Tag Archive: C-suite

Succession and Sport

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As reported in Directors Daily last week, Sir Alex Ferguson, manager of publicly traded Manchester United, announced his retirement. While the retirement of a sports figure, especially an English football (soccer) manager, would not normally provide fodder for an NACD blog post, Ferguson’s resignation underlies the need for succession planning and talent development, and serves as yet another warning about the risks of social media.

A soccer manager is often the most public face of the organization. Although not a traditional member of the C-suite, Ferguson’s relevance is illustrated by the announcement of his retirement. Within minutes of the open of trading following the resignation announcement, Manchester United’s stock price fell more than 5 percent. Directors, especially those who serve organizations where non-CEO employees maintain high levels of public visibility or influence, may want to look closely at Ferguson’s retirement as an example of a high-profile succession. While a coach of a sports franchise is a unique case, this succession plan looks to have been a long-term process resulting in unanimous board approval for the retiring manager’s recommended candidate.

The average tenure of a Fortune 500 CEO is 4.6 years[i], while the average tenure of a high-level English soccer manager is only 2.1 seasons. In a profession defined by short termism, Ferguson successfully managed his club for over 26 years, nearly 10 years longer than the next longest serving premier league manager. The Manchester United board allowed Ferguson to take the lead in the search for his own successor, and even allowed him to make the approach to the succession candidate. It is unusual for a board to cede so much control over the succession process. With directors serving for an average of nine years, their experience and longevity are essential to maintaining corporate continuity throughout the succession process. The board’s role in developing potential succession candidates is one aspect of executive talent development being explored by this year’s NACD Blue Ribbon Commission. The October release of the commission’s report will also examine the value of internal development, backed by a number of studies comparing internal and external succession.

The appointment of an outsider to the position of Manchester United manager was expected, but boards may wish to consider the value of recruiting internal candidates for CEO and other senior executive positions. Studies show that internally recruited CEOs deliver greater total financial performance and are more likely to retain the position[ii]. Also, senior executives hired from the outside have higher rates of failure than those internally promoted[iii], and organizations with greater reliance on external hires have twice the turnover as organizations that rely on internal promotions[iv]. While these studies point toward internal succession policies, boards may look outside when searching for fresh perspectives and thinking, or even contemplating a change in strategy. While Manchester United had been the world’s most valuable soccer club for many years, it fell to second in 2013. Could the appointment of an outside manager mean a change in strategy aimed at regaining the club’s title as the most valuable soccer team in the world?

While Manchester United’s transition process may appear successful, the announcement of Sir Alex Ferguson’s successor did not unfold as planned. There was no “the king is dead, long live the king” announcement; Manchester United announced the impending resignation but waited until the next day to name the future manager. In that short span of time, social media threw a snag in the carefully planned announcement. Prior to officially naming Ferguson’s successor, Manchester United mistakenly tweeted a link to its Facebook page that congratulated the new manager, David Moyes, on his appointment; the tweet and Facebook page were withdrawn within one minute. Moyes had been predicted as the successor, so the ill-timed social media announcement did not receive the same level of attention as other high-profile public company social media announcements. These events surrounding the succession announcement underscore risks posed by social media. In this case, it seems that human error, not a technological glitch, was the source of the problem, reinforcing the fact that while directors’ focus on IT risk is important, they can’t neglect old-fashioned human risk.

In a rare overlap of soccer and governance, Manchester United can provide directors with an example of a high-profile non-CEO succession that has received significant attention worldwide.

C-Who?

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Late last year NACD released a white paper with McGladrey, Bridging Effectiveness Gaps: A Candid Look at Board Practices, which quickly became one of NACD’s most downloaded resources of 2012 and continues to be the most downloaded in 2013. The paper, based on four gatherings of directors and executives, notes that because directorship is a part-time role, the board must inherently rely on management for information. This can lead to a disconnect in communication, as the information the board needs is not necessarily the information management provides.

In an effort to accurately reflect the thinking of those “on the front lines,” boards often hear from voices outside of the typical four-officer lineup (CEO, CFO, COO, and general counsel). Nearly unheard of a decade ago, the chief risk officer (CRO) provides an example of a non-traditional C-suite officer uniquely positioned to fill an information gap. According to 2012-2013 NACD Governance Surveys, in public companies without a CRO, 64 percent of directors state that the level of information they receive on risk management is good or excellent. On the other hand, among the 28 percent of companies with a CRO, this level of satisfaction among directors increases by more than one-third to 87 percent. The difference is even clearer among private companies–48 percent of directors at companies without a CRO report high levels of satisfaction with received risk management information, and this increases by more than half to 76 percent of directors reporting similar high satisfaction levels at companies with a CRO.

These new and influential voices in the boardroom provide directors with the knowledge and experiences of those working day-to-day in various operational fields. Directors can draw on these diverse sources to ensure they have the breadth and depth of information needed for effective oversight. This solution, however, may present another issue; directors, while comfortable interacting with the typical four-officer lineup, may not have the same level of experience with non-traditional C-suite officers. In the same vein, these officers may not be as adept at providing the board with precise and relevant information.

In our latest white paper, C-Suite Expectations: Understanding C-Suite Roles Beyond the Core, NACD addresses this disconnect by presenting directors with tools they can use to interact with non-traditional members of the C-suite. The eight positions highlighted in the report are:

  1. chief audit officer;
  2. chief corporate responsibility officer;
  3. chief ethics officer;
  4. chief human resources officer;
  5. chief information officer;
  6. chief investor relations officer;
  7. chief marketing officer; and
  8. chief risk officer.

The report includes position descriptions for, information the board can expect to receive in reports from, and deeper questions directors can ask of, these C-suite officers. A complimentary copy of this white paper is available to all NACD members, and is available to non-members for $15.