CEO succession planning: a board playbook for mid-sized companies

Russell Reynolds Associates' Global CEO Turnover Index, as reported by HCA Magazine, records 234 CEO departures globally in 2025, up by 16% from 2024 and 21% above the eight-year average. It describes this as the second consecutive year of record turnover. A board that treats succession as something to plan when the incumbent signals departure is working against the data: departure is now frequent enough that every board should expect to face it.

Tenure is shortening. Average outgoing CEO tenure fell to 7.1 years in 2025, from 7.4 years in 2024 and 8.3 years in both 2021 and 2023. Departures within 30 to 36 months of appointment rose 79% year on year. These figures suggest that new CEOs face less patience from boards and investors, and that appointments made under pressure or with weak preparation are more likely to end early.

Only 32% of CEO departures globally in 2025 were planned successions. The remainder arose through other routes, including retirement, resignation under pressure and departures for other roles. For a non-executive director, the figure is a reminder that most boards have limited control over timing. A plan that depends on the CEO announcing a departure two years ahead will often meet circumstances that differ from the assumption.

The implication is that succession should be a permanent item in the board's annual cycle, alongside strategy and risk. The annual review should cover the incumbent's intentions, readiness of internal candidates, emergency cover and external market. It should take place whether or not departure is expected. A board that has had this conversation every year is better placed than one that must start from nothing at the moment of need.

What to do: put a one-page succession dashboard in the annual board calendar. It should show the incumbent's expected horizon, the readiness of each internal candidate (ready now, ready in one to two years, longer), the emergency plan and the date of the last review. Keep it brief and factual. A standing page makes the topic routine, which reduces the sense that discussing succession is a comment on the CEO.

An interim leader is not a neutral choice. Interim CEOs can stabilise a business and keep the strategy on course, but they can also delay decisions or lose momentum. Brief any interim on the mandate in writing, set review points at 30, 60 and 90 days, and define who decides on major commitments. Be explicit about whether the interim may be a candidate for the permanent role.

Australia stands out within Asia-Pacific. Russell Reynolds recorded 34 CEO departures in Australia in 2025, against 31 in Japan, 10 in Hong Kong, 7 in India and 5 in Singapore, and 87 across the region, up 26% on the previous year. In the first half of 2025, the Australian turnover rate was 6%, equal to the global average of 6% and just below the APAC rate of 7%.

Tenure data point the same way. Australia's average outgoing CEO tenure was 6.3 years in 2025, compared with about 5.9 years across APAC and 7.1 years globally. These are indices of large listed companies, so the experience of mid-sized and private companies may differ, but the direction of travel is relevant. The leaders of mid-sized Australian businesses are operating in a market where executive mobility and board expectations are changing.

New Zealand shares the pattern of an economy where boards are smaller and benches are often thinner. The same global data, widely reported by New Zealand media, reaches directors across the Tasman, and the same forces apply: shareholders expect a rapid response to underperformance, and talent can move easily between markets. Boards of New Zealand companies should read the data as relevant rather than as an Australian concern.

For directors the implication is that the labour market for CEOs is active and that retention is part of succession planning. A strong internal successor who is not offered a clear pathway will be approached by others. The action is to make a candid assessment each year of which internal leaders are at risk of leaving, and to agree development, remuneration and responsibility plans that reflect their value to the company.

Several cautions apply to the turnover data. The Russell Reynolds index tracks large listed companies, including the ASX 200 in Australia, so it overstates the visibility of public-company dynamics and understates the private sector. Counts are small for individual markets, and one or two events can move a rate. Use the figures to calibrate urgency and not to forecast your own CEO's departure.

Korn Ferry's 2025 CEO Succession Study found that boards were unprepared for one in four CEO successions. Its 2025 CEO and Board Survey found that just 11% of directors feel fully confident in their ability to handle today's biggest risks. The market for these studies is global, and the sample does not isolate Australia or New Zealand, so use the numbers as a signal of a widespread weakness rather than as a local measure.

Boards do say that succession is a priority. In a 2025 survey of more than 200 directors of US public companies, 34% described succession planning as a top priority for the year, ahead of AI strategy at 25% and geopolitical risk at 10%. Priority and preparation are not the same. A board can place an item first on the agenda and still have no documented criteria, no tested emergency plan and no calibrated view of internal candidates.

