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August 23, 2006

News & Opinion: Succession Planning

By: Jack @ 8:36 PM – Filed under: Management & Workplace Culture

Slate has an article about the succession planning and how it is bad news if the child of the CEO takes over. From the article:

The question of how installing the boss's kid as CEO affects firms' performance is actually quite hard to answer. An initial step is to look at how a company's performance changes after a CEO succession, comparing firms with scion CEOs with those in which executive power passes outside the family. The authors of the new study do this, and they show that in a sample of 5,000 Danish firms from 1994 to 2002, firm performance (measured by the ratio of operating income to assets) improved only after a nonrelative took over. The ratio of operating income to assets averaged 3.3 percent in their samplefor a firm with a million dollars in assets, that puts annual operating income at $33,000. Company performance improved 1.3 percentage points ($13,000 in annual income per million in assets) after the succession of outside-the-family CEOs. And it declined 0.1 percentage points ($1,000 in annual income per million in assets) when scion CEOs were chosen.