CEO succession has been near the top of business news cycles lately – last week’s news about Jeff Bezos stepping down as Amazon’s CEO certainly played a part. One key board responsibility relates to CEO succession planning. Investors expect boards to have a plan and when the need arises – to appoint a new CEO in due course. As boards need to deal with views of multiple stakeholders, one dilemma is what the board should say to investors and a SquareWell Partners report says it found only 20% of companies that have appointed a new CEO since January 2019 provided comprehensive disclosure of their succession planning process.
Some companies aren’t in a position like Amazon – where the company’s announcement named Andy Jassy as incoming CEO. Jassy reportedly previously described himself as Bezos’ shadow – and the announcement also said Bezos will transition to executive chairman. To underscore the importance of CEO succession planning, the SquareWell report cites research that found companies that are unprepared to appoint a successor in a timely manner lose on average $1.8 billion in shareholder value. The report notes, when it comes to succession planning, it’s understandable that companies may want to hold their cards close to the vest, but investors want reassurance that boards are ready to act. Here’s an excerpt about succession planning disclosure that can help reassure investors:
There might be a misunderstanding that investors expect to learn the names of potential successors or to micromanage the choice of the next leader while what they actually want is to see evidence that the board is fulfilling its fiduciary duty and is ready to ensure a smooth transition for all scenarios.
Companies taking succession planning seriously should allow different executives to gain experience in engaging with investors. Investor focus should be on the frequency of the review of the succession plans and asking boards how they ensure that the pipeline of potential candidates and the successor profile are always aligned with the evolution of the company’s strategy. Investors could also question the company’s leadership development programs to understand how the leaders of tomorrow are being groomed. The quality of the board’s answers to these questions should reveal how prepared the board really is to face the next CEO transition.
For a look at trends in Russell 3000 and S&P 500 succession practices, Heidrick & Struggles and The Conference Board recently issued their “2020 CEO Succession Practices” report. The report discusses trends, the Covid-19 impact on succession planning and predicts that if company performance continues to be unsteady, it’s likely more boards will face the need to navigate a leadership change sooner than they might have anticipated. And for more practical insights about CEO succession planning, check out the transcript from our webcast “CEO Succession Planning in the Crisis Era” – there you’ll find tips about disclosure issues and steps boards and advisors can take now!
-Lynn Jokela, TheCorporateCounsel.net February 8, 2021
