Tag Archives: succession planning

CEO turnover and succession planning

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Selecting a new CEO is one of the board’s most important responsibilities and represents a critical moment in a company’s history. A smooth transition is necessary to maintain the confidence of stakeholders. This is why a well defined succession plan is needed.

The annual study, by Booz & Company, on CEO turnover among the largest 2 500 public companies revealed that in 2012, 15% of CEOs left office. This is the second-highest rate of CEO turnover since 2000. With this rate rising, companies are becoming more proactive about the CEO succession process. The amount of planned successions reached 72% in 2012, the highest in the 13 years history of the study and forced turnovers represented 19%, their second-lowest share ever. This indicates that companies take a more thoughtful approach to transitions and to ensure they put in place new leaders who will best serve the company for years to come. These new CEOs are for the most part familiar faces. Indeed, 71% were people already working in the company when they became CEO. This represents a significant decrease from previous years with an average share of insiders of 80%.

Interestingly, in planned successions, the share of insiders has dropped from an average of 82% between 2009 and 2011 to 70% in 2012. With careful and thoughtful plans, it seems that companies feel stable enough to take a bit of a risk on an unknown leader. Moreover, these risks were reduced since 56% of the outsiders came from the same industry as their new company.

Also, 81% of the new CEOs were from the same country as the company’s headquarters and 95% were men. The proportion of women reaching a CEO position has risen from an average of 3 % over the last 3 years to 5% in 2012, but still remains a tiny share.

Regarding the apprenticeship model, (the outgoing CEO remains or becomes chairman of the board and can “apprentice” the incoming CEO), this happened in 29% of turnovers in 2012. In this case, the share of an insider named CEO reached 92%. Companies in Brazil, Russia, and India had the highest increase in turnover rates between 2007 and 2012 (15.4% to 23.9%) and the highest increase in share of planned turnovers (8.8% to 15.5%). The telecom and utilities industries had the highest turnover rates in 2012 (both at 24%), closely followed by energy (21%). The lowest turnover rate was in the consumer discretionary industry with 9%.

> Read the full study by Booz & Company

Everyday Governance: “in-camera sessions”

When a board decides to discuss private matters like management, employee negotiations, law enforcement matters, reviewing the functioning of the Board… They have an “in-camera session”, this refers to a closed meeting of the board where only board members and possibly specifically chosen others may attend. All non board members and management such as the CEO, are “recused”, this means removed from participation in a decision on a matter because of a conflict of interest or a position.

This allows the board to discuss freely about some topics which could be difficult if the people concerned were present, especially when it concerns their performance. This provides an opportunity for the board to share their views, discuss results and develop recommendations for the future of the company. Except for the absence of some individuals, the session unfolds like an open session. There is an agenda and the same decision making process.

Note that in-camera sessions should be held regularly, for instance 15 minutes at the end of each board meeting; otherwise it may put a lot of stress on the management since they will suspect that a special request for a private session is to talk about them.

Guide for Nonprofits Boards Candidates

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You certainly want to join the board of an organization where you find the mission meaningful. But be careful not to wind up in a situation that you will regret. You can save yourself and the non-profit from a bad match by taking a few steps before committing to join a board.

 

 

Here are 10 recommendations to candidates in considering a non-profit:

 

  • Meet with the organization’s chief executive officer — sometimes referred to as the executive director. The CEO’s effectiveness is essential to the organization’s success, so getting a sense of the CEO is important. Additionally, the CEO is likely to have a say in who is selected for the board, so meeting is an opportunity for you to establish rapport. And, the CEO should be able to bring the organization’s work to life and help give you insights into items 2-9 below.

 

  • Understand the work of the organization and how it assesses its effectiveness. It’s a good idea to visit at least one program site to see the program(s) and staff in action. Do they use a board Portal? Are they evaluating themselves? etc…

 

  • Find out the size of the budget and the revenue model: what percentage of funding comes from government, fees for services, and philanthropy — corporations, foundations and individuals. When you know where the money comes from, or where it might be augmented, then you can better understand how the board can be useful to the CEO in building revenues.

 

  • Find out who is chairing the board, and how they regard their role as chair and the role of the board. Try to get a sense of the rapport between the chair and the CEO. See who serves in the other officer positions. And ask if there is a plan for leadership succession.

 

  • Meet with at least one board member, ideally a board member in a leadership position, such as the chair of the board governance committee (nominating committee) or board chair.

 

  • Review the list of board members and their backgrounds to find out the caliber and diversity of experience and backgrounds. Find out the extent to which they are contributing financially and otherwise. This will also help you understand if you have something to add that others might not bring to the table and the likelihood of your being a fit for the board.

 

  • Ask what will be expected of you as a board member, in terms of attendance at board meetings, participation on committees, financial contributions, fundraising and anything else.

 

  • Ask for and read the following items: the organization’s bylaws, most recent audit and management letter, budget, a strategic plan if there is one, and organizational materials.

 

  • Find out the size of the organization’s cash reserve. Also check if there is an endowment, whether the organization is cutting into it, and the implications and long-term plan related to the endowment.

 

  • Google the organization to see if there were any past problems.

Don’t be scared away by an organization that has challenges. That’s exactly why they need you. Furthermore, your sense of reward and satisfaction will be magnified by your ability to be useful.

 

The key is finding the right board for you, and going in with your eyes wide open.

 

 

Read the full article: LinkedIn Board Connect: 10 Things Board Candidates Need To Know

A Practical Guide to CEO Succession Planning

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By Clarke Murphy, Managing Director at Russell Reynolds Associates

In Touch with the Board – Russell Reynolds Associates’ in touch with the Board series addresses best practices in board composition, assessment, succession planning and other critical corporate governance issues. In this issue, Clarke Murphy and the CEO/Board Services Practice discuss the specific elements and timeline of a successful CEO succession plan, as well as the steps necessary to ensure a smooth transition.

The transition from one CEO to another is a critical moment in a company’s history. A smooth transition is essential to maintain the confidence of investors, business partners, customers and employees and provides the incoming CEO with a solid platform from which to move the company forward. A properly designed and executed succession plan is vital for any successful transition.

CEO vacancies can be planned or unplanned. In either scenario, by the time a succession plan is needed, it is far too late to start building one, and it is incumbent upon the board to make succession planning a priority, even in the face of more immediate and tangible issues. In addition to mitigating risk, succession planning brings with it several beneficial byproducts:

• It provides a framework that drives senior executive development, aligning leadership at the top of the enterprise with the strategic needs of the firm.
• It gives the CEO, through an ongoing analysis of the job requirements, the opportunity to adjust his/her role in light of changing business conditions and strategic imperatives.
• It strengthens the relationship and information flow between the board and senior management through the regular contact that is part of the board’s review of candidates.

Russell Reynolds Associates regularly advises boards and CEOs on chief executive officer succession planning, and, from this experience, we have developed the following practical guide.

This is an extract from the article Busmanagement.com


Sudden Death of a Ceo : Death and Succession planning

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Sudden Death of a Ceo : Death and Succession planning 

By Professor, David F. Larcker and Brian Tayan, Researcher, Corporate Governance Research Program, Stanford Graduate School of Business

It is very difficult for shareholders to know detailed information about CEO succession planning among the companies they have invested in.  Although CEO deaths are rare, the sudden death of a CEO can provide insight into the quality of succession planning and governance of a company.  Whereas some companies are able to appoint a successor immediately, others take weeks or months to do so.