CEO Succession Plans Lacking at CUs

Current planning efforts give organizations a false sense of security.

November 2, 2010

Public and private companies continue to demonstrate critical lapses in CEO succession planning, according to a study by Stanford University's Rock Center for Corporate Governance and Heidrick & Struggles, a leadership advisory firm, reported in Credit Union Directors Newsletter.

"We found this governance lapse stems primarily from a lack of focus: Boards of directors just aren't spending the time that's required to adequately prepare for succession," says David Larcker from the Stanford Graduate School of Business.

Survey findings include:

* 69% of respondents believe a CEO successor needs to be "ready now" but only 54% actively are grooming an executive for the position.

* 39% believe they have "zero" viable internal candidates.Directors Newsletter

* Boards on average spend only two hours a year on CEO succession planning.

* Only 50% have a written document detailing the skills required for the next CEO.

* 71% of internal candidates know they're in the formal talent development pool, but only 50% of these internal candidates receive regular communication on the issue.

* Most firms (65%) haven't asked internal candidates whether they want the CEO job or, if offered, whether they’d accept it.

* Once viable candidates are identified, 38% of firms believe an external search should continue at the same pace.

* 48% believe they have an extremely strong or very strong understanding of the capabilities of internal candidates, only 19% have extremely or very well-established external benchmarks to measure their skills against.

* Only 50% of companies provide on-board or transition support for new CEOs.

How do companies get back on a steady succession planning path? Larcker and Stephen Miles of Heidrick & Struggles offer this advice:

* Recognize that succession planning as practiced by most companies gives a false sense of security. "Even though boards have made progress in this area in the post-Sarbanes-Oxley world, most companies' succession planning still isn't even close to being good enough. Make sure your board devotes meaningful time to this exercise, rather than simply checking off the box of a meeting agenda."

* Focus on making succession plans operational. "Companies need to move from the 'names in boxes' approach that gives them a false sense of security to truly developing 'viable' candidates."

* Demand experience from directors. "Regulators are recognizing the importance of a rigorous succession process, and firms should seek directors and/or nominating and governance committee chairs with sufficient experience in this area to ensure it's adequately addressed."