Ceo Succession
CEO SUCCESSION: THE ULTIMATE MEASURE OF BOARD PERFORMANCE
by Clarke Murphy, The Corporate Board - July/August 2010
Item number one on any description of corporate board duties is hiring and firing of a chief executive. However, success in CEO selection depends in large part on shaping a sound succession process from the board level. Shareholder advocates now see good CEO succession planning as a reflection of the quality of the board itself.
Public debate regarding corporate governance issues tends to focus on one primary topic at a time, depending on the dictates of current events. Classified boards, “overboarding,” director compensation, risk management—the attention of the corporate governance community has been focused on each of these matters in turn during the last dozen years. Progressive boards use these attention cycles to periodically reexamine their key responsibilities in light of evolving best practices.
A topic currently moving to the fore is the role of the board in CEO succession. The economic turmoil of 2008 and 2009 resulted in several unplanned CEO departures, which served as a very public test of those boards’ CEO succession plans. Some boards passed and some did not. However, all boards were served notice that CEO succession planning must evolve beyond an unread binder in the corporate secretary’s office.
This focus of attention became official last October, when the Securities and Exchange Commission issued guidance that companies should no longer expect to be allowed to exclude shareholder proposals regarding CEO succession planning because they dealt with “ordinary business operations.” Reversing a long-held earlier position, the SEC recognized CEO succession planning as a “significant policy issue regarding the governance of the corporation.” As such, it was an appropriate matter for shareholder concern. It is worth noting that SEC reversals regarding acceptable shareholder proposal topics often signal that an issue has achieved a
by Clarke Murphy, The Corporate Board - July/August 2010
Item number one on any description of corporate board duties is hiring and firing of a chief executive. However, success in CEO selection depends in large part on shaping a sound succession process from the board level. Shareholder advocates now see good CEO succession planning as a reflection of the quality of the board itself.
Public debate regarding corporate governance issues tends to focus on one primary topic at a time, depending on the dictates of current events. Classified boards, “overboarding,” director compensation, risk management—the attention of the corporate governance community has been focused on each of these matters in turn during the last dozen years. Progressive boards use these attention cycles to periodically reexamine their key responsibilities in light of evolving best practices.
A topic currently moving to the fore is the role of the board in CEO succession. The economic turmoil of 2008 and 2009 resulted in several unplanned CEO departures, which served as a very public test of those boards’ CEO succession plans. Some boards passed and some did not. However, all boards were served notice that CEO succession planning must evolve beyond an unread binder in the corporate secretary’s office.
This focus of attention became official last October, when the Securities and Exchange Commission issued guidance that companies should no longer expect to be allowed to exclude shareholder proposals regarding CEO succession planning because they dealt with “ordinary business operations.” Reversing a long-held earlier position, the SEC recognized CEO succession planning as a “significant policy issue regarding the governance of the corporation.” As such, it was an appropriate matter for shareholder concern. It is worth noting that SEC reversals regarding acceptable shareholder proposal topics often signal that an issue has achieved a