New Report: Successful CEO Transitions Correlate with More Robust Disclosure, but Succession Planning Disclosure Frequently is Non-Existent and Often Inconsistent

Webinar on Thurs. March 3rd at 4PM ET to Review Findings, Respond to Questions

NEW YORK, NY, February 25, 2016 – Companies with successful chief executive officer (CEO) transitions were far more likely to have provided shareowners with more disclosure about their CEO succession plans, according to a new study released today by the Investor Responsibility Research Center Institute (IRRCi). Unfortunately, that is not usually the case, as the report also found that nearly a quarter of companies that changed CEOs in 2012 did not disclose anything about succession planning in the three years prior to the change. Moreover, the disclosures that were made were often inadequate, failing to even mention basic information such as which board committee is responsible for succession planning.

The new study, Does CEO Succession Planning Disclosure Matter, was conducted by Annalisa Barrett, founder and CEO of Board Governance Research LLC. The study examined CEO transitions taking place in 2012, allowing for an analysis of proxy statement disclosures made in the three years prior to a transition and the outcome of a CEO change in the years following the transition.

The study is available here. A webinar will be held on Thursday, March 3, 2016, at 4 PM ET to review the findings and respond to questions. Register at no charge here.

“The lack of disclosure of a process for CEO succession planning by nearly a quarter of companies is fairly shocking,” said Jon Lukomnik, IRRCi executive director. “Choosing a CEO is one of the core responsibilities of corporate directors. One would think directors would not only want an appropriate succession planning process in place, but also would see the value of disclosing that a process exists.”

Some key findings of the study are as follow:

  • Corporate disclosure regarding CEO succession planning is lacking. Nearly a quarter (24 percent) of the companies studied provided no disclosure regarding succession planning during the two years prior to the 2012 CEO change.
  • Even when disclosure was provided, it did not include the information sought by investors. Only two percent of companies (2 percent) described the board of directors’ process to identify CEO candidates, or how the directors are exposed to high-potential executives within the company.  Only ten percent noted how often the board reviewed succession planning. And only about half (52 percent) of companies even disclosed which board committee had responsibility for CEO succession planning, or if it was the responsibility of the board as a whole.
  • Companies that did not execute a successful CEO transition were significantly more likely to have provided less information regarding CEO succession plans in the proxy statements filed in the years prior to the transition by a 63 percent to 37 percent margin.
  • By contrast, companies that 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 by a 56 percent to 44 percent margin. Successful transitions were considered those which met all or all but one of the following conditions: the new CEO is still serving, a new CEO was named expeditiously, there was no interim CEO, and the CEO was an inside candidate.
  • Of the 137 companies naming a permanent CEO in 2012, 20 percent had to undergo another chief executive transition within two years.
  • Most (56 percent) of the CEOs studied were promoted from inside the company, often moving to the role from the chief operating officer (COO) position. Some 37 percent of incoming permanent CEOs were hired from outside the company while seven percent of new CEOs served previously as a director.
  • Fewer than one in ten (8 percent) of the companies mentioned the existence of an emergency plan addressing what to do if there is an unexpected immediate need for a new CEO, such as in cases such of incapacitation or death.

“Investors know from experience that even well-managed, successful CEO changes are intense and can be distracting, while failed CEO transitions can wreak havoc and cause lasting damage for a company. So it makes sense that investors seek assurance that the board is paying attention and engaged in succession planning,” Lukomnik explained. “No one expects a company to make public a list of CEO candidates.  But, some simple disclosures – what board committee has responsibility for the process, how the board gets exposure to potential candidates, and whether or not there is there an emergency plan – could provide that assurance.”

“We were surprised to find so many companies that did not address CEO succession planning at all in their proxy statements,” Barrett said. “When we combine this overall lack of disclosure with the fact that those companies that provide more information about succession plans are more likely to have a successful CEO transition, we can conclude that the calls for increased disclosure are warranted.”

The report presents the results of a study of CEO succession planning disclosures made by the Russell 3000 companies that had a CEO transition during 2012.  Data provided by Equilar Inc. was used to identify the 205 Russell 3000 companies that had a CEO transition during 2012 for companies headquartered in the U.S. that had a CEO departure due to a resignation, termination, retirement or medical reason. Not included in the analysis are departures triggered by a merger or acquisition transaction or change in control of any type.

Download the full study here. Register for the webinar here.

The IRRC Institute is a nonprofit research organization that funds academic and practitioner research that enables investors, policymakers and other stakeholders to make data-driven decisions. IRRCi research covers a wide range of topics of interest to investors, is objective, unbiased and disseminated widely. More information is available at Follow IRRCi on Twitter at @IRRCResearch.

Board Governance Research LLC provides independent research on corporate governance practices, board composition and director demographics. For more information, contact Annalisa Barrett at  Follow Board Governance Research on Twitter at @Annalisa_BGR

IRRCi Media Contact:

Kelly Kenneally | + |