How Boards Can Identify and Develop the Right CEO Successors

October 17, 2025 – Few decisions carry as much weight—or long-term consequence—as choosing the next chief executive. The process demands both strategic foresight and deep insight into the evolving demands of leadership. As organizations navigate disruption, shifting stakeholder expectations, and accelerating transformation, boards must balance continuity with the vision and agility required for the future.

Boards face a significant challenge in evaluating, choosing, and preparing future CEO successors. Indicators of readiness now reach beyond conventional performance measures to encompass the distinct leadership attributes that propel organizational success. Directors must probe deeply into how a leader operates rather than merely assessing intellect and accomplishments, according to a recent report from DHR Global’s Justin Menkes.

At its foundation, exceptional CEO leadership centers on one fundamental capability: the ability to realize the full potential of the organization’s talent, according to the DHR report. “Superior CEOs consistently elicit higher levels of commitment, drive, and performance from their teams compared to their industry peers,” it said. “This differentiation manifests in measurable ways, from strong execution to elevated organizational purpose.”

Strengthen Assessment Through Multiple Methods 

Understanding a candidate’s potential requires a comprehensive assessment approach that examines candidates through multiple lenses to reveal innate strengths and critical development areas, the DHR report explained. “Psychometric testing reveals underlying aptitudes and personality traits that drive leadership behavior that traditional interviews often miss,” it said. “Scientifically validated tools help boards understand how candidates perform under pressure, adapt to change, and engage with teams.”

But testing represents only one component. In-depth career achievement interviews probe how candidates have led through challenges, while 360-degree feedback illuminates how colleagues, direct reports, and peers experience the candidate’s leadership style. Integrating these diverse data points creates a robust picture of leadership capability and potential.

Related: Bridging the Leadership Gap: Succession Strategies For Future-Proofing Organizations

For example, DHR’s Leader Lens Executive Assessment evaluates executives’ proficiency across all aspects of a role specification in order to predict future leadership performance. This approach employs four distinct methods to gather data, effectively assessing an executive’s ability to create clarity, develop people, and deliver results.

With more than 20 years of leadership consulting experience, Justin Menkes has built his reputation as a thought leader with deep expertise in assessing senior leaders in service of business performance and value creation. He is a known entity and author in the assessment and advisory space. Prior to joining DHR, Mr. Menkes worked with multiple search and leadership advisory firms.

“Understanding a candidate’s potential requires a comprehensive assessment approach that examines candidates through multiple lenses to reveal innate strengths and critical development areas,” Mr. Menkes said.

Develop With Strategic Intent 

Once identified, high-potential successors require carefully structured development. Beyond traditional executive education, DHR noted that the most effective programs include:

• Board exposure through special project leadership.
• External board service to gain governance perspective
• Cross-functional leadership experiences.
• Structured feedback and coaching aligned to specific development needs

“The key is tailoring development to individual gaps and organizational direction,” the study said. “As strategy evolves, development priorities must change accordingly.”

Recognize the Signals of Succession Readiness 

Several concrete indicators signal a candidate’s preparedness for the CEO role. First, the candidate’s development track record offers clear evidence, according to the DHR report. “The keys are whether direct reports advance to significant roles, whether top performers choose to follow the leader across positions, and whether the candidate develops and promotes internal talent consistently,” the study said. “Boards should actively seek these verifiable patterns of talent cultivation.”

“At its foundation, exceptional CEO leadership centers on one fundamental capability: the ability to realize the full potential of the organization’s talent,” said Mr. Menkes. “Superior CEOs consistently elicit higher levels of commitment, drive, and performance from their teams compared to their industry peers.”

Pay Attention to How Candidates Make Decisions 

The DHR report also noted that the candidate’s approach to decision-making provides another important signal. “The most effective leaders demonstrate the ability to extract optimal solutions from their teams rather than positioning themselves as the primary problem-solvers,” the firm said. “Leaders who enter the CEO role believing they must personally hold all the answers often become bottlenecks to execution. In contrast, leaders who build trust in the collective intelligence of their teams – and who act on that trust – outperform consistently.”

