Tag Archive: CEO succession planning

Former CEOs Advise on Successful CEO Transitions

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patrick-dailey

Patrick R. Dailey

The succession work boards oversee is more complex than it once was. Oversight of the internal talent pipeline has grown beyond a narrow focus on CEO successors to include other internal and external talent. This relatively new role for the board or governance committee demands the hands-on ability to assess upper-management aptitude and readiness for the top job.

On September 21, the NACD Atlanta Chapter invited three exemplary former CEOs who serve on public boards to advise Atlanta-area directors on how to navigate this more demanding process. The panel, moderated by NACD President Peter R. Gleason, was comprised of Richard Anderson, previously CEO of Delta Airlines, and member of the Cargill and Medtronic boards; Martha Brooks, former CEO of Alcan, and director of Bombardier and Jabil Circuit; and Frank Blake, former CEO and chair of Home Depot, and currently a director at Delta Airlines.

For context, CEO turnover within the world’s largest 2,500 companies has increased in recent years, according to a 2016 study by PwC titled 2015 CEO Success that analyzed CEO turnover data from 2015 in the U.S. and around the globe. Among the study’s findings were the following data:

  • CEO turnover around the globe reached a record rate of 16.6 percent.
  • In North America, the rate of CEO turnover was 14.3 percent.
  • Planned turnover accounted for 10.9 percent of all turnover indicated in the study.
  • Force-outs were reported at 3 percent.
  • CEO turnover triggered by mergers and acquisitions occurred at a rate of 2.8 percent globally and in the U.S.
  • Looking specifically at U.S. turnover data, of all CEO turnovers, 4.4 percent were planned and 2.2 percent of the CEOs were forced out.

The traditional tactic when seeking new CEO talent has been to “go inside” for the most qualified internal candidate, but boards are now deliberately bringing in external CEO candidates. When the same PwC study compared statistics from 2004 to 2015, the percentage of outsiders hired as CEO increased from 14 percent in 2004 to 22 percent in 2015—a 50 percent increase in external hires in 10 years.

Hiring an outsider to serve as CEO was once seen as a last resort—something that typically only happened when a board had to force out the incumbent CEO suddenly, had failed to groom a suitable successor, or both. In recent years, however, more companies have chosen an outsider CEO, and frequently as part of a planned succession.

The stakes are higher. The process is more transparent and invites activist investors, pundits, and media to scrutinize a company’s process and its decision. Often the current CEO is left somewhat in the dark about the progress and the remaining leadership team may just not know status, which leads to uncertainty and process dysfunction.

The distinguished panel offered these nine valuable lessons learned about successfully navigating this board responsibility.

  • Succession must be a CEO-driven process. The panelists urged that a board place the CEO in the middle of the succession process but not as a direct party to the final decision process. They argued that the current CEO brings unique knowledge and passion for the future of the business, and that he or she wants a leadership legacy that includes a smooth and smart transition to a new CEO. The CEO also knows the internal talent pipeline better than any director, which could be an asset to the board. The panel added that with the board’s involvement and perhaps that of external resources, the risk of the “favored son” effect could be mitigated.
  • Succession is a full-board endeavor. Ownership of the process, knowledge of internal candidate development, insight into what could potentially derail the process, external benchmarking, and strategic issues that await the new CEO are matters for the full board to address. Committees can execute on specific tasks but the work, insight, and decision-making process related to CEO succession must be owned by the full board.
    One committee member urged every board member to meet and assess final candidates against a written success and impact profile during lengthy one-on-one interviews. The panel expressed their belief that the successful candidate would develop a sound, unique relationship with each director. Panelists also perceive interviews as the gateway to relationship building and ultimately to the CEO being accepted into the board’s inner circle.
  • The lead director plays an integral role as mentor. The board’s succession method needs a quality control focal point, or someone who will manage group processes among directors so that the “loudest voices” around the boardroom table are not those that necessarily carry the most weight. The panel suggested that the board could task the lead director with this quality-control leadership.
  • Remember that the board’s loyalty belongs to the company—not the current CEO or internal candidates. The board needs and values input from the CEO and there may be internal candidates who are highly regarded. But decisions must be based single-mindedly upon duty-of-care philosophies—the company’s future.
  • Competition among internal candidates must be monitored and managed by the CEO and board. Internal candidates should be explicitly informed or they are likely to figure out whether or not they are a candidate for the CEO role. With that information or suspicion, a competitive “horse race” may begin and performance may peak. There is also the inevitable dysfunction that can occur between the contenders as well as their organizations as they “bid up” their candidacy. CEOs and lead directors may intervene to manage negative behavior, and reinforce that senior-level performance is a collective effort. Compensation schemes for these candidates should be aligned in the spirit that “we all row the boat together.”
  • Get a written exit report from the outgoing CEO. Have the CEO personally develop a lengthy perspective about the future focus of the business and the CEO’s most critical areas of personal attention. Develop an “issues list” of those matters that the new CEO will likely bump into in the market, inside the company, and with regulators. Ensure the list is heavy on issues and light on recommendations. Finally, ask the outgoing CEO to list what strategic items and enabling matters must be done by the incoming CEO.
  • Develop a plan for easing out a reluctant CEO. The chair or lead director must have a “personal legacy” discussion with the CEO, and the CEO will inevitably get the message that it’s time to transition, and yet the panel emphasized that this should be a clear—not a nuanced—discussion. Have a plan for how and when the cord will be cut and communicate that plan clearly.
  • Define how unsuccessful transition candidates will be treated. If these executives can see a good path forward, embrace them. If not, help them leave, and do so quickly.
  • With a C-suite succession event, corporate strategy is likely to change. The board should endeavor to ensure that a sound corporate culture makes it through the transition.

