A Model of CEO Succession Planning as a Risky Investment: Anticipated Costs, Uncertain Results, and Contingency Conditions

Donald C. Hambrick () and Eric Y. Lee ()
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Donald C. Hambrick: Department of Management and Organization, Smeal College of Business, The Pennsylvania State University, University Park, Pennsylvania 16802
Eric Y. Lee: Department of Management, Mays Business School, Texas A&M University, College Station, Texas 77843

Organization Science, 2025, vol. 36, issue 2, 677-696

Abstract: As a counterpoint to the prevailing normative view that CEO succession planning is universally wise, we develop a model of such endeavors as risky investments. Our model has three elements. First, we identify the potential costs of CEO succession planning, including opportunity costs associated with absorbing CEO and board attention, CEO-board conflict, and various forms of organizational disruption. Second, we identify and unpack the potential results of CEO succession planning, with explicit attention to the possibility that these results might be unfavorable. Specifically, expensively groomed executives may depart prior to succession; and groomed successors may perform no better, or even worse, than replacements obtained from the executive labor market, when needed. Third, we specify a slate of contingency conditions that substantially affect whether the various costs of CEO succession planning, and the likelihoods of unfavorable results, will be modest or considerable. We identify relevant contingencies at multiple levels: (a) incumbent CEO attributes, (b) firm attributes, (c) industry attributes, and (d) macro-environmental norms and institutions. No single contingency condition will necessarily make CEO succession planning an unpromising investment, but combinations might, prompting rational boards to balk at engaging in such endeavors. Our model has major implications for scholars, boards, governance watchdogs, and investors. Moreover, our analysis sheds indirect light on why many boards do not engage in CEO succession planning. It may not be due to their dereliction, as is typically asserted, but rather to their assessments that such initiatives do not make economic sense.

Keywords: CEO selection; boards of directors; corporate governance; succession planning; top managers (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ororsc:v:36:y:2025:i:2:p:677-696

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