Building a Succession Plan: When Internal Promotions Fall Short
Promoting from within can preserve institutional knowledge, reward strong performance and support retention. But an internal candidate who excels in their current role may not be ready for a senior finance or C-suite position.
Effective succession planning is not a promise to promote a particular person. Instead, it’s a smart way to prepare for critical vacancies, assess internal talent objectively and identify when an external hire may better meet the organization’s needs.
Start with the role, not the candidate
Before naming potential successors, define what the role will require in the next few years. A CFO needed to strengthen controls may require a different background from one expected to lead a transaction, fund growth or prepare a company for sale.
Clarify the business priorities, reporting relationships, leadership expectations and key outcomes. Then identify the capabilities required to deliver them. For senior finance roles, these might include strategic planning, capital markets, M&A, transformation, investor relations, risk management or experience working with a board.
This role-first approach helps prevent a common mistake: shaping the job around a favoured internal candidate rather than assessing what the business actually needs.
Assess both readiness and gaps
Evaluate internal candidates against the role’s requirements, using evidence rather than tenure, reputation or personal chemistry. Consider their results, scope of responsibility, judgment, ability to influence peers and experience leading through complexity.
Distinguish among three categories:
Ready now: Has demonstrated the core capabilities required.
Ready with development: Could succeed after gaining specific experience or support.
Longer-term potential: Shows promise but needs significant growth before taking on the role.
For candidates who need development, create a practical plan. Stretch assignments, cross-functional work, mentoring and exposure to board-level decisions can help build readiness.
Set a timeframe and clear milestones; “potential” should not become an indefinite reason to postpone a decision.
Be honest about the gaps. A strong controller may need broader commercial exposure before becoming CFO. A divisional leader may need experience managing enterprise-wide change before stepping into a CEO role. Development can close some gaps, but not always quickly enough for the organization’s needs.
Know when to look externally
An external search may be appropriate when no internal candidate has the experience required, when the business needs a new capability or perspective, or when the role must be filled faster than internal development allows.
Look beyond the question of whether an internal candidate is capable in general. Ask whether they are equipped for this specific role, at this point in the company’s development. A business entering a major restructuring, acquisition or international expansion may need expertise that is not currently available on the leadership team.
External hiring also brings risks: a new executive needs time to learn the organization, build relationships and understand its culture. Compare those transition costs with the risks of appointing someone who is not ready. The right decision is the one that best supports the business.
Keep the process fair and credible
Succession planning can affect morale, especially if employees believe a role has already been promised to someone. Communicate that succession plans are possibilities, not guarantees, and avoid naming successors without a genuine assessment and development process.
Use consistent criteria for internal and external candidates. A fair comparison should consider relevant performance, experience, leadership capability and fit; not familiarity alone. At the same time, do not discount internal candidates simply because an external search may appear more objective.
Update the plan regularly. Business strategy changes, candidates develop or leave, and the demands of a role can shift. A succession plan that is not reviewed can create a false sense of security.
Use executive search to test the market
An executive search firm can help assess whether internal candidates are ready and how their experience compares with the external market. It can define the candidate profile, map relevant talent and provide a confidential view of potential external options.
This does not mean an external hire is inevitable. Market insight can strengthen an internal appointment by testing the organization’s assumptions and clarifying the capabilities needed. If an external candidate is required, an experienced search partner can help reach senior leaders who may not be actively seeking a move.
Engage a search firm early enough to support the decision; not only after an unexpected departure has created urgency.
The bottom line
A strong succession plan develops internal talent while keeping external options open. It identifies the skills the business will need, measures internal candidates against those requirements and sets out what development can realistically achieve.
Promote internally when the evidence supports it. Look outside when the role demands capabilities the organization cannot develop in time. The goal is not to favour one route, but to have credible choices before a leadership vacancy becomes a crisis.
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