NACD offers research and expert commentary on the executive succession process. Review Success at the Top: CEO Evaluation and Succession, which is part of our Directors Handbook Series, and a succession guide authored by Korn Ferry executives for the September/October edition of NACD Directorship magazine.


Patrick R. Dailey is a partner in BoardQuest, a consultancy specializing in C-Suite and board performance matters, and a member of the NACD Atlanta Chapter advisory board.

Combatting Information Asymmetry

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At any NACD education program, the discussion of directorship as a part-time profession with full-time risks is bound to arise. Yet following any corporate crisis, the question is always asked: “Where was the board?” Outside of the C-suite and boardroom, many perceive that directors should be able to foresee and avoid a crisis before it strikes.

This perception is misguided for several reasons. As a result of legislative and regulatory activity, since the 1960s corporate boards have become increasingly independent of management. Although legislation such as Sarbanes-Oxley and Dodd-Frank mandated independence at specific committees, this has extended to the entire board. Today, most publicly held company boards comprise a majority of independent directors, and often the CEO is the only executive director.[1]

The development of independent boards is not negative. In fact, it ensures that the board can effectively carry out its mission and responsibilities, and fairly hold management accountable to shareholders. However, there are a few consequences when directors are selected entirely for independence. Directorship, as noted above, is a part-time role. Inherently, directors rely on senior management for information necessary to carry out their oversight responsibilities. When outside directors are chosen for lack of ties to the corporation, they do not necessarily bring knowledge of the business or industry. Therefore, the benefit created by adding an independent director is largely tempered, as this outsider is reliant on the CEO for the information necessary to his or her oversight role.

To combat this risk of asymmetric information, NACD partnered with McGladrey to host four small gatherings of executives and directors in an effort to find ways of improving the communication and relationships between the board and C-suite. From these gatherings, the Bridging Effectiveness Gaps: A Candid Look at Board Practices white paper was created. As Bridging the Effectiveness Gaps notes, broadly, these gaps were found in the areas of strategy and risk, executive compensation, CEO succession planning, and board evaluations. By convening management and directors from different companies, the meetings fostered candid and open conversation regarding areas where communication tends to break down. However, where communication was generally the root of the problem, it was also the solution.

This report is available as a complimentary white paper on NACD’s Board Leaders’ Briefing Center.



[1] According to the 2012 Spencer Stuart U.S. Board Index.

Future-Proofing: Planning C-Suite Succession

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Recently, several companies made headlines after facing dramatic leadership changes. In the current environment, it is critical that directors actively ensure their company has developed a robust executive talent management program. However, according to preliminary data from the 2012-2013 NACD Public Company Governance Survey, more than half of respondents (54.7 percent) classify their company’s CEO succession plans as informal: general discussion, but no formal documentation.

As part of NACD’s effort to share key insights and help boards plan for the future, a session of the upcoming NACD Board Leadership Conference is designed to address this very issue. During the panel discussion, three current directors will share their stories, insights and strategies for future-proofing the C-suite. Slated to speak are:

Kathy J. Higgins Victor, director, Best Buy

Last April, Best Buy experienced a significant executive upheaval when former CEO Brian Dunn resigned amid allegations of misconduct. In May, Founder Richard Schulze also stepped down. The board found themselves in a crisis situation, with two key vacancies to fill in a short period of time.

Higgins Victor, a Best Buy director since 1999, proved to be an invaluable asset to the company. With her extensive experience in executive development, succession planning, and leadership coaching, she served as the nominating committee chair during the transition. During the discussion, Higgins Victor will share the lessons she learned as well as expert insights on effective succession planning.

Michele J. Hooper, director, PPG Industries, UnitedHealth Group, NACD board

Hooper serves on the NACD board of directors and on the boards of PPG Industries, Inc. and UnitedHealth Group. She chairs the audit committee for PPG and the nominating and governance committee for UnitedHealth Group. She previously was a board member of Target Corp., AstraZeneca PLC, DaVita Corp., and Seagram Co. Ltd. She is president and CEO of The Directors’ Council, which specializes in corporate board of director recruitment.

Andrew McKenna, chairman, McDonald’s

McDonald’s faced rapid-fire changes in executive leadership in 2004. Six months after Chairman and CEO James Cantalupo’s sudden death, his successor Charles Bell resigned after being diagnosed with a terminal illness. By the time James Skinner was named CEO in December 2004, the company was well-versed in emergency executive succession.

Current McDonald’s chairman McKenna will discuss how the company worked through this challenging period, safeguarding both corporate reputation and shareholder value. He will provide insights on proactive succession planning and how boards might “future-proof” their companies.

We anticipate a candid and instructive dialogue with Higgins Victor, Hooper and McKenna. Don’t miss out on this CEO succession planning session and the many other invaluable discussions at this year’s NACD Board Leadership Conference, Oct.14-16 at the Gaylord National Resort in National Harbor, MD—just minutes from downtown D.C.