How the best boards approach CEO succession planning
Look to the future
Many boards aren’t fully prepared for CEO departures despite succession planning being one of their primary responsibilities. If we’ve learned anything during the pandemic, it’s that anything can happen. There are important steps directors can take to be better prepared for both planned departures and the unexpected.
Embrace leading practices for CEO succession planning
While some boards avoid CEO succession planning, others find ways to lay the groundwork for smooth CEO transitions. How do they do this despite the more immediate pressures of overseeing quarterly performance and strategy execution? We’ve identified seven characteristics that may make them successful.
They agree on the skills, experience, and personal traits the CEO will need to execute the company’s current and future strategy
They know who owns the succession planning process
They have a documented plan with a timeline and process for updating it
And more...read more about the leading practices here.
Uncover other potential changes through succession planning
- Reduce overboarding
- Rethink board leadership structure
- Increase diversity
Reduce overboarding
During a CEO transition, boards should review their company’s policy on the number of outside directorships the CEO can hold while serving as the top executive. Institutional investors, activists, and proxy advisors often consider overboarding, particularly of CEO directors, when making voting recommendations and decisions. During a CEO succession, boards can revisit whether they need different limitations.
Rethink board leadership structure
Calls to separate the board chair and CEO roles have become more common. Some shareholders argue that a unified role diminishes the independence of the board. Transitions involving an outgoing CEO who is also the board chair are a good time for directors to assess whether that board leadership structure is still appropriate.
Increase diversity
The number of female CEOs in the S&P 500 rose to 34 in 2020—the highest ever. But there have only been 86 female CEOs since 2000 in the S&P 500. When searching for CEO candidates, boards should make a concerted effort to consider CEO candidates that differ in gender, age, race, and ethnicity.
Stay ahead of the curve
These turbulent times demand much more from corporate leaders. Done well, CEO succession and transition planning can increase a company’s chances of getting a CEO who can lead the company into a profitable future. If done poorly or neglected, the company’s prospects—and the futures of those who depend upon it—are left to chance. And that’s a chance the best boards aren’t willing to take.
To have a deeper discussion about how this topic might impact your business, please contact PwC’s Governance Insights Center.
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