Succession planning: lessons for investors from three sectors

Why succession planning matters to investors

Succession planning is one of the least glamorous but most consequential aspects of corporate governance. Its effectiveness or lack thereof can define a company’s trajectory for years. Across sectors, the quality of leadership transitions often separates the resilient from the vulnerable. Consumer staples, finance and technology offer case studies in how leadership change can either preserve or destroy value. CEO turnover is rising across all three, driven by shifting business models, compressed time horizons and the growing toll of leadership burnout. Sound assessment of leadership transitions is an increasingly important investment skill.

Case study: consumer staples
The consumer staples sector is experiencing its highest CEO turnover in more than a decade with CEO tenure dropping from over 10 years to 6 and continuing to shorten. After a relatively calm period from 2020 to 2023, when inflation and pricing power insulated most companies, boards are now facing a less supportive environment. Pricing is no longer a lever for revenue growth, while high inventories challenge volume recovery: consumer staples boards, under investor and market pressure, are giving CEOs less time to deliver structural change. Frequent transitions can erode institutional knowledge and discourage bold, long-term strategies. Conversely, when handled well with transparent succession processes and thoughtful internal development, turnover can inject new energy and strategic clarity. Unfortunately, we find many boards in staples caught on the backfoot, replacing leaders only after performance has already suffered, reducing their ability to support value-creating structural change. The abrupt leadership change at Unilever earlier this year epitomises this trend. While the incoming CEO has the advantage of being an insider, he must now execute on a hefty turnaround.

Case study: finance
In contrast, finance remains the sector with the longest average CEO tenure at roughly 10 years, more than triple that of utilities. This longevity can be a double-edged sword. On the one hand, continuity provides stability, especially in an industry that prizes trust, regulatory acumen and institutional relationships. On the other hand, prolonged leadership can foster insularity and inertia at precisely the moment when digital transformation and competitive disruption demand agility. Some financial institutions have embraced a more dynamic approach, pairing seasoned CEOs with next-generation deputies who bring fresh thinking around technology, data and client engagement. Others risk becoming complacent, holding onto legacy leaders long past the point where they can pivot effectively. The lesson here is that longevity itself is not a virtue; it must be paired with renewal mechanisms. Effective boards are those that treat succession planning as a continuous process that identifies and cultivates future leaders well before a vacancy emerges.

Case study: technology
The demands placed on leadership are even more acute in the technology sector given the pace of innovation. Companies in this sector also tend on average to be younger and have specific governance challenges relating to their rapid growth and, in many cases, continued involvement of founders, meaning succession can be a challenge. At the same time, we are seeing some instances of how deliberate leadership planning, combined with strategic discipline, can meet these challenges and create durable advantages. Microsoft is a case in point, where we saw firsthand the depth of talent across its leadership bench. The company’s approach to talent, disciplined capital allocation and clear alignment between strategy and execution, gives investors confidence in its leadership continuity. This is succession planning as a strategic advantage, not an administrative formality.

Key implications for investors

A focus on succession planning should be a core component of any long-term investment strategy. Investors can and should assess leadership quality, board oversight and organisational depth with the same rigour and consistency that they apply to a review of financials. Our investors engage proactively with company boards to evaluate the robustness of their leadership pipelines. We look for boards that understand their dual mandate: to hold management accountable and to develop future leaders capable of stewarding capital through cycles of volatility and transformation. Specifically, we focus on board preparedness, talent depth and strategic flexibility. Companies that score highly on these dimensions tend to sustain superior returns on capital over time and weather shocks more effectively.

Succession planning, at its best, is an investment in corporate resilience. Yet too often, it is treated as a compliance task rather than a strategic imperative. As CEO turnover accelerates, we believe that the gap between firms that get succession right and those that do not will only widen. For investors, engagement and voting are powerful tools to shape this future. For companies, succession planning must evolve from contingency planning into a core competency that ensures a deep talent bench and leadership continuity without sacrificing innovation. We believe that resilient businesses are those with experienced leadership teams, empowered boards and adaptable strategies. These qualities do not eliminate risk, but they improve the odds of success across a wide range of environments.