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Ceo Succession

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CEO SUCCESSION: THE ULTIMATE MEASURE OF BOARD PERFORMANCE

by Clarke Murphy, The Corporate Board - July/August 2010

Item number one on any description of corporate board duties is hiring and firing of a chief executive. However, success in CEO selection depends in large part on shaping a sound succession process from the board level. Shareholder advocates now see good CEO succession planning as a reflection of the quality of the board itself.
Public debate regarding corporate governance issues tends to focus on one primary topic at a time, depending on the dictates of current events. Classified boards, “overboarding,” director compensation, risk management—the attention of the corporate governance community has been focused on each
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Because it centers on an event thought to be in the distant future and whose timing is ill-defined, it lacks urgency compared with day-to-day tasks. There is little perceived cost to putting it off.
The inclination to put it off is exacerbated by the Pandora’s box of issues that rigorous succession planning forces a board to confront. Identifying the competencies and experiences needed in the next CEO requires solidifying the company’s long-term strategic plan, which often involves the painful elimination of options.
Succession planning also shines a bright light on how well the organization develops internal candidates (something explicitly called for in the Whole Foods shareholder proposal). The development of internal candidates in turn requires careful human capital management. Failure here can set off a “horse race,” or prompt the loss or demotivation of those executives who are not being considered for the top slot, but are valuable to the company. It also demands the establishment of consistent and objective benchmarking that includes not only internal candidates, but appropriate external candidates as well.
Finally, successful succession planning demands the right attitude from the incumbent CEO. The naming of a successor is viewed by some as a personal prerogative, by others as a threat. Because succession planning is a tangible manifestation of the limited tenure of any CEO, it is
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