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 …show more content…
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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Previously, the unexpected loss of an experienced leader without a timely replacement was extremely effecting the department. And just as Fibuch & Way (2012) suggested, the best solution to reduce those challenges is to cross-trained qualified employees within the organization for leadership roles. It is important also for organization to recognize and view their existing skill sets in terms of their future operations. Consequently, succession planning should be an essential element of organization's strategic
Because leadership is a key force in determining an organization’s success or lack thereof, the Gordons should consider putting a succession plan in place as soon as possible and should start grooming the would-be successor(s).
Another central feature of the board of directors is the question of whether the CEO is also the chairman of the board. When the CEO is also the chairman this is often referred to as “CEO duality”. In the US the CEO is often the chairman of the board. Studies have shown that the board in most cases
Common stockholders are the basic owners of a corporation, but few stockholders of large corporations take an active role in management. Instead, they elect the corporation’s board of directors to represent their interests. Board members seldom get involved in the day-to-day management of the company. They establish the basic mission and goals of the corporation and appoint
As Canadian Coalition for Good Corporate Governance indicates that the good governance of a corporation is essential to creating long-term sustainable value and reducing investment risk. In other words, the high quality performance of board directors plays a key role in the success of a corporation. We evaluate it based
2. Are the roles of the chairperson and chief executive officer (CEO) exercised by different individuals? This clear division of responsibility would help to counterbalance the power and influence of the CEO in the decision making of the company’s directors. Furthermore, this would enhance the supporting role that may be assumed by the chairman in being the CEO’s confidante.
From one point, a CEO is just like a leader of a company, so some people believe that they should not be fired because firing a leader will destroy the corporates’ core structure. For example, HP’s CEO Mark Hurd gave outsiders confidence with a clear signal of no-nonsense business style. During his five years working period, HP’s stock price has double increased, while the whole US share market has gone sideways.
To the extent of prevention of corporate failure, I argue that three ASX principles and recommendations could halt the demise of Dick Smith. Firstly, the 2nd principle which is “Structure the board to add value” by structuring the board with a majority of independent directors would prevent CEO dominance because some suggest that independent outside directors can reduce the influence of dominant individuals (ASX, 2014, p. 17). In accordance with Gallagher and Bennie (2015, p. 20), the independent directors are likely to focus on the company’s objectives and not to make decision relying on others. Furthermore, an addressing of independent directors would reduce the reliance on management, and create the effectiveness on monitoring (Dechow et al. 1996 cited in Christensen, Kent, and Stewart (2010)), as well as capability to lessen the conflict of interest between managers and shareholders (Hardjo & Alireza, 2012, p. 4). Thus, DSE’s board would be more active to monitor the CEO’s performances because independent directors pay attentions to the interest of company (Gallagher & Bennie, 2015, p. 20) and shareholders (Hardjo & Alireza, 2012, p. 4)
Succession planning is a recognized area for improvement during research and the UPS survey project process. UPS must change the current approach to succession planning. Previously uncalculated promotions have taken place, due to the lack of adequate planning sessions. Succession planning must be a calculated and measured strategy. The current annual career development process is no longer adequate with MidSouth District. Sixty-five percent of UPS employees in the survey believe the current staffing strategy is inadequate. Moving away from an annual career development discussions to quarterly discussions improves the nimbleness of staffing challenges and planning. Without proper planning organizational staffing needs are not achieved, and the best-equipped candidates are not placed in leadership roles. Kim & Mauborgne (2014) paint a dire picture of acquiring adequate employees in the future due a scarce workforce populace. Furthermore, Kim & Maugorgne (2014) state fifty percent of the employees today are not currently engaged on the job. Furthermore, an unfair promotion process or lack of clear career development path
Succession planning is a key part of filling leadership roles in the workforce. Leaders have been making decisions from the beginning of time. The term leader has many faces in life. Whether on a battlefield in ancient time or in modern society running a multimillion dollar business, leadership styles were used by leaders or managers to get results. A leaders effective succession planning builds the availability of experienced employees in all areas of an organization.
As Thompson (2015) has discussed, the world is changing fast and organizations must be flexible in handling changes to be able to thrive well or they may experience dilemmas. In 1997, Apple Company, which almost reached bankruptcy ousted its that time CEO, Gil Amelio, where Steve Jobs replaced him and declared himself interim CEO. Apple that time is experiencing a disruptive change, a change that is radical and immediately happening, in other words unexpected. However, they were able to response to it quickly and prevented the company to hit the very bottom by bringing back Steve Jobs. Jobs had so much idea with him, which the company needed most at that time (Time, 2016).
As Satya Nadella takes over the position that Mr. Ballmer once endured, his spirit took off with great confidence concerning his new role at the company (Microsoft, 2014). The next decade is likely to reveal the level of success his abilities bring to the future of the company and his own status as leader.
If the horse race is taking place internally, most boards still choose to search outside of the company for qualified candidates to fill the leadership position (Citrin, 2009). This allows the board to assess how well its internal employees are matching up against external applicants. Horse races can also turn into popularity contests, in which the stakeholders and board members will exercise their stakeholder power (Lawrence & Weber, 2008). This stakeholder power gives the board members and stakeholders the ability to use resources to make an event happen and secure the outcome that they see fit. In turn, this method creates a high stress environment for those competing in the horse race and can even be distracting to the organization as a whole (Citrin, 2009). According to Citrin (2009), in a horse race competition for CEO, there is a clear winner and a clear loser in the battle. In most cases, the loser will end up leaving the company to pursue other executive leadership positions which is a disadvantage because of the loss of long term, quality employee. In the fight for a corporate leadership position, the horse race methodology of selecting a CEO is dated and seems to have far more disadvantages than advantages.
Even though the culture looks so strong that it would survive a change in leadership, the new CEO would not only have to possess business leadership ability but also shares the same values as Goodnight so that SAS does not deviate from its current approach to its business and management. Hence, with no formal succession planning and still being heavily involved in almost all aspects of the organization, the SAS institute approach to its business and management is heavily dependent on Goodnight’s continuation.