No Question, Traditional Succession Planning Is Failing Your Organization

It is a big deal when the CEO announces their retirement. The company alerts employees with an announcement, issues a press release, names a successor, and holds a blowout party.

But when ‘Sarah,’ the only computer programmer at the company who understands Cobol retires, she might enjoy a piece of cake with a few of her office mates, they wish her well, and she is out the door.

‘Sarah’s’ departure, however, could spell serious problems that the executives at the top of the ‘org chart’ haven’t thought of:

• Who else at the company understands Sarah’s job?
• Is there someone who can quickly replace her?
• Does anyone at the company even understand COBOL, the ancient computer programming language still used today?

This scenario is playing out at companies across the country as baby boomers retire in droves. As of now, boomers hold 33% of all US jobs, and 10,000 baby boomers are reaching retirement age every day. By 2030, all boomers will be 65 or older, marking the first time in US history that older adults will outnumber children.

What this means for business is clear: corporations are facing a succession crisis, and it is not just at the top. These departures represent an unprecedented exodus of experience and knowledge from the American workforce. The impact is already being felt. Nearly $1 trillion in market value a year has been erased from S&P 1500 companies due to poorly managed leadership transitions, according to a recent article in the Harvard Business Review.

The HBR case study written by Claudio Fernandez-Araoz, a global expert on leadership and talent, family businesses, and personal growth, Gregory Nagel, professor of finance at Middle Tennessee State University, and Carrie Green, the director of equities for the Tennessee Consolidated Retirement System, examines Microsoft’s poorly executed executive search to replace CEO Steve Ballmer in 2013.

The company “cast a wide net,” taking into consideration more than 100 executives for the job, the experts wrote. After an arduous search that concluded six months after Ballmer said he no longer wanted the position, Microsoft named Satya Nadella its new CEO. Nadella was a company insider, the executive vice president of Microsoft’s cloud and enterprise group.

“Like Microsoft, many large companies fail to pay adequate attention to their leadership pipelines and succession processes,” the authors note. “And most of them don’t get as lucky as Microsoft did. In our combined nine decades of experience in executive search and talent development (Claudio), professional investment (Carrie), and management and financial research (Gregory), we’ve seen flawed succession practices lead to excessive turnover among senior executives and, in the end, significant value destruction for companies and investment portfolios.”

The numbers are not fiction but actually impact investors.

“We estimate that better succession planning could help the large-cap U.S. equity market add a full point to the 4% to 5% annual gains that Wall Street projects for it. In other words, company valuations and investor returns would be 20% to 25% higher,” the authors continue.

The Real Succession Crisis Is Not Just About Leadership

The cost of replacing a single employee can reach up to 213% of their salary, according to The Center for American Progress, an independent, nonpartisan policy institute.

But this figure fails to capture the true impact of losing deep operational expertise. A recent survey by the National Institute on Retirement Security found that 83% of Americans believe all workers should have access to retirement planning and knowledge transfer programs – yet most organizations still lack comprehensive succession strategies that extend beyond the C-suite.

This knowledge gap is particularly critical as organizations navigate digital transformation. Legacy systems, which often form the backbone of operational infrastructure, require both maintenance and careful transition. As companies adopt new technologies the expertise needed to bridge this gap typically resides with experienced workers who are now approaching retirement – the same workers who are often overlooked in traditional succession planning efforts.

Why Traditional Approaches Are Failing

The conventional approach to succession planning – focusing primarily on leadership roles and using standardized development programs – is inadequate.

Data from Pew Research Center and the Bureau of Labor Statistics shows that the US workforce is not just aging, it’s transforming fundamentally, with the number of workers aged 65 and older growing by 117% in the past 20 years. This approach fails to address:

• The tacit knowledge embedded in day-to-day operations
• The intricate understanding of legacy systems and processes
• The nuanced problem-solving skills developed through years of hands-on experience
• The cultural and historical context that influences decision-making

A New Paradigm: Comprehensive Knowledge Retention

What is the solution? Leadership must be open-minded and embrace succession planning strategies that address these critical gaps, preferably a methodology that goes beyond traditional leadership pipeline development, to create a comprehensive knowledge retention strategy that:

• Rapidly diagnoses critical knowledge gaps across all organizational levels
• Creates customized knowledge transfer programs that capture both explicit and tacit knowledge
• Facilitates smooth transitions between legacy and new technologies
• Builds a culture of continuous learning and knowledge sharing

The wave of baby boomer retirements isn’t coming – it’s here. More than 2.4 million excess retirements occurred during the pandemic alone, accelerating a trend that was already reshaping the American workforce, according to the Federal Reserve Bank of St. Louis.

More sobering is that the largest cohort of the baby boom generation – known as the ‘Peak Boomers’ – will be retiring en masse over the next several years. They were born between 1959 and 1964 and began turning 65 in 2024 and will continue reaching that magic number through 2029, according to the Washington, D.C.-based Alliance for Lifetime Income, a non-profit educational organization that advocates for protected lifetime income in retirement.

An analysis by the Alliance shows “18 economic sectors are likely to experience a loss on average of 10.1 percent of their current workforce over the next five years as 14.8 million Americans are anticipated to retire from their jobs.”

Hardest hit sectors include utilities, which anticipate workforce retirements of 16.7%, manufacturing, 11.8%, and construction, 10.5%, according to the Alliance.

Companies that fail to act now risk losing not just their leadership pipeline, but the very knowledge foundation that has built their success. The question isn’t whether you need a comprehensive succession and knowledge retention strategy, but whether you’ll implement one before it’s too late.

This article was originally published on May 12, 2025, by Joe Poling. The original article can be found on Financial Poise.

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