Introduction

The CEO chair is one of the most powerful and most precarious seats in business. Leadership changes can disrupt performance, unsettle investors, and reshape company culture. With CEO turnover on the rise, succession planning is no longer optional. Businesses must decide whether to promote talent from within or bring in leaders from outside. This post explores the benefits, risks, and strategic considerations of internal versus external succession so you can make the best choice for your organization.

Why Succession Planning Matters

Succession planning is the deliberate process of preparing the next generation of leadership. It ensures continuity, stability, and resilience when transitions occur. Research shows that only about half of boards actively groom a successor. Companies that lack a clear plan often experience valuation drops of 20 to 25 percent compared to those with well-prepared pipelines. Strong succession planning not only protects long term performance but also builds investor confidence and employee trust.

The Internal Succession Path Benefits

Promoting from within offers continuity and a strong cultural fit. Internal successors typically ramp up faster because they already understand the business and its people. Costs are lower since recruitment fees and compensation premiums are avoided. Failure risk is reduced because the candidate is a known quantity who has already earned the trust of employees and stakeholders.

Risks

Internal appointments are not without challenges. When fresh strategic direction is needed, insiders may fall back on familiar ways of working. Over time this can lead to blind spots or a lack of innovation in industries undergoing rapid change.

What to Look For

Businesses should look for internal candidates with cross functional leadership experience, proven enterprise thinking, and a clear alignment with long term strategy. Developing these capabilities through deliberate leadership programs ensures that internal successors are genuinely ready to take the top role.

The External Succession Path Advantages

Hiring an external leader brings fresh perspectives and can reset the strategy of a company. Outsiders are especially valuable in times of transformation, industry disruption, or when the company faces a turnaround situation.

Downsides

External succession is more expensive. Research indicates that external CEOs receive compensation packages that are 18 to 20 percent higher than internal successors. Added to this are search fees, onboarding expenses, and the time it takes for an outsider to become fully effective. The risks of cultural misfit and early attrition are also higher.

When It Works Best

External hires work best when the company needs new ideas, is facing structural disruption, or when the internal talent bench is too thin to provide a credible successor.

Internal vs External: A Comparative Lens

Cost: Internal succession is generally cheaper while external hires carry additional expenses and higher pay packages.

Performance: Studies show that internal successors often outperform external hires over the long term. However, outsiders can excel when the business requires a major strategic shift.

Stakeholder Perceptions: Employees and investors often interpret internal promotions as stability. External appointments can signal bold change but also raise concerns about integration.

Context Matters: Large stable companies often favor insiders. In contrast, firms experiencing turbulence or pursuing transformation may benefit more from external appointments.

Making the Right Choice for Your Business

The right choice depends on your company’s performance, talent readiness, and future direction. A useful framework is to evaluate leadership pipelines regularly, track successor readiness, monitor retention rates, and measure both cultural engagement and financial performance after transitions. Hybrid models are also effective. For example, companies may promote an internal candidate to CEO while hiring external executives or advisors to fill capability gaps.

Global Trends and Insights

In the United States most companies in the S&P 1500 promote insiders. This reflects both the strength of internal talent pipelines and a preference for continuity. In contrast, recent data from the United Kingdom shows that more than half of FTSE 100 and 62 percent of FTSE 250 companies appointed external CEOs in the past year. This reliance on outsiders has raised concerns about the depth of internal pipelines in UK companies.

Conclusion

There is no single correct answer to the succession question. Internal succession offers stability and lower risk while external succession can bring transformation and innovation. The right choice depends on context, culture, and strategy.

At Dunnington Consulting, we help businesses design robust succession strategies that fit their goals and prepare leaders for the future. If you want to safeguard your company’s continuity and position it for long term success, connect with Dunnington Consulting today and let us guide your succession planning journey.

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