The Kellogg Insight analysis of this issue lists three reasons boards defer the task: the CEO lacks self-confidence, believes they are irreplaceable, or the board is not paying attention. For directors the first two are cultural and the third is a process failure. All three can be addressed by an annual agenda item chaired by the chair or lead independent director, not by the CEO, and recorded in minutes.

The action for a non-executive director is to ask three questions at the next meeting. Do we have a written emergency plan if the CEO is unavailable tomorrow? Have we named and assessed internal candidates against criteria in the last twelve months? When did we last meet them without the CEO present? If the answers are no, the board has found its work for the coming year.

For directors of private mid-sized companies, the practical comparison is with peers in your own industry. Ask your advisers, your bank and your shareholders what they see: how long leaders typically stay, how often they leave unexpectedly and what happened to those businesses. Local knowledge, collected systematically, fills the gap left by data that is built for listed markets and helps the board to set realistic planning horizons.

Directors in smaller companies sometimes argue that formal assessment is out of proportion to the size of the business. The reverse is closer to the truth. In a company with a small executive team, the loss of the CEO is more disruptive, the bench is thinner and the board has fewer informal sources of information. A light but regular process, with written criteria and annual review, is proportionate and inexpensive.

Evidence from Australian advisers shows how large the gap is. Grant Thornton's 2025 Family Business Report states that only 19% of family businesses in Australia have a documented succession plan, as the country prepares for a $3.5 trillion intergenerational wealth transfer. The risk is not limited to the family business, since many mid-sized private companies rely on founders and long-serving executives, but the figure illustrates how many leadership transitions are unplanned.

Pitcher Partners' 2024 survey of mid-market businesses adds detail. It found that 20% of business leaders lack a succession plan or are unsure if one exists, and 43% do not have even a rough plan in place to ensure a successful transition. Meanwhile 27% of businesses expect to change owners or senior leaders within the next 12 months, and 4% of leaders do not believe a plan is needed. Expected change is high while preparation is low.

The implication for a mid-sized board is that the bench is likely to be thinner than for a listed company, and the CEO may also be a shareholder, a founder or a family member. These features increase the importance of governance. Independent directors should lead the process, and the board should separate the question of ownership succession from that of management succession so that emotional and financial issues do not distort the decision.

The action is to document, in a short paper, the criteria for the role, the emergency arrangements and the development plans for two or three internal candidates. Where there is no credible internal candidate, record that fact and agree a timetable for developing one or for building an external relationship. A frank acknowledgement of the gap is better than assuming it will resolve itself.

Make retention explicit. Ask the remuneration committee or the equivalent whether the incentive arrangements for the two or three likeliest successors would survive an approach from a competitor. Long-term incentives, equity participation and clear pathways reduce the chance of a surprise departure that leaves the bench empty. The cost of retention is predictable; the cost of losing the successor and the CEO in the same year is not.

A further reason to document is continuity. Directors change, advisers change and the memory of why a particular candidate was preferred fades within a few years. A concise file recording the strategic brief, the assessment results and the reasons for decisions allows a new chair to take over the process without starting again. It also protects the board if an appointment is later challenged by shareholders.

Russell Reynolds found that 73% of new CEO appointments in APAC in 2025 were internal, marginally outpacing the global figure of 68%. Around 94% of new APAC CEO hires were first-time CEOs. Boards in the region are therefore backing insiders and first-time leaders in large numbers, which suggests that readiness for the step up is more important than prior experience in the chair.

This pattern is not an argument for ignoring external candidates. It means that most successful transitions are built over years inside the company, through role rotations, exposure to the board and development of profit-and-loss responsibility. Companies that wait until a vacancy arises to ask whether internal talent is ready usually discover gaps they can no longer close, and are then forced into a more expensive and riskier external search.

For a mid-sized business with limited senior roles, bench-building needs creativity. Candidates may need exposure to functions outside their own, such as a finance leader running a business unit, or a commercial leader sitting on a project steering group. Secondments, advisory board roles and external mentors can supplement what the business cannot provide. The cost is modest compared with the cost of a failed appointment.

The action is to treat the pipeline as a development programme with an owner. Assess two or three people against the criteria in the role brief, set specific development actions, review progress twice a year and record the board's assessment. Where an external candidate may be needed, keep a quiet relationship with a search adviser and update market knowledge annually, so a search can start with context rather than from zero.

