How do your board practices compare with other private and public companies in planning for CEO succession?
This is the eighth and final posting in our series on the results of the Society of Corporate Secretaries and Governance Professionals’ “2011 Board Practices Report”, which we have used as a benchmark to compare your board’s governance practices.
CEO Succession Planning
Below are the results of the Society’s survey of the following questions regarding CEO succession planning:
Click here to view table
Generally speaking, the most important responsibility of a board of any organization is its selection of the CEO: Assuring, in the word of Robert Joyce, recently retired CEO of Ohio Farmers Insurance Company, that the “right person is in the right job.”
That responsibility; however, should not stop after selecting a CEO. The board has a continuing responsibility to assure that both the board and management know who is in charge if the CEO is unable or no longer available to serve in that position. This requires both a short-term plan for what happens if the CEO becomes ill or is otherwise out of day-to-day communication with the organization as well as a long-term plan for the CEO’s training, or helping the board to find, the CEO’s ultimate successor.
Not surprisingly, all public and private companies reporting in the Society survey report their companies have CEO succession plans.
Public company boards are more likely to have the full board review the succession plan at least annually, with 93 percent of public-company directors reporting doing so as compared to 70 percent of private-company directors reporting doing so.
The responsibility for assuring that a plan exists generally rests with the board as whole, with 37 percent of public company directors, and 48 percent of private-company directors, reporting this is the responsibility of the entire board. Nevertheless, 24 percent of both public-company and private-company directors report that this is a responsibility of the compensation committee.
Finally, only 21 percent of public-company directors and 22 percent of private-company directors report that their succession plan is the responsibility of their board chair (or lead outside director) or their CEO. Our experience has been that, before the year 2000, a greater percentage of companies would have reported that the succession plan was the responsibility of the board chair and CEO.
The Society’s 2011 Report is available at the Deloitte Center for Corporate Governance at http://www.corpgov.deloitte.com/site/us/ as the “2011 Board Practices Report” under the page “Board Governance.”
Although this completes our eight-part series of blogs on the board practices reflected by the Society’s Report, we will have two more postings based upon the Society’s survey: one reflecting the types of expertise and training present among the directors of the board of the reporting companies and the other reflecting the career and working experience present among the directors of those same boards.