How do you know when it’s the right time to go, and how do you set up the next generation of leaders for success? In this episode of the Inside the Strategy Room podcast—the final in a series on the CEO journey—three experts discuss the key elements of a successful CEO transition. Carolyn Dewar, coauthor of our recent bestseller CEO Excellence, founded and coleads McKinsey’s CEO Excellence practice. Blair Epstein, a key contributor to that book, is a leader in the CEO Excellence practice, and Kurt Strovink leads our Global CEO Initiative. This is an edited transcript of their conversation. For more discussions on the strategy issues that matter, follow the series on your preferred podcast platform.
Sean Brown: In this last stage of the CEO tenure, what unique challenges do leaders face?
Kurt Strovink: In this phase, people are settled. They’ve achieved a lot and it’s a time to think about the next era of growth and development for the company. Great CEOs tend to intuitively know that how they set up the next generation will be vital for their own legacy and the company institutionally. But the actual transition is complicated for several reasons.
One is that, oftentimes, this a first-in-a-career event. Even legendary CEOs may not have been through such a transition. Also, timing is not so easy to determine and commit to. As Lloyd Blankfein, former CEO of Goldman Sachs, told us, when things are tough you can’t leave and when things are great you don’t want to leave. You need to think about what’s right not just for you but for your successor. Lastly, you have to consider what you will do afterward. There’s life after being a CEO, but leaders often stay put because they’re not sure what they will do next.
Sean Brown: How do you know when it’s time to start preparing a graceful exit?
Kurt Strovink: It’s natural to hesitate on the timing when you haven’t fully thought through the markers for the right time to leave. One signal is when you feel that the world around you is changing at a rate that will tee up a different S-curve, or phase of growth, for which you don’t think you are a natural leader. Another is if you think the next generation is ready to take over and the company can benefit from that new energy. A companion consideration may be that if you don’t get out of the chair, those potential successors will leave. CEOs may think about the development investment in the next generation, and they want to make that generation successful. The feeling that you’ve given all you can to the organization is another marker. If you know what people will say before they say it, that’s an indication that you’re not learning as much.
Sean Brown: If you’re not sure whether the next generation is ready, is it better to err on the side of leaving too early or leaving too late?
Kurt Strovink: Our counsel would be to prepare to leave early. It’s not only a question of successors’ readiness but the maturity of the succession conversation with the board and, sometimes, the impact of external events. When people see that you left at the top of your game, they are impressed that you made this choice. One CEO talked about people in his broader network who he felt left too late and then he himself realized how difficult it is to plan an early departure.
Sean Brown: What role does outside input play in helping CEOs make the call on timing?
Kurt Strovink: Outside influences play a big role. External factors can include an activist pushing for a different CEO or an evolution in the market and the industry for which you believe somebody else would be a better fit. Gail Kelly did an amazing job on strengthening customer focus at Australia’s Westpac, but when the bank started pivoting to a digital future, she concluded that it was time for a leader who was stronger than she in that area.
Carolyn Dewar: External factors can tip the decision the other way, too. When the pandemic happened, we saw many CEOs who may have been ready to leave decide to stay for the sake of continuity. Now, there is almost a pent-up run of departures. Kurt and I were with a CEO in Asia recently who had wanted to leave and the board asked him to stay. We hear that often; boards sometimes don’t like leadership change any more than CEOs do.
Sean Brown: How would you suggest a CEO bring up the topic of transition with the board and the organization so they don’t question his or her commitment to the role?
Kurt Strovink: For the board, the topic of succession is open from day one. Thinking about the development of a successor pipeline doesn’t suggest a lack of commitment but is a sign of good leadership. To avoid misunderstanding, emphasize to the board from the beginning that you want to focus on succession not because you plan to leave anytime soon—they will be the judges of that—but because you are serious about developing multiple strong candidates. With respect to the senior team, I recommend waiting until you are close to the time of transition. You don’t want the distraction of people speculating who will be the next CEO.
Blair Epstein: This is a question we often get from clients. Succession planning should start on day one of your role. In fact, Brad Smith of Intuit described being coached on his first day as CEO that he should start succession planning that day. He talked about succession in his first board meeting, then provided quarterly verbal briefings and formal ones annually. Over 11 years as CEO, he discussed it with his board 44 times.
