Succession Planning Under the Fed Guidance for Large Financial Institutions
Last week I posted on Supervisory Guidance on Board of Directors’ Effectiveness issued by the Board of Governors of the Federal Reserve System, which is not just for readers who work with financial institutions. Guidance like this is generally a key to the direction of future best practices. One issue I did not cover, but would now like to mention briefly is succession planning. As I described last week, one of the five “Attributes of an Effective Board of Directors” set forth by the Fed is Oversee and Hold Senior Management Accountable. On this point, the Guidance states:
Consistent with safety and soundness, compliance with laws and regulations, and the firm’s strategy, an effective board oversees succession plans for the CEO, and depending on the size, complexity, and nature of the firm, the chief risk officer, chief audit executive, or other senior management officials.
The Fed acknowledges that this “may extend beyond requirements to which firms may be subject under other statutory and regulatory authorities,” observing that the NYSE requires formalized succession planning for the CEO only. In our experience, however, most boards request to be informed of the succession plan for all of the executive officers. For most boards, succession planning falls under the heading of human capital management and compensation committee responsibilities. Now, add to that list, the chief risk officer and chief audit executive, at least for financial institutions.
-Mike Melbinger, CompensationStandards.com March 29, 2021
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