Governance Challenges 2019: CEO Succession Planning

In brief: Effective leadership development processes, including CEO succession, are one of the key legacies of high-performing chief executives—and one of the board’s most critical responsibilities. 

NACD produced the 2019 edition of Governance Challenges in collaboration with our five strategic-content partners—Heidrick & Struggles, the KPMG Board Leadership Center, Marsh & McLennan Companies, Pearl Meyer, and Sidley Austin LLP.  The publication will help directors ensure their CEO succession-planning processes stay fit for purpose in a dynamic environment characterized by shrinking CEO tenures, changing demographics of the rising CEO class, and an uptick in activist-investor challenges that seek a change in the CEO (and/or other officers).  

Boards can use this resource to:

• benchmark their current succession-planning processes against private- and public-company practices;

• prepare for activist campaigns that involve a proposed CEO change;

• clarify the role of the lead director or independent chair in succession-planning activities;

• integrate corporate culture considerations into CEO succession planning;

• design and manage compensation plans relative to both planned and unplanned CEO changes; and

• understand the board’s fiduciary duties related to CEO succession, including disclosures and considerations for shareholder communications

Most relevant audiences:  Board chairs/lead directors, CEOs, general counsels, compensation committee members, nominating and governance committee members

The focus on the board’s compensation committee has never been sharper. The components of compensation plans and the link between compensation and company performance are under intense scrutiny from shareholders, employees, policymakers, the media, and other stakeholders. The Report of the NACD Blue Ribbon Commission on the Compensation Committee revisits NACD’s 2003 Report of the NACD Blue Ribbon Commission on Executive Compensation to highlight the new environment in which compensation committees—and, more broadly, boards—are now operating. It recommends that the compensation committee and board work together to establish an executive compensation philosophy that supports the company in creating long-term, sustainable value.

The report includes ten specific recommendations for compensation committees to consider when evaluating their compensation philosophies. It also provides practical tools, such as sample compensation committee charters, a compensation committee assessment, and guidance on executive employment contracts.