It can feel strange to say, “Hello, I’m your new CEO. Now let’s talk about replacing me.” But if you do that, you avoid one of the dynamics that Kurt alluded to. You cannot allow succession to become a political horse race. That’s incredibly destructive to the health of a senior team, and the politics reverberate throughout the organization. Gail Kelly’s approach was to be direct with possible candidates: “We’re trying to develop you as a leader, here are potential paths you could go down, and becoming CEO may be one of them.” She was equally clear that politicking was unacceptable.
It’s important, however, to think about succession not just as replacing yourself but as leadership development for your team. You need to make the chess moves necessary to help potential successors become CEO-ready. Piyush Gupta of DBS Bank worked with his head of HR to first assess an extensive candidate slate, then came up with about 100 high-potential leaders whose careers they would case manage. You give them coaching, help them understand the role, but also deliberately put them into situations in which they can learn and excel. That could be rotations where functional leaders can get operational experience or time-bound but high-profile projects where they can demonstrate enterprise leadership.
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Sean Brown: What’s your take on appointing a deputy CEO as the designated successor, to ease the transition and eliminate the risk of that political race?
Blair Epstein: There are different flavors of deputy CEO-type roles, and the title doesn’t necessarily mean the person will succeed you. Sometimes, leaders create heir-apparent positions or president-type roles to elevate an individual’s profile and allow them to gain a broader set of experiences, including with external stakeholders.
As to your question, I have to give the dreaded consultant answer of “it depends.” It can seem like a great idea because it gives the individual extra seasoning: you are there to coach and support them, and they can basically become CEOs with training wheels. Here’s where it can go wrong: in terms of role clarity, it can slow down the organization if people don’t know who makes the ultimate call. If you and the deputy CEO don’t present a united front, people can play you off each other, intentionally or unintentionally. This structure can also be misinterpreted as a lack confidence in the deputy, if the perception is that you’re giving them the training wheels because they’re not ready.
Where it may make sense is when you have a clear successor. You can live with other people who wanted to be that successor leaving and you believe that you can control for some of the downsides I mentioned. And you genuinely believe, hand to heart, that you are doing this to set up the next generation.
Kurt Strovink: It’s easier to appoint a deputy CEO six or 12 months before your departure rather than two years or more, because the latter looks like a deferment and requires thinking differently about the leadership operating model. Another point to consider is the title: “deputy CEO” invites questions as to why not CEO. There are other titles, such as president or COO, that may make more sense for the organization, especially two years out from succession.
Sean Brown: What should a CEO do when they don’t have natural internal successors?
Blair Epstein: Some of the CEOs we spoke with were direct in saying that if you don’t have at least three internal successor candidates—not all of whom are perfect, not all of whom may be ready at the same time—you haven’t done your job. Because, in most cases, if you have put the right individuals into the right roles, the odds are that at least one of them can eventually become CEO. Also, keep in mind that succession planning can involve your external network and building relationships with individuals you think could succeed you.
Succession plans start with having a clear view of what would make a great CEO for your organization. Given the S-curve you imagine the company may follow next, what combination of experience, knowledge, and leadership attributes should the next leader bring to the job? Use that as a North Star for internal leadership development. Importantly, this has to be done in partnership with your board. Ultimately, succession is not your call.
Sean Brown: Once a new CEO is chosen, what’s the best way to prepare the handover?
Blair Epstein: The first step is building a relationship with your successor and having explicit, open conversations about the form the handover will take. Their job is not to be the next you, so think about how to make that case. Help them understand what it means to be their own CEO, particularly if it’s an internal successor who admires you or whom you have mentored.
Another important consideration is resolving unpleasant but important decisions that may be lurking. Michael Fisher, former CEO of Cincinnati Children’s Hospital, talked about the fact that you have political capital that the new person doesn’t. How can you spend that capital on ensuring that you aren’t handing over any messes?
