Tag Archive: NACD chapter program

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.

GE CEO and Board Chair Encourages Directors to Anticipate Emerging Trends

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Jeffrey Immelt, CEO and chairman of GE, spoke at our recent NACD chapter event here in New England. Joining him on the panel were Cathy Minehan, the dean of the School of Management at Simmons College, and Suffolk Construction CEO John Fish. Immelt’s insights were informative, interesting, and actionable. Afterward, I found myself thinking how well his remarks align with NACD’s efforts to future-proof boardrooms around the world.

We’ve pursued this effort in a variety of ways, but none so directly as the NACD Directorship 2020 initiative. “2020,” as we at NACD have come to call it, focuses on arming directors with the knowledge and foresight that feeds success in a changing world. The initiative encourages boards to diversify backgrounds, perspectives, and experiences in ways that prepare their organizations with the leadership necessary to remain competitive in the midst of volatile geopolitical, technological, and environmental situations.

Immelt’s discussion with our chapter touched on many of these disruptive market forces, especially economics. The facts are clear: we live in a new normal, and things aren’t going to simply settle down. “The uncertainty is the state of affairs, and it’s just going to be there for a long time,” said Immelt.

So how can directors help guide their organizations through this perpetual uncertainty? Immelt recommends a focus on U.S. manufacturing, an area where he believes our country is currently more competitive than it has been in 30 years. He was also quite prescriptive about the need for boards and their organizations to address underemployment, calling that goal the “major social responsibility initiative of business.”

But perhaps one of the most pertinent points Immelt made was also the most provocative: “The thing that drives growth is small- and medium-size business. Everyone says they love them, and everyone does their best to kill them every day.”

I take that to heart as an NACD chapter president. NACD has many members from the Fortune 100, but we also count plenty of small- and mid-size organizations among our membership. Only by working together–not separately–can we effectively address all the disruptors we face as we lead our organizations into the next decade. NACD will continue to bring all our members together for collaborative and educational opportunities. Capitalism is ever changing, so we must adapt, evolve, and lead.

For more information about NACD, please visit www.NACDonline.org. For more about NACD Directorship 2020®, please visit www.NACDonline.org/2020.

Opening Remarks: Ken Daly

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NACD by the Numbers

National Association of Corporate Directors (NACD) President and CEO Ken Daly opened the second day of the annual NACD Board Leadership Conference with a status report of where the organization is now and where it is headed.

Current Status

  • 14,000: Number of NACD members.
  • 75: Percentage of members who are public company directors (about 1,000 are full board members).
  • 93: Percentage of member retention.
  • 3,000: Participants in 2013 NACD education events.
  • 10,000: Number of NACD webinar viewers.
  • 1,000: Number of NACD Fellows.
  • 22: Number of NACD chapters—5,500 people attended chapter events.
  • 28: Pieces of intellectual capital NACD has produced this year.
  • 4: Number of NACD advisory councils, which focused on board committees (audit, compensation, nom/gov, and risk).

Looking Ahead

NACD Directorship 2020™ is the main vehicle that NACD will use to drive conversation about the future of the boardroom. Directorship in 2020 and beyond will undoubtedly provide new opportunities and thus, will require innovative resources that directors must be prepared to embrace. NACD Directorship 2020 convened three meetings across the country this year that will inform the dialogue going forward, and more events are set for 2014.

Additionally, NACD is planning a meeting on capital markets which will convene institutional investors and directors to begin a dialogue about priorities for the future.