In our study, CEO Succession Practices (2013 Edition), which The Conference Board recently released, we document and analyze 2012 cases of CEO turnover at S&P 500 companies. The study is organized in four parts.

Part I: CEO Succession Trends (2000-2012) illustrates year-by-year succession rates and examines specific aspects of the succession phenomenon, including the influence on firm performance on succession and the characteristics of the departing and incoming CEOs.

Part II: CEO Succession Practices (2012) details where boards assign responsibilities on leadership development, the role performed within the board by the retired CEO, and the extent of the disclosure to shareholders on these matters.

Part III: Notable Cases of CEO Succession (2012) includes summaries of 11 episodes of CEO succession that made headlines in the past two years and that were carefully chosen to highlight key circumstances of the process.

Part IV: Shareholder Activism on CEO Succession Planning (2012) reviews examples of companies that have recently faced shareholder pressure in this area.

The following are some of the major findings discussed in the study:

…continue reading: Statistics on CEO Succession in the S&P 500

The recent study by the well-respected women business leadership group The Boston Club, in their Census of Women Directors and Executive Officers in Massachusetts Public Companies exposed “We are frustrated by the large numbers of companies that persist in ignoring the business imperative for a diverse board.”

The diversity quotient is indeed problematic as the Census found that across Massachusetts’ largest 100 public companies, only 12.7% of board directors are women – and this a 1.6 % increase over 2011. More than a third of the top 100 companies still have all male boards. And, interestingly, less than 2% of the 850 director seats in the Census are held by women of color.

So while diversity is championed by many with virtually no opposition, the progress is slow to materialize at the highest levels of corporate governance. Some ponder that the mindset of a “culture of the familiar” permeates people decision-making in the boardroom, where like meets like and relationships have historically been key to nominations and ultimately appointments of new board members. And, since only a select number of openings arise each year on boards, the slow turnover process only exaggerates an already lagging pace of change.

…continue reading: Time for Self-Reflection and Pragmatism in the Boardroom

Selecting the chief executive officer and planning for CEO succession are among the most important responsibilities of a company’s board of directors. In ideal circumstances, the succession process will be managed by a successful and trusted incumbent CEO, with the board or a board committee overseeing the process, reviewing the candidates and providing advice throughout. However, in exceptional circumstances, such as when the board lacks full confidence in the incumbent CEO or when a crisis occurs and the normal succession process cannot be utilized, the board will need to take the lead in managing this crucial task. The challenge of CEO turnover is one that boards may face more often than they would like. One source estimates that 40 percent of new CEOs depart within 18 months of their appointment, while 64 percent depart within four years. [1] Nor is the transition inexpensive: The cost of replacing a CEO can range from several million dollars for small-cap firms to tens of millions of dollars for large-cap firms. [2]

In 2011, the CEO turnover rate increased as compared to the previous two years. [3] High-profile resignations and hirings occurred at household-name corporations such as Hewlett-Packard, PG&E, Yahoo!, Costco, and Sara Lee. With the recent publicity surrounding the resignation earlier this month of Yahoo! chief executive Scott Thompson, CEO selection and succession issues have come once again to the fore. Directors facing these challenges should keep in mind that the attitude and smooth functioning of the board are crucial to a sound process and good result, and that the fates of the board and its chosen CEO often are inextricably entwined.

…continue reading: Advice for Boards in CEO Selection and Succession Planning

In our study, CEO Succession Practices (2012 Edition), which The Conference Board recently released, we document and analyze 2011 cases of CEO turnover at S&P 500 companies. The study is organized in four parts.

Part I: CEO Succession Trends (2000-2011) illustrates year-by-year succession rates and examines specific aspects of the succession phenomenon, including the influence on firm performance on succession and the characteristics of the departing and incoming CEOs.

Part II: CEO Succession Practices (2011) details where boards assign responsibilities on leadership development, the role performed within the board by the retired CEO, and the extent of the disclosure to shareholders on these matters.

Part III: Notable Cases of CEO Succession (2011) includes summaries of 10 episodes of CEO succession that made headlines in the past two years and that were carefully chosen to highlight key circumstances of the process.

Part IV: Shareholder Activism on CEO Succession Planning (2011) reviews examples of companies that have recently faced shareholder pressure in this area.

…continue reading: CEO Succession Practices

The SEC enforcement agenda and whistleblower bounty program, CEO succession, executive compensation, and IT risk were among the issues on audit committee members’ minds as they met in December and January at three audit committee peer exchanges hosted by the PwC Center for Board Governance. The exchanges were part of the 2011 Year-end considerations for audit committees seminar held in Arizona, New York and Florida.

PwC Vice Chair, Assurance, Tim Ryan facilitated the exchanges, which included over 200 audit committee members. Following are the major recurring themes at each of the venues.

Compliance

Among all the rulemaking and enforcement actions that have taken place over the past year, one that caused significant consternation among the audit committee members is the new SEC whistleblower bounty program. Many are concerned about the program undercutting existing company whistleblower programs that came into existence following the passage of the Sarbanes-Oxley Act in 2002. That law calls for public company audit committees to oversee whistleblower hotlines.