Directors should be wary of confusing activity with readiness. A board that has met candidates socially, read a strong talent review and received positive feedback from the CEO may still be unprepared for a sudden exit. The test of readiness is whether the board could appoint an interim within days and a permanent successor within a reasonable period, with agreed criteria, without dispute among directors or shareholders.

A strategy-led succession begins with a short document. It answers what the business must deliver in the next three to five years, what has changed since the current CEO was appointed and what capabilities are therefore needed. Examples include international expansion, a turnaround of one division, preparation for sale or investment, or digital change. The same person is rarely right for every phase.

From that document the board builds a role specification with five or six criteria, weighted according to the strategic priorities. Typical criteria include commercial judgement, ability to lead senior executives, capital allocation, stakeholder credibility and change leadership. The specification is used to assess all candidates, internal and external, in the same way. This reduces the risk that the board favours familiarity or is dazzled by a strong interview.

Assessment should use more than interviews. Structured assessments, reference conversations, work samples and exposure to the board give a fuller picture. For internal candidates, performance history is available, but it measures performance in the current role, not readiness for the next. Distinguish between those who have excelled at the current job and those who show evidence of operating at a broader level.

The action is to approve the strategic brief before approving any candidate list. Let the outgoing CEO contribute, but the board owns the document. Share it with shareholders where appropriate, since alignment on direction avoids disputes later. If shareholders cannot agree on the next phase, that is a more important problem than choosing a person, and it should be resolved before the appointment.

Ownership complexity is a particular risk in mid-sized companies. Where the CEO is also a major shareholder, succession touches estate planning, tax, control and family relationships. Boards should insist on separate workstreams for management succession and ownership succession, with independent advice on each, and should avoid allowing the former to be decided by the preferences established in the latter. Clear separation reduces conflict and protects the business.

Communication is the last element of a sound process. Decide in advance what employees, customers, lenders and shareholders will be told, in what order and by whom. Leaks and rumours about succession can unsettle senior leaders and encourage them to look elsewhere. A short, truthful holding statement and a named spokesperson, usually the chair, keep the story under the board's control and protect the business during the transition.

Every board should hold a ready interim option, whether that is a senior executive who can act for a limited period, the chair in an executive capacity or an experienced interim leader. Document the circumstances in which each would be used, the authority granted and the reporting lines. An interim appointment is a deliberate tool when it has a mandate and an end date. When it is improvised, it can drift into a long and unclear arrangement.

Governance expectations are moving. The ASX Corporate Governance Council's draft fifth edition, open for consultation from 21 July 2026 to 14 September 2026, proposes a disclosure about how diversity is incorporated into board succession planning. Entities with a 30 June year end would first report against the new edition for the financial year starting 1 July 2027. The draft addresses board succession, not CEO succession, but it signals that process transparency is becoming a norm.

The handover deserves as much planning as the selection. The first 100 days of the new CEO should be agreed in advance: priorities, board expectations, relationships with major shareholders and customers, and the role of the outgoing CEO, if any. Many unsuccessful transitions are marked by an unclear mandate, a hostile executive team or a predecessor who cannot let go. A formal onboarding plan reduces each risk.

The action is to appoint a succession committee or lead director for each process, approve a timetable and agree decision rights. Keep records of criteria, assessments and reasons. Brief the executive team on the process and the timeline, so uncertainty does not drive talent out of the business. After the appointment, review the process with the board and note what should change for the next time.

Talent exposure matters. Candidates who have not sat in front of the board, met major customers or led through a difficult period are unproven in ways that interviews cannot reveal. Give prospective successors real responsibilities: chair a significant project, present to the board, lead a negotiation with an important customer. Observation under realistic conditions is the best predictor available, and it also lets the candidate decide whether the role suits them.

Finally, plan the exit of the outgoing CEO with the same care as the arrival. Options range from a clean break to a defined advisory or board role with limits. Each carries risks: a former CEO who stays too close can undermine the successor, while an abrupt departure can lose relationships and knowledge. Agree the arrangement, its duration and the boundaries in writing before the announcement.

Karter McKinley supports boards and owners of mid-sized companies by framing the strategic brief for the next phase, structuring the assessment of internal and external candidates and designing the transition plan. We work alongside your search advisers, legal counsel and remuneration advisers, who remain responsible for appointments and employment terms.