There's a CEO succession crisis brewing

Business Insider

26-05-2025

As more CEOs call it quits, it could get harder for companies to find the next superstar leaders.
A mix of sometimes poor succession planning, a tendency by some young go-getters to job hop rather than rise through the ranks, and a thinning of middle management could cause headaches for companies trying to find a new chief, corporate observers told Business Insider.
Because of a "collapse of the leadership pipeline" at many organizations, the pool of candidates ready to step in and lead is often lacking, Shawn Cole, president and founding partner at the executive search firm Cowen Partners, told BI.
That's in part because some companies have been busy pulverizing the organizational layers that once served as C-suite farm teams.
"The middle-management, VP-level successors are just gutted right now," Cole said.
It comes as more chiefs are peeling their nameplate from the C-suite door — and, in some cases, as boards are making them.
Nearly halfway through 2025, the number of CEO changes for S&P 500 companies is on pace to reach 14.8% for the year, according to data from The Conference Board and ESGAUGE. That would be the highest rate of turnover in data going back to 2001. The average over the same period is 11.3%.
In the first three months of the year, a record 646 US CEOs left their roles, according to Challenger, Gray & Christmas. That followed a busy 2024, when the number of departing chiefs rose to the highest annual level since the staffing and coaching firm began keeping tabs on CEO turnover in 2002.
Cole said his firm is getting calls from boards and private equity firms looking to change directions with a new CEO. He said there's often a desire for visionary leaders who can think up the next great product or service to boost business.
"They're like, 'Holy sh—, we need some better ideas in the room,'" Cole said of boards and PE firms.
Normally, when corporate overseers want to make a change at the top, or are forced to, they can scan the org chart. Yet, he said, some up-and-comers have tired of riding the bench.
"You've got upper management that's held on too long, and so what would have been your successor has now left the company," Cole said.
At the same time, he said, because many companies haven't invested in grooming the next generation, it's not always possible to simply poach a hotshot from a rival.
"The musical chairs is broken," Cole said.
Nevertheless, some companies are managing to woo outsiders. Among the companies that make up the broad S&P 1500 index, 44% of new CEOs in 2024 were external hires, according to data from the executive search firm Spencer Stuart. It's the largest share of outsiders since the firm began tracking the data in 2000.
Some of the biggest promotions still come from within.
Earlier this month, Warren Buffett said that after 55 years running Berkshire Hathaway, he would step down at the end of the year. The conglomerate's board approved Buffett's chosen successor, Greg Abel, who is some three decades younger than the 94-year-old Oracle of Omaha.
Buffett's run is unmatched among heads of big US companies and far beyond what's typical. The average tenure of CEOs of S&P 500 companies fell to 8.3 years in 2024 from 8.9 years in 2023, Spencer Stuart reported.
Kathy Gersch, chief commercial officer at the change-management firm Kotter, told BI that recent drops in CEO tenure signal, in part, that boards have less patience for missteps. That's one reason, she said, that directors need to understand the plans for developing the next generation of leaders.
Job-hopping might not help
Another reason finding a CEO could be harder is that some workers, still early in their careers, don't necessarily want to grind it out at a single company with an eye toward climbing into the top job, Jason Schloetzer, an associate professor at the McDonough School of Business at Georgetown University, told BI.
Years ago, he said, the goal might have been to complete a corporate management rotation — including turns in various departments and possibly foreign posts — to "really understand the organization from top to bottom in order to matriculate up to the C-suite," Schloetzer said.
While millennials and Gen Zers have been changing jobs less than prior generations, some business school grads, for example, often view career progression as jumping every two to three years among companies, he said.
That would mean, by the time they'd been in the workforce for 15 years after getting their MBA, these execs might have five or six companies on their résumé, Schloetzer said.
That can be at odds with what some boards are seeking. Often, directors tap someone who might have been with a firm 15 years or longer, he said.
Schloetzer blames the mismatch on business.
"Companies have created this environment by not being loyal to employees," he said.
Economic worries could deter some execs
Some aspiring leaders might also hesitate to take over when there are worries about the prognosis for the economy.
Would-be CEOs likely don't want to be on the hook for problems beyond their control, like tariffs or uncertainty over interest rate policy, Tim Quigley, a professor of management at the Terry College of Business at the University of Georgia, told BI.
That might even keep some departing chiefs from looking elsewhere, he said.
"Those same CEOs that are stepping away that might be obvious recruiting targets for firms, would say, 'Nah, I'll wait a little while and maybe step into the position down the road,'" Quigley said.