Poor succession planning is wiping £2bn a year from the stock market value of FTSE 350 companies – equivalent to 0.6% of total UK annual company profits, according to research.
The Investors in People report, prepared by the Centre for Economics and Business Research, analysed movements in share prices between May 2002 and May 2005 for companies experiencing at least one change in CEO.
It found that companies with clear succession plans performed more than 7% better on the markets a week after their change than those that delayed appointing a replacement.
The study reveals that the effect continues in the longer term too. Over the course of the study companies with unplanned successions – where no replacement was immediately announced to the markets – saw their share prices fall by 2.1% more than their peers with planned succession processes. Fifteen per cent of the changes over the three-year period were classified as unplanned.
Ruth Spellman, chief executive of Investors in People UK, said: “This report shows that succession planning can have a major impact on market value, and so clearly is an issue that no company can afford to ignore.
“Businesses need to have systems in place to ensure that they are prepared when senior managers leave whether it is expected or not,” she added.