The recent spotlight on Steve Jobs and Apple’s succession planning—or lack thereof—has created new urgency among investors and shareholders to demand that the companies in which they invest have a clear succession plan. Although boards of directors for numerous Fortune 500 companies see the advantage in succession planning, there are few who take the protocol seriously enough. Investors and observers have criticized Apple for lacking transparency in its long-term plans and have become uneasy about what Jobs’ second leave of absence will mean to the company without a succession plan in place. MarketBeat reported that:
Institutional Shareholder Services said all companies should have succession plans in place, and Apple shareholders would benefit by having a report on the company’s succession plans disclosed annually. “Such a report would enable shareholders to judge the board on its readiness and willingness to meet the demands of succession planning based on the circumstances at that time,” ISS said.
While succession planning is often put off by companies, it shouldn’t be put off.
A survey conducted by The Korn/Ferry Institute, a North Carolina business intelligence firm, reports that 98 percent of the 1,318 executives polled in 2010 agree that CEO succession planning is important in the overall corporate governance process, while only 35 percent are actually prepared for either the unexpected or planned departure of their company’s CEO.
The Securities and Exchange Commission in 2009 and in late 2010 issued rule changes that prevent companies from dodging the succession question. As witnessed by Apple’s example, board succession is more than just a human resources issue, as it was in the past. There is a risk management factor in teeing up the next company CEO. Shareholders understand the associated risk that exists when there is no plan in place. As companies become more accountable, succession planning has shifted from being part of “ordinary business,” to an important component of risk management.
In Apple’s case, the company could have avoided shareholder anxiety by making public its outline of criteria for selection and its development plan. It’s annual report time for the company, and shareholder questions related to Mr. Jobs’ successor will undoubtedly be top of mind.