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Governance Challenges
CEO Succession Planning
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Heidrick & Struggles International, Inc., KPMG International, Marsh McLennan, Pearl Meyer & Partners, Sidley Austin LLP
It is my pleasure to introduce the National Association of Corporate Directors’ (NACD’s) eighth edition of Governance Challenges.
Each year, NACD collaborates with our five strategic-content partners—Heidrick & Struggles, the KPMG Board Leadership Center, Marsh & McLennan Companies, Pearl Meyer, and Sidley Austin LLP—on the exploration of a timely and important governance topic. This year, our focus is on CEO succession planning.
Effective leadership development processes, including CEO successions, are one of the key legacies of high-performing chief executives—and many directors tell us they consider CEO succession to be their most critical responsibility. While the task may not be new, the environment continues to evolve:
- Median CEO tenure for large-cap companies has been shrinking, and it has dropped by one full year between 2013 and 2017. CEO turnover hit record high levels in 2018, including a large number of retirements.
- Demographics for the new CEO class are changing: in 2017, two-thirds of the 54 new S&P 500 CEOs were under 55 years old, according to research conducted by Heidrick & Struggles, and 2017 was also a high point in outside CEO hires. Women are stepping into CEO roles in increasing numbers.
- Activist-investor challenges that seek a change in the CEO (and/or other officers) have seen an uptick in recent years.
The process is not always easy: according to NACD’s latest public-company governance survey data, nearly three-quarters of the directors responding cite maintaining the CEO pipeline as their top succession-planning challenge. About 80 percent of directors told us that their boards have recently discussed long-term (three to five years) succession planning—yet less than 19 percent have done an analysis of desired CEO competencies as compared to their firms’ future strategic needs. And the cost of getting it wrong is high: one study estimated the global cost of forced CEO turnover to be as high as $112 billion in 2018.
At a recent NACD chapter roundtable, KimberlyClark Corp. CEO and chair Thomas Falk remarked, “The process of CEO succession planning is like creating a sculpture.” Governance Challenges 2019 features current insights and practical advice that will help board members hone their skills at the art of CEO succession planning.
Peter Gleason
President and CEO, NACD
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