Professional Documents
Culture Documents
In the fall of 2013, The Conference Board, The Institute of Executive Development, and the Rock Center for Corporate Governance at Stanford University conducted a survey of board members to assess how well corporate directors know the senior executives one level below the CEO (the key set of executives for internal succession to the CEO position). The survey results reveal that, while many interact with senior executives periodically in a boardroom setting, most directors do not have extensive exposure to them outside of the boardroom nor do they have detailed knowledge about their skills, capabilities, and performance.
The findings, discussed in detail below, suggest that companies can improve the quality of their CEO succession and internal talent development programs by fostering regular formal and informal interaction between directors and senior management. This report offers suggestions for boards to help improve the development of senior leaders who could potentially succeed the CEO. (For survey methodology and a respondent profile, see page 6.)
The average company reported spending only two hours per year in the boardroom on succession-related issues, and estimated that it would take 90 days on average to name a permanent successor.1 Studies also suggest that boards take a fairly hands-off approach to internal talent development issues. According to a 2013 report, board members pay little attention to the mentoring and development of senior executives, giving this metric, on average, only a 5 percent weighting in the CEOs formal performance evaluation.2 A separate study finds that only 60 percent of senior executives receive informal coaching or leadership advice from members of the board of directors, while nearly 100 percent report that they find this informal advice useful.3 Together, these findings indicate that board members have room to increase their level of involvement in the development of promising senior managers. Our survey builds on these results by directly measuring the degree to which board members interact and engage with senior executives one level below the CEO. Interaction between the board and senior management benefits a company by allowing the board to contribute directly to the professional development of senior leaders. At the same time, boards gain direct insight into the strengths and weaknesses of potential successors to the CEO. In addition, interaction with executives affords directors access to a new source of information and more varied perspective on the company and its performance to supplement the information they receive through official board communications.
Does your company have a formal talent development program for senior executives below the CEO?
Yes 59.5%
0
No 40.5
100%
Does your company assign a board mentor to senior executives below the CEO?
Yes 7.0%
0
No 93.0
100%
Note: A board mentor is a member of the board of directors that agrees to serve as informal coach or advisor to a senior executive. A mentor provides professional advice in the areas of career advancement, leadership skills, and managerial development, and meets with the executive on a regularly scheduled basis. For example, in 2006, CEO Maggie Wilderotter of Frontier Communications implemented a mentorship program whereby each of her direct reports was assigned to work with a board member for two years of coaching. According to Wilderotter, the program benets executive in terms of professional development and allows directors to get to know senior executives in a more meaningful way. See Joann Lublin, Frontier Board Forges Bonds with CEOs Lieutenants, Wall Street Journal, February 22, 2010. Source: The Conference Board, IED, Stanford University, 2014.
Chart 3
1 Heidrick & Struggles and the Rock Center for Corporate Governance at Stanford University, 2010 CEO Succession Planning Survey, 2010 (www.gsb. stanford.edu/cldr/research/surveys/succession.html). 2 The Center for Leadership Development and Research, the Rock Center for Corporate Governance at Stanford University, and The Miles Group, 2013 CEO Performance Evaluation Survey (www.gsb.stanford.edu/cldr/research/surveys/ performance.html). 3 The Center for Leadership Development and Research, the Rock Center for Corporate