Stanford Closer Look Series - Handpicked CEO Successor

The Stanford Closer Look Series which follows topics such as corporate governance trends has just this week produced an article called the "Handpicked CEO Successor" by David F Larcker, Stephen Miles and Brian Tayan.  This article is a nice add on to "Seven Myths of the CEO Succession" which was released on March 19th 2014 under the same series.  Larcker is a Director of the Corporate Governance Research Inititive at Stanford GSB and a member of the Rock Center, Tayan is a researcher at Stanford on corporate governance issues, and Miles is founder and CEO of the Miles Group.

This short and easy to read piece questions the practice of CEO successor decisions when conducted by the incumbent CEO.   This essay rightly points out the rightful role of the Board of Directors in this process but acknowledges that in practice the frequent deferment of this decision to the departing CEO.  Leaving this heavy load in the hands of the departing CEO raises several issues, such as personal bias, unwelcome behaviour, and the difficulty in chosing a new CEO given the future operating conditions may not look the same as the past.

The authors point out there is little robust research in the area of CEO successor selection and performance.  But they have presented what they label a "non-scientific argument" that firms with some 80% of CEO successors handpicked by the incumbent CEO underperform peers by a material amount, even up to 24 percentage points.  More info on this excellent series of short essays can be found at https://www.gsb.stanford.edu/cldr/research/closer_look.html.