UPS founder Jim Casey, who retired in 1962, is ever present in the black-and-white photos that hang on the company's boardroom walls. An even more lasting legacy, however, has been his insistence on promoting executives from within, a practice that is still zealously followed today. CEO Mike Eskew climbed the ranks over some 33 years, CIO Ken Lacy over 37 years. Now the next generation is taking its place at the shipping giant: On Christmas Eve 2004, Dave Barnes was ushered into the boardroom and given the CIO reins after 28 years at the company as a finance manager, technologist, executive and leader.

Barnes's coronation as just the third CIO in UPS's 98-year history was actually quite low-key, the way the unassuming Casey would have preferred it. Eskew did most of the talking, explaining to Barnes the dual requirements that came with his new job: on one level, as the CIO and head of IT; on the other, as a member of the company's management committee. "Of course, my heart was pounding," Barnes recalls. "Up to that point, it wasn't a lock that I got the job."

Barnes hadn't been the only candidate for the CIO spot. "I had two or three people in the pipe," says Lacy, who retired in February. But during the previous two years, Barnes distanced himself from the others. He had everything Eskew was looking for: leadership, innovation and execution skills. "You don't do the things that Dave has been able to do if you can't lead or you can't execute," Eskew says. "It's not like taking a chance on someone from the outside."

Of course, it's become commonplace for American companies to do precisely that when looking for an executive. UPS's policy of promoting from within seems as old-fashioned as lifetime employment and pension plans. Recruiting company Heidrick & Struggles says that nearly 60 percent of the Fortune 250 go outside to hire at the enterprise or divisional levels. The percentage is probably higher at companies in the next tiers of revenue, which tend to have difficulty maintaining a deep bench of executive talent.

Yet succession planning is good for companies, because it creates a proven leadership model, preserves institutional memories, smooths business continuity and builds staff morale. And succession planning is good for CIOs and other executives, especially when accompanied by development programs that broaden leadership skills, because it helps them look beyond their current position. The risks of having no executive succession plan are increasing, according to Bill Rothwell, author of three books on succession planning. He points to a couple of reasons: an aging U.S. workforce that thins companies' executive talent as senior employees retire and, perhaps surprisingly, the threat of terrorism (172 corporate VPs lost their lives in the 9/11 attacks on New York, he says).