Sir Terry Leahy's departure from Tesco is a benchmark for succession planning. Too often chief executives are not given enough time to bring rewards or outstay their welcome

What makes a good chief executive? Surveys seek to define and distil the essence of success, or identify a leadership gene. But for a blueprint, you need look no further than to Sir Terry Leahy, whose recent announcement that he will leave Tesco next March after 14 years at the helm prompted a slump in the share price. Leahy said he had achieved his twin ambitions of making Tesco Britain's biggest supermarket chain and taking the business overseas. New brooms at any company might have similarly lofty aims: the difference is that Leahy has had time to achieve them.

Far less common are his long-held aims to develop a purpose and values that can sustain an organisation through its challenges and to "encourage and grow future leaders". His work on this front was almost complete, he stated. The timescales are salutary: it takes many years, not a few short months, to build a culture of sustainable success.

A correlation of share price moves and chief executive tenure bears out this truism. A survey from Korn Ferry/Whitehead Mann found that the average share price gain for a company whose leader has been in post for between four and 10 years is 137 per cent. Veteran chief executives, of 10 to 15 years' standing, are associated with rises of more than 400 per cent. On the other hand, during the first four years of a chief executive's reign, the share price remains largely stagnant. Yet how long is the average FTSE-100 chief in post? Four years.

These findings don't tell the whole story, of course. You wouldn't want to hang on to a bad leader for too long. Also, some chief executives are more concerned with their own career trajectory than with the long-term success of the company where they are, fleetingly, residing.

What's more, while most chief executives are undoubtedly in post for too short a time, others outstay their welcome. Sir Clive Thompson, who earned the soubriquet "Mr 20 per cent" for the consistent year-on-year earnings growth he achieved during his 20-year tenure at Rentokil, ultimately fell foul of investors who feared long-term investment was being sacrificed on the altar of short-term profit expectations.

Clearly, a hallmark of a successful chief is the ability to time their exit. And Leahy is wise to quit while he's ahead. After all, Tesco can't keep expanding indefinitely. And at the point where growth did start to slow, precedents suggest that people would bay for his blood.

But what differentiates Leahy's departure from moves that seem cynically timed to pre-empt major problems coming to light is that it is considered and his succession is carefully planned. And Tesco has not parachuted in a saviour from another industry. The chief executive designate, Philip Clarke, a largely unknown quantity to outside investors, has been with the company man and boy, and runs the international side of the business.

Long tenure is not unusual at Tesco: Leahy is only the fifth man to run the company since Jack Cohen started it in the 1920s. He is both a product of, and perpetuator of, the Tesco culture. Clarke seems to be cut from the same cloth. Like Leahy, he is likely to be low key, low profile and ambitious primarily for the business rather than himself.

Good succession planning leads to good tenure, not too long and not too short. It may involve bringing in people from the outside, but the best companies typically hire new blood earlier on in their careers, and then grow and develop them within the business.

But despite the link between good succession planning and sustainable success, it comes way down most companies' list of priorities. Just eight per cent of respondents to the Korn Ferry survey rated their succession planning as excellent. Most see it as "an event" and deal with it reactively, rather than as a continuous process.

A new Securities and Exchange Commission ruling in the US stipulates detailed disclosure of succession plans. Perhaps UK regulation could take this development a step further, and award chief executive bonuses retrospectively—at least five years after departure—based on positive movements in the share price brought about by a successor.