Key issues: Succession planning

Ensuring that companies have a robust and sustainable CEO succession plan is one of the most vital functions a board of directors can fulfill. Recent developments including the high turnover rate of CEOs, increased shareholder pressure for new CEOs at some companies, and incidents of CEO illness have amplified the need for boards to ensure a succession plan is in place, current, and operational.

A company’s long-term viability depends upon successfully identifying and grooming potential candidates for the CEO role. In 20114, CEO succession was “top of mind” for directors, with 59% expressing a desire to spend more time discussing it. This increased in 2012, with 68% of directors saying they wanted more board hours to focus on the task.

What also changed from last year is the level of satisfaction directors have with their company’s CEO succession plan. In 2012, nearly 80% of directors expressed “extreme” or “moderate” satisfaction — a substantial increase from 64% the previous year.5 Directors may have spent more time on CEO succession during the prior year as a result of media attention given to several high-profile CEO turnovers during that period. As a result, directors seem more comfortable with their company’s plan in the current year. Directors at the largest companies (more than $10 billion in annual revenue) are three times as likely to be “extremely satisfied” with their company’s CEO succession plan as those at smaller companies.

Increased scrutiny has been placed on the independence aspects of board leadership. Of the companies that have a combined Chair and CEO, about half of these boards are already discussing splitting the role at their next CEO succession. The prevalence of these conversations suggests many directors are re-evaluating their board leadership structure—perhaps in response to continued shareholder activism against combining the role.

Directors continue to recognize the importance of effective strategic planning and are allocating their time accordingly. According to PwC’s 2013 Annual Corporate Directors Survey (ACDS), strategic planning was the number one priority for more attention going forward—79% of directors want to spend more time on this area.

In 2012, 68% of directors wanted to spend more time on succession planning. This trend remained consistent in 2013, as 66% want more board hours dedicated to succession planning—and 24% of directors say they want “much more time” than in the past. This comes despite the fact that 50% of directors say they actually spent more time on succession planning in the last 12 months.

Directors and investors both include strategic planning, risk management, and succession planning in their top five lists of important issues for board focus during the coming year, according to PwC’s What matters in the boardroom? Depends on whose shoes you’re in (a comparison of the 2013 ACDS to the PwC 2013 Investor Survey). Notably, 95% of investors say strategic planning is the “most or a very important” area for director focus, and eight of ten directors say they want to spend more time on the topic. Investors rank risk management at the top of their priority lists for director focus.

Other key issues

Learn what PwC has to say about Succession planning:

Additional information about management succession:

PwC’s 2011 Annual Corporate Directors Survey, Focus on the future.

PwC’s 2012 Annual Corporate Directors Survey, Board composition and structure.