Business Success and the Next Generation Talent Pipeline

Investing in Next Generation Talent can mean the difference between business success – and failure.

That’s one conclusion of a new study of CEO line-up changes and shareholder returns in 2,500 publicly-traded companies over a 10-year period.

The Booz & Co. research – released this week – revealed there was an average 2.1 percent rate of  CEOs being fired for poor company financial performance in the short term. Even leaders of companies in the bottom tenth of performance over a 2-year period faced less than a 6 percent probability of being shown the door.

The study said boards may hesitate to replace underperforming CEOs in part because of a weak pipeline of candidates ready to take the helm. At the same time, more than 20 percent of companies go outside their walls to hire their CEO – despite the fact that these “outsiders” tend to underperform someone promoted internally to the top spot.

That research echoes a conclusion of the book Good to Great by Jim Collins. Of 11 top-performing companies studied over a 15-year period, only one was led by outside CEOs – those who had been with the company less than 1 year before taking the lead role.

The recent Booz study on CEO performance concluded there was ample room for improvement in board oversight, succession planning – and development of top leadership talent.

nGenera’s research and client experience emphasizes that robust development becomes increasingly important the higher an employee moves up the ladder.

Our Re.sults report “Accelerating Executive Development” recommended that today’s leaders take an active role in developing potential successors. The study urged companies to build executive development programs around the next generation of skills and competencies that will be demanded of leaders.

The Next Generation of C-suite talent awaits. They are the Generation X and Generation Y employees. Our recent research on younger employees documents that they expect ongoing learning opportunities and varied assignments to ensure their development and employability security. Most don’t expect to have long tenures or executive suite roles in their current companies. Yet many are open to the prospect – if it seems possible in their organizations.

You can call it “organizational generativity” or just good business: planning ahead for passing the reins of leadership to the next generation.