Fortune reporter Natalie McCormick here, filling in for Brit Morse.

CEOs aren’t born, they’re bred. Take PepsiCo, a leading incubator of CEO talent within the Fortune 500. By 2022, 16 of its alumni were at the helm of Fortune 500 companies, a testament to its robust leadership development efforts. 

Much of this success can be credited to the company’s HR department, which runs extensive programs to identify and nurture high-potential leaders. HR teams play a pivotal role in developing the next generation of corporate leadership and can serve as strategic partners in succession planning, given that many CEO appointments are internal promotions. Done well, HR’s efforts to cultivate talent helps ensure that organizations are equipped with a bench of leaders who deeply understand the company’s culture, operations, and vision.

The importance of fostering future CEOs was highlighted this week with the release of Fortune’s inaugural Fortune Next to Lead: The 25 Most Powerful Rising Executives in the Fortune 500 list. It features promising executives poised to lead Fortune 500 companies, many of whom have held diverse roles and led impactful projects that accelerated their career growth.

Building infrastructure to support experiential development should be a top priority for CHROs. According to German Herrera, U.S. managing partner at executive recruiting firm Egon Zehnder, nearly three-quarters of CEO appointments the firm facilitates are internal. “Bringing somebody from the outside directly into the CEO role is very traumatic. Unless there’s a big change, a big turnaround, or a significant issue, boards don’t want to take that risk,” he explains. External candidates often lack a thorough understanding of the company’s needs, its products, internal relationships, and additional institutional knowledge that insiders possess, making internal promotions the preferred choice in most cases. 

Jane Edison Stevenson, Korn Ferry’s global vice chair of board and CEO services, highlights the importance of horizontal moves for rising leaders early on in their careers so that they can gain a comprehensive understanding of the business. “Operating roles, financial roles, product roles—those kinds of roles that really give you fundamental understanding of the organization that you’re leading, and then an overlay of people leadership,” she says. 

At PepsiCo, the leadership development program emphasizes critical leadership skills, mentorship, and coaching from experienced executives. It also exposes participants to various roles and responsibilities within the organization. This approach fosters broad business experience, helping rising leaders avoid becoming overly specialized in a single area. Rick Western, CEO of Kotter, warns that high-potential employees who are too narrowly focused before reaching the highest ranks can possess significant blind spots, as individuals may overestimate their expertise in one domain while remaining resistant to new concepts. “You might not be open to listening to new ideas from that area because you’re too vested in the fact that you have your own expertise that you’ve built up over years,” he says.

Natalie McCormick
natalie.mccormick@fortune.com

Today’s edition was curated by Brit Morse.

Around the Table

A round-up of the most important HR headlines.

During a news conference on Monday President-elect Donald Trump sided with Elon Musk, Vivek Ramaswamy, and the Department of Government Efficiency’s plan to dismiss federal employees who don’t return to the office. Washington Post

Amazon knew there were links between elevated production quotas and higher injury rates amongst employees, according to an investigation published by the Senate labor committee. New York Times

In a new pilot program, Walmart is having some retail employees wear body cameras as a way to better detect theft in stores. CNBC

Watercooler

Everything you need to know from Fortune.

Keeping the office alive. One-third of companies say that their company’s lease agreements are the anchoring force behind return-to-office policies. —Jane Thier

Working after hours. Lisa Su, the billionaire CEO of chipmaker Advanced Micro Devices, says she often asks staff to come in for meetings on Saturdays and isn’t afraid to call up managers after hours, even after midnight. —Orianna Rosa Royle 

RTO edict. AT&T is asking staff to return to the office five days a week beginning in January. —Eleanor Pringle