…continue reading: Top Concerns for Directors in 2012

All directors share the responsibility of helping a board resolve challenging board issues. Lead directors, however, frequently guide the board through critical situations. Although there are many different issues that a board may encounter that are well suited for a lead director’s involvement, a lead director often plays a key role in resolving the following four challenges: (1) handling individual director performance issues, (2) responding to an underperforming CEO, (3) bringing new directors on board, and (4) preparing for lead director succession.

The Lead Director Network (the “LDN”), a group of lead directors, presiding directors and non-executive chairmen from many of America’s leading companies, met on November 1, 2011 to discuss their role as lead directors in these and other challenges. Following this meeting, King & Spalding and Tapestry Networks have published a ViewPoints report here to present highlights of the discussion that occurred at the meeting and to stimulate further consideration of these subjects.

The following provides highlights from the LDN meeting, as described in the ViewPoints report.

…continue reading: Challenges in Board Leadership

When individuals are approached to join the board of directors of a public or private company, they are often thrilled by the opportunity to provide strategic guidance and advice to a new business enterprise, build new relationships with board members and perhaps transition to a new point in their careers.  However, it is rare for a nominee to complete adequate and systematic due diligence on the prospective company and the members of its board of directors prior to joining.

The premise of this article is simple: due diligence should be a two-way endeavor, undertaken by the company as well as the nominee.  This article provides practical advice for prospective nominees regarding the more refined issues they should consider and the questions they should ask prior to joining a board. With these inquiries significant considerations may be identified and then used in a nominee’s decision calculus.

…continue reading: Due Diligence Considerations for Nominees

Brian Tayan and I recently co-authored a book, titled Corporate Governance Matters, which takes an organizational perspective, rather than a legal perspective, on the important topic of modern corporate governance. Our purpose is to examine the choices that organizations can make in designing governance systems and the impact those choices have on executive decision-making and the organization’s performance. The book relies on an extensive body of professional and scholarly research, and aims to correct misconceptions and cut through the considerable rhetoric surrounding corporate governance. We hope the book provides a framework that enables practitioners to make sound decisions that are well supported by careful research.

Our book covers a wide range of topics regarding corporate governance. These include a discussion of the environment in which the organization competes to understand how various forces influence the mechanisms it adopts to discourage self-interested behavior by management. In addition, we spend considerable time examining the board of directors, including the structure, processes, and operations of the board, along with the board’s functional responsibilities, such as oversight and risk management, succession planning, compensation, accounting and audits, and the consideration of mergers and acquisitions. We also examine the role of the institutional investor to understand how diverse shareholder groups and third-party proxy advisory firms influence governance choices. The book also includes an assessment of commercial and academic governance ratings systems.

Many of the conclusions of the book are phrased in the negative. While the lack of positive correlations may disappoint some, this has important implications for the current debate on governance and your evaluation of the types of governance systems that organizations might require. Some of the central lessons we draw in the book including the following:

…continue reading: Corporate Governance Matters: Lessons for Practitioners

In our study, The 2011 CEO Succession Report, which The Conference Board recently released, we document 2009-2010 succession events regarding the chief executive officer of S&P 500 companies and analyze those events in the historical context of the last two decades.

The report is organized in four parts.

Part I: CEO Succession Trends illustrates year-by-year succession rates and examines specific aspects of the succession phenomenon, including the influence on firm performance on succession and the characteristics of the departing and incoming CEOs.

Part II: CEO Succession Practices details where boards assign responsibilities on leadership development, the role performed within the board by the retired CEO, and the extent of the disclosure to shareholders on these matters.

Part III: Notable Cases of CEO Succession (2009-2010) includes summaries of 10 episodes of CEO succession that made headlines in the past two years and that were carefully chosen to highlight key circumstances of the process.

Part IV: Shareholder Activism on CEO Succession Planning (2010-2011) reviews examples of companies that have recently faced shareholder pressure in this area.

…continue reading: The 2011 CEO Succession Report

HP has provided some interesting summer reading, which will apparently continue well into the fall. HP commentary covers the spectrum of opinion on corporations, executives, and stakeholders. The billionaire attacks the board for dismissing a CEO committed to shareholder wealth. Professors applaud good governance in dismissing a rogue. A shareholder sues over exit pay and labor asks why the CEO wins when jobs suffer. Competitors swipe at weakness; the press focuses on fumbles. Across the many views, the CEO is pre-eminent.

HP market value declines by $15 billion in the three weeks following the CEO departure. Tuesday’s uptick in HP’s stock price is explained on the message boards –the board has decided on the new CEO. The market speaks – it’s all about the CEO.

Yet, as if in spite of the missing CEO, HP keeps moving the ball down the field – winning the 3PAR bidding war (also acquiring Fortify and pursing ArcSight), reporting earnings, initiating a stock buyback, signing up customers (US Airforce, Thorntons and GS1), rolling out a hot new back-to-school lineup including a 3D computer – and even suing the departed CEO. HP is not missing a beat.

…continue reading: Governance Lessons from HP