Recent events, including incidents of CEO illness, high turnover rate of CEOs, and increased shareholder pressure for new CEOs at some companies, have highlighted the need for boards to put current and operational succession plans in place.
Many experts claim that overseeing a healthy and sustainable CEO succession plan is one of the most vital functions a company’s board of directors can perform. John Barry, Leader of the Center for Board Governance, says that, “Proactively approaching management succession can generate real benefits. Effective succession planning helps generally to reduce costs, establish stability, promote top talent, and enable quick response to unplanned leadership vacancies.”
Investors are urging their companies to plan for their future leadership now. The SEC permits shareholder proposals on succession planning. Companies are no longer able to exclude from their proxies shareholder proposals that request information about CEO succession policies including the board’s involvement in the process. The SEC’s position puts more pressure on directors to ensure that the company has a robust management succession plan.
Smart companies are looking ahead to make sure that their success today will have leadership in the future.