Look For Constructive Edge and Accountability

Additionally, successful CEO candidates must demonstrate appropriate performance edge – the ability to maintain high standards while engaging constructively with their teams, the DHR report continued. Some leaders underperform, not due to lack of strategy, but due to insufficient accountability. They avoid hard conversations, fail to reset expectations, or tolerate underperformance to preserve relationships.

“On the other hand, leaders who have constructive edge expect the best from their teams and act when team members fail to meet those expectations,” Mr. Menkes said. “They give direct, actionable feedback. They make it clear that underperformance has consequences, while demonstrating care and commitment to the individuals. This quality allows them to uphold accountability while preserving organizational culture and engagement. Boards shouldn’t mistake this quality for abrasiveness. Rather, it’s the rare balance of empathy and rigor that enables a CEO to set a high bar and inspire others to rise to it.”

Three Essential Tips for Successful CEO Transitions

Effective CEO succession requires disciplined execution, the DHR report explained. These board-level actions strengthen internal pipelines, support sound decision-making, and help ensure smooth leadership transitions.

1. Avoid a ‘Horse Race’ Mentality.

Boards frequently encounter organizational and cultural complexities when cultivating internal CEO talent. A significant challenge lies in avoiding a detrimental “horse race” mentality among candidates, which can generate unhealthy internal competition and risk the departure of valuable talent if unchosen individuals feel marginalized, according to the DHR report.

Related: 5 Common Mistakes in Succession Planning and How to Avoid Them

“Boards must manage the process for all stakeholders transparently – especially for those highly qualified candidates who aren’t selected for the top role,” DHR said. “This ensures continued engagement and perceived value, often supported by appropriate retention strategies.”

2. Ensure a Clean Break From the Outgoing CEO.

A frequently observed misstep involves permitting the outgoing CEO to remain in close proximity, whether on the board or as a continued adviser, the DHR report explained. “This practice inevitably creates reporting ambiguity, as internal and external stakeholders may bypass the new CEO, fundamentally undermining the successor’s authority and impeding the leader’s ability to establish a new strategic mandate,” it said. “The governance committee bears direct responsibility for ensuring the former CEO’s complete and timely departure from all official capacities. Despite the deeply personal nature of these conversations – often rooted in long-standing relationships between boards and departing CEOs – boards must execute these decisions for their organizations’ long-term health.”

3. Prioritize Enterprise-Wide Leadership Experience

When evaluating candidates from finance functions, boards must apply particular rigor in assessing their experience in leading diverse teams, the DHR report also noted. “While chief financial officers frequently emerge as default CEO successors due to their comprehensive business knowledge and established board exposure, their historical experience may be limited to leading financially oriented professionals,” the firm said. “Boards should prioritize candidates who have a demonstrated history of leading varied functional teams and inspiring exceptional performance across the entire enterprise.”

Ensure Succession Success

Effective succession planning requires annual evaluation of candidates, strategic talent development, and readiness. “Boards must review succession plans yearly, assessing how potential successors progress while maintaining preparedness for unexpected transitions,” the DHR report said. “This regular cadence allows directors to track candidate development plans and adjust accordingly.”

Successful transitions often hinge on candidates demonstrating immediate readiness. “Boards should expect potential successors to present clear 90-day action plans that articulate specific strategies for advancing organizational priorities,” the report also explained. “This preparation is especially crucial for emergency succession scenarios, where boards must move swiftly yet confidently.”

“Managing the process requires careful attention to talent retention,” Mr. Menkes said. “Boards must maintain engagement among potential successors while avoiding potentially destructive competition. Transparent communication and appropriate retention strategies help preserve key talent throughout the evaluation period. When executed effectively, this comprehensive approach to assessing and developing CEO successors allows boards to confidently make succession decisions, ensuring leadership continuity and organizational advancement.”

Related: What Is Succession Planning and Why Does Your Company Need It Now More Than Ever?

Contributed by Scott A. Scanlon, Editor-in-Chief and Dale M. Zupsansky, Executive Editor  – Hunt Scanlon Media