An increasingly important component of the CEO succession planning process is the board’s decision on how to communicate internal, strategically sensitive information to shareholders. The voluntary, transparent communication of succession information can help directors signal to shareholders that the company was appropriately prepared for a leadership transition while balancing the potential strategic costs of providing “too much” information.
A review of more than 100 CEO succession announcements between 2009 and 2011 from companies in the S&P 500 offers a view into the development of an external CEO succession communication plan. In particular, the average CEO succession announcement presents the following characteristics:
- Details on when the succession will become effective, why the departing CEO is leaving office, and whether the incoming CEO will be named board chairman.
- A statement from the departing CEO on his or her belief that the board has selected a qualified replacement as incoming CEO.
- The chairman of the board or lead director states that the incoming CEO is the right choice for the firm, given the company’s current position, and thanks the departing CEO for his or her service.
- The incoming CEO states that the firm’s existing management team is strong, the company is well positioned for the future, and he or she appreciates the board selecting him or her as chief executive.
- A description of the incoming CEO’s professional qualifications.
- Details of other changes in the board of directors or senior management that will take place as a result of the CEO succession.
One aspect of CEO succession announcements that appears to be lagging is a clear statement from the board that the selection decision was part of a well-executed succession process. Perhaps surprisingly, only one-third of succession announcements stated that the incoming CEO was identified through the board’s succession planning process. The following are particularly salient examples:
KeyCorp: Alexander “Sandy” Cutler, KeyCorp’s Lead Director, said: “The Board extends its appreciation to Henry for his years of outstanding leadership and wishes him all the best in his retirement. This announcement is consistent with our ongoing succession planning process for senior leadership, and we are confident that Henry will leave an organization with a well designed growth strategy and strong leadership in place.”a
Intuitive Surgical: Alan Levy, Director and Chairman of the Governance and Nominating Committee said: “This announcement is the result of a succession plan that has been in process for the past several years.”b
Procter & Gamble: “Bob McDonald is the most broadly and globally experienced CEO in P&G history.…Bob was elected president and chief executive through a rigorous, disciplined and multi-year succession process led by the board.”c
a “KeyCorp Announces CEO Succession Plan,” KeyCorp press release, November 18, 2010, (https://www.snl.com/irweblinkx/file.aspx?IID=100334&FID=10391898). Emphasis added.
b “Intuitive Surgical Announces Transition of Gary Guthart to CEO”, Intuitive Surgical press release, October 23, 2009 (www.globenewswire.com/newsroom/news.html?d=176302). Emphasis added.
c “Robert A. McDonald Elected President and Chief Executive Office of P&G”, Procter & Gamble press release, June 10, 2009 (http://multivu.prnewswire.com/mnr/pg/38775/). Emphasis added
From an external perspective, it would appear to be rather low-cost for directors to provide a clear statement to shareholders of the formal link between a new CEO’s appointment and the board’s ongoing succession planning process. Unless, of course, no link exists.
About the Guest Blogger: