the Q3 2023 Vistage CEO Confidence Index, 27% said they are planning an acquisition. Further, 22% of CEOs said they are planning to sell their business within the next 5 years, and 30% said they are approached with offers to buy their company every week, according to the Q1 2024 Vistage CEO Confidence Index.

This type of scenario planning is perhaps the most complex, as it can be broken down into two distinct aspects — the ownership change and the leadership change. Before the transaction that involves the ownership change, leaders will need to establish a valuation and know which levers to pull to improve it. The other aspect is a leadership change. Whether it is the forced or planned departure of a CEO, retirement or recruited away, succession planning helps the company prepare.

Each of the three succession scenarios — operational, aspirational and transactional — has unique considerations. For example, a chief financial officer (CFO) who is retiring or planning to step down as part of an acquisition will be able to ramp up their successor over an extended period, while a chief information officer (CIO) who decides to leave for another role may only have a short window. Peeking around corners and compiling solutions for all three succession scenarios ensures a seamless transition.

Despite how important succession plans are, the Q1 2024 Vistage CEO Confidence Index revealed more than a quarter (27%) of CEOs do not currently have one in place, and only a fifth (20%) have identified successors for their leadership team. When leaders fail to plan, it can be truly devastating to organizations, leaving company cultures decimated and having negative impacts on customers or end-users due to interruptions in service. The good news is the current economic landscape lends itself perfectly to working through these scenarios.

While we’re in a relative economic lull before the next growth cycle picks up, CEOs can sit down and map out their plans for potential operational, aspirational and transactional leadership changes. The leaders who take the time to thoughtfully plot their company’s future success will leave a lasting legacy and lock in the organization’s long-term success.

This story first appeared in Inc.

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