Report: ”Does CEO succession Planning Disclosure matter?”

IRRC Institute IRRC INSTITUTE

New Report by Annalisa Barrett, Founder and CEO of Board Governance Research LLC.

Successful CEO transitions Correlate with More Robust Disclosure, but Succession Planning Disclosure Frequently is Non Existent and Often Inconsistent – A US perspective

Executive Summary:

”Shareowners and other stakeholders have been calling for more information about CEO succession planning. This study seeks to determine whether companies that provide better disclosure regarding their CEO succession plans have more successful CEO transitions; in other words, does CEO succession planning disclosure matter?

In order to assess this, we examined the CEO transitions that took place in a base year, 2012, which allowed us to analyze the disclosures made in the three years before the transition and the outcome of the change in the years following.

We find that:

1. Companies which executed a successful CEO transition were more likely to have provided shareowners with stronger disclosure regarding the CEO succession plan in the years prior to the leadership transition. Conversely, companies that did not execute a successful CEO transition were significantly more likely to have provided less information regarding the CEO succession plan in the proxy statements filed in the years prior to the transition.

2. More generally, disclosure regarding CEO succession planning is lacking. Nearly a quarter (24%) of the companies provided no disclosure regarding succession planning during the two years prior to the CEO change. Even when disclosure was provided, it did not include all of the information sought by investors. For example:

• Fewer than one in ten (8%) of the companies studied mentioned the existence of a plan addressing what to do if there is an unexpected immediate need for a new CEO (e.g., in the case of the incapacitation or death of the sitting CEO), and • Very few companies (2%) described the process used by the board to identify CEO candidates. Similarly, only 2% of companies studied discussed how the directors are exposed to senior leaders and high-potential executives within the company.

While it cannot be concluded that a company which provides sufficient disclosure regarding CEO succession planning will have a successful CEO transition in the future, it does appear that there is a correlation between companies that have successful transitions and more fulsome disclosure. While causation is virtually impossible to prove, absent unfettered access to boardrooms, it seems plausible to speculate that the level of disclosure is indicative of the level of attention paid by the board to succession planning, and that stronger disclosure practices can be a sign that the board is focused on succession planning…….”

Read full Report Here: http://irrcinstitute.org/wp-content/uploads/2016/02/Final-CEO-Succession-Planning-Disclosure-Report.pdf

Source: IRRC Institute – http://irrcinstitute.org/news/successful-ceo-transitions-correlate-with-more-robust-disclosure/

 

 

The Board Director Training Institute (BDTI) is a "public interest" nonprofit in Japan dedicated to training about directorship, corporate governance, and related management techniques. It is certified by the Japanese government to conduct these activities as a regulated nonprofit. Read a summary about BDTI here, and see a menu of its services for both corporations and investors here.

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