A substantial increase in CEO turnover in 2018 has heightened focus on the governing board's important obligation to maintain and periodically update both regular and emergency succession protocols.
As The Wall Street Journal has noted, such turnover is arising not only in the ordinary course, but also in the context of compliance and litigation-related challenges; allegations regarding personal conduct/violations of company policy; and personal circumstances of which the board may not have previously been aware (at least to the appropriate degree). The frequency of such turnover places increasing pressure on the preparedness of the board. Indeed, as the Business Roundtable concludes, "[P]lanning for CEO and senior management development and succession in both ordinary and emergency scenarios is one of the board's most important functions."
The general counsel can be a valuable resource to the board in evaluating how best it may approach its succession management responsibilities. According to the Business Roundtable, this may prompt a decision to address succession planning at the full board level, or to rely on a committee composed of independent directors. In addition, the board, or the responsible committee, should (i) maintain a list of the qualities and characteristics desired in an effective CEO; (ii) monitor the development of potential internal candidates; (iii) seek the current CEO's personal evaluation of candidates for the CEO and other senior management positions; (iv) periodically discuss CEO succession planning outside the CEO's presence; and (v) review, at least annually at the full board level, both the company's succession plan and the effectiveness of the succession planning process.
"Best practice" also suggests that this succession planning process extend beyond the senior management level to more junior levels in order to ensure effective talent development.
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