$1 Trillion: The cost of a poor CEO transition

By Carolyn Dewar, McKinsey & Company senior partner and co-author of The New York Times bestseller, CEO Excellence: The Six Mindsets That Distinguish the Best Leaders from the Rest.

“In the end, the hardest part of the CEO role is leaving.”

— Jim Owens, former CEO of Caterpillar

CEO transitions are often seen as routine. But here’s the hard truth: poorly managed transitions wipe out nearly?$1 trillion?in market value across S&P 1500 companies each year.

In 2024 alone, CEO turnover hit record levels—202 global exits, with 58 in the S&P 500. This isn’t a one-off anomaly. It’s a regular, high-stakes event for organizations at the highest level.

As Satya Nadella wisely said:

“My dad, a civil servant in India, always used to talk about institution builders as those people whose successors do better than they did themselves. I love that definition. I feel that if the next CEO of Microsoft can be even more successful than I am, then maybe I’ve done my job right. If the next CEO of Microsoft crashes and burns, that may result in a different verdict.”

The stakes couldn’t be clearer. A poorly-handled transition isn’t just a blip on the radar—it destabilizes morale, undermines investor confidence, and derails long-term strategy. But a well-executed transition? It cements trust, secures the leadership pipeline, and ensures the company’s trajectory remains on course.

The cost of failure is astronomical. Getting this right is not just important—it’s essential. So how do you avoid the $1 trillion mistake and set your successor up for success?

The Strategic CEO’s Last Chapter: How to Set Up Your Successor for Success

Great CEOs don’t just step down. They step forward—setting up their successor with everything needed for future success. This handoff is as much a strategic move as any decision made during their tenure.

The Four Pillars of a Strong CEO Transition

1. Timing and Narrative:

The best transitions are meticulously planned. Reflect on personal readiness, company preparedness, and the industry landscape. As Brad D. Smith , former CEO of Intuit, put it:?“I had friends who stayed a couple of years too long in the job. I thought to myself, ‘My gosh, how could they not have seen this coming?’ Then I thought about all the athletes that stay one or two years past their prime. And you think, ‘Man, I don’t want to be that.’ The only question you have to ask yourself is if you want to be the one choosing the date, or you want someone else to choose it for you.”

Set the timeline at least two years in advance, ensuring clarity and preparation.

2. Preparing Successors:

The board and CEO must work in tandem to identify successors. This isn’t about picking names—it’s about preparing future leaders with exposure to high-level projects and key stakeholders. As Jim Owens, former CEO of Caterpillar, put it:?“At any large company, shame on them if they don’t have at least three strong candidates to take over the top job.”

3. Handing Over Gracefully:

The transition is as much about leaving a clean slate as it is about passing the baton. Use your final months to resolve lingering issues, empowering your successor to lead with confidence. Michael Fisher, former CEO of CCHMC, said:?“You’ll have some unassailable capital as a successful outgoing CEO. Use it to address some of the lingering tough issues, be they people issues or otherwise, so that your successor doesn’t have any messes to clean up.”

4. Embrace the Next Chapter:

Stepping down can be emotionally challenging, but the key is planning for life after the role. As Gail Kelly, former CEO of Westpac, observed:?“For a lot of people, it’s ‘I am what I do, and I do my job,’ and that’s where their relevance and purpose come from. That’s really hard to leave.”?Plan your post-CEO life, remain positive about your successor, and find new avenues to contribute.

The Stakeholder Factor: Communicating Through Change

A successful transition is as much about external communication as it is about internal preparation. How a CEO announces their departure and communicates the future is critical to maintaining confidence and trust.

? Transparency is Key:?Stakeholders—including employees, customers, investors, and partners—need to hear directly from the CEO.

? Build Trust Early:?CEOs who proactively engage stakeholders before, during, and after their transition strengthen long-term relationships.

? Messaging Matters:?Craft a clear, consistent narrative—why the transition is happening, what it means, and what the future holds.

For deeper insights, listen to this?Inside the Strategy Room?podcast episode with my 麦肯锡 colleagues Blair Epstein , Julia McClatchy , and Eric Sherman , where they explore how the best CEOs shape the right narrative during times of change.

The Strategic CEO: An Enduring Legacy

A strategic CEO doesn’t just exit. They leave a legacy. This legacy isn’t merely in the results of their tenure, but in the way they ensure continuity, strengthen trust, and empowered the next generation of leaders.