Additionally, agree on the transition approach. Role clarity is important during these phases, as we talked about in relation to the deputy CEO dynamic. People need to know who is in charge, who is doing what, and your successor should feel supported. In cases of internal handovers, we often see a six- to nine-month phase wherein you are the decision maker during the first couple of months, and you’re giving your successor, who may or may not be already named publicly, opportunities to step up, to shadow, to learn with a safety net. In the next phase, you may act more like copilots, but do not let this phase drag on too long. Then there’s the phase where you step back. You are there to advise and support but you distance yourself from the operations and eventually formally leave the organization.
The last stage is to get out of the way. This can be incredibly hard so think through how you would handle a situation where, for example, a board member, an investor, a client, or senior executive calls you and says, “I don’t know how well the new CEO is doing with this, can you help me navigate it?” You need to give your successor room to run.
Sean Brown: Do you have any advice you can share on how to handle that final stage?
Blair Epstein: One tool that we have found helpful is to develop a last 100-day plan. New CEOs make first 100-day plans all the time, so have the same discipline when you’re walking out the door. First, think about how you will wrap up your legacy. What will you do to bring your current strategy to a close? You want to appropriately engage your successor in the decisions they will have to live with. For example, you probably should not unilaterally do game-changing M&A. Another part of wrapping up your legacy is finding closure, both for yourself and for the organization. Make the rounds, check in with people, say thank you, and let them tell you the same.
Next, consider what parting gifts you can give your successor. Are there tough calls you can make so they are not on the new CEO’s shoulders? These could be people decisions, budget calls, portfolio pruning. Another parting gift you can offer is to advocate for your successor and telegraph your confidence in them. In every conversation, how do you leave the person you’re speaking with more excited about the next generation of leadership?
You want to hand over both work and relationships. Can you help your successor build relationships with internal and external stakeholders? Also, hand over your business knowledge, particularly when there is big, in-flight work that will continue. And share some behind-the-scenes counsel. Talk to them about talent and things that no one else might know that could be helpful to them.
Finally, be very clear what, if any, role you will continue to play. One common model is to stay on in an advisory capacity where, at the discretion of the new CEO, you are available to advise and coach. Another model that is increasingly common is the former CEO becoming the executive chair of the board. It’s a way to provide support to the new CEO while preserving role clarity. It does, however, have drawbacks. A number of the CEOs, even those who became effective executive chairs, talked about how challenging that is for the successor and how they wish that they had stepped away. You want to allow your successor to critique you and identify what they want to do better. That is hard for them to do while you are still in the room. There are situations where the executive chair role makes good sense, where the new CEO needs extra support, but do so with caution.
Sean Brown: A company’s structure could introduce some nuances to how this transition plays out. Are there any differences, for example, with family-owned businesses? How do you avoid a scenario like in the TV show Succession?
Carolyn Dewar: In the situations I’ve been close to, the question tends to be around the parent’s decision about when the child is “ready.” That can be an ever-moving target, and the next generation feels like the marker keeps moving on what they need to do. It can be helpful to bring in some of the rigor that non-family-owned businesses apply. What does the company need of its CEO right now? What are the proof points that the next leader is ready? If seasoning is needed, let’s be deliberate about it and put a timeline on it.
Kurt Strovink: One other thing that’s more upside-oriented is that succession in family-owned companies is an opportunity to discuss the business—its reasons for being, the company’s values, its proposition in the market. In such scenarios, a successor can speak about those topics with greater authority when they are part of the family.
Sean Brown: The day they hand over the reins must be difficult for many CEOs. How can they deal with the psychological aspect of leaving the role?
Carolyn Dewar: One reason why sometimes CEOs stay too long is that they are not sure what’s next. It’s easier to step aside at the appropriate time when you’re excited about your life after. That requires self-reflection. What is important to you beyond being a CEO? For some, it might be another CEO role. For others, it can be relationships, friends, family, hobbies, or meaningful social and community work. The CEO role can be all-consuming, and those who have the smoothest transitions tend to have either nurtured their relationships and outside interests in the last phase or made a deliberate effort to re-engage in them. Have conversations with friends and family to remind yourself that being a CEO is just one chapter, one piece of who you are.
One path I’ve seen some CEOs pursue is to take a gap year or a gap six months. It helps them to fend off the offers that they start getting right away and to double down on health, sleep, and relationships. The decisions those CEOs make at the end of that gap period are often different than the ones they would have made in the thick of the transition.
