One of the biggest CEO successions of the last decade played out recently in the public eye, as Microsoft went about choosing only its third CEO in the last 39 years. Over a period of more than five months, the tech world's favorite parlor game became guessing the next chief of the software giant until new CEO Satya Nadella was named in early February.
But while some called the lack of a ready-to-go CEO a succession crisis, the truth is Microsoft is hardly alone. Only about half of the directors in a survey released last week by Stanford University's Rock Center for Corporate Governance and the Institute for Executive Development (IED) said their companies were grooming a specific person to be their next CEO.
The survey, which involved in-depth interviews with directors from 20 companies, also found that directors say it would take nearly 90 days to replace their CEO if the current one was to leave today—a troubling sign for how out-of-date most succession plans are. Moreover, only 25 percent of respondents said there is an adequate pool of candidates prepared to be CEO within their companies.
"I find that to be pretty disturbing," says David Larcker, a Stanford professor and director of the school's Corporate Governance Research Program. "That’s really a board duty. It’s one of the key things the board does. If you're not grooming someone, or don't at least know who’s on the short list, there’s really a gap."
A related study released Wednesday by Stanford, IED and The Conference Board reported some different findings. It asked directors how well they know senior executives a rung or two down the ladder from the CEO. The answer: not very well.
Only seven percent of companies assigned a board member to mentor senior executives below the CEO. Just 23 percent of the 159 directors surveyed said they participated in the performance evaluations of these top managers. And the vast majority (71 percent) said they only visit company offices or work locations without the CEO present "when circumstances warrant," rather than on a regular schedule.
Time constraints and logistical problems could contribute to a board's lack of involvement with the people most likely to succeed the CEO, Larcker says. But what's also a factor is the delicate egos and individual personalities that must be navigated when talking about who will follow a CEO. "In succession planning, the CEO you're looking to replace many times is sitting right there," Larcker says. "It becomes very personal. They think, 'Why aren't you looking for someone just like me but younger?' "
While directors may want to tread carefully around such executive pride—and don't want to be seen as trying to do the CEO's job—Larcker says it's troubling how little directors are involved with the people who could soon run the company. Hearing them offer a presentation at a board meeting simply isn't the same as making time for regular meetings or chatting over dinner one-on-one. "They're making PowerPoint presentations," he says. "You've got to get to know them more than that."