After a series of high-profile CEO transition flops, investors are cranking up their scrutiny of boards’ performance in this area. As a result, investors said they plan to hold boards accountable for failing to plan and execute successions and for failing to properly vet those taking the top job.
“If shareholders are getting more interested in understanding this process, it’s because they have seen failures, so it begs the question of how solid of a process does this company have and how involved is the board,” said Susan Sandlund, managing director at Pearl Meyer and leader of the firm’s leadership consulting practice.
Last year was record-breaking for CEO turnover. Some 1,914 CEOs of public companies, nonprofits and government agencies left their positions last year, up 55% from 2022. CEO tenures have also dropped in recent years, Sandlund pointed out.
“We’ve seen a lot of high-profile changes at the top, and the impact of losing or having to change a CEO midstream could hurt a company, so shareholders are rightfully concerned,” she said.
Sandlund also said, “When you have super CEOs that the board doesn’t want to have leave, that creates a barrier for anyone to take over.” This makes the board less prepared for replacements, she added.
Boards need to “take the CEO succession process deadly seriously,” Sandlund said. That means spending time on and pressure testing the process while staying “fully engaged.”
“It’s not something you should start six months before you are ready to announce a new CEO. This should begin years ahead of time, three to five years,” Sandlund said. “The idea is to provide the right structure and policies and be able to document that.”
When it comes to transparency, Sandlund noted that plans should be “confidential to a point” but that boards should be willing to reassure certain shareholders that there is a robust process in place to develop leaders aligned with the company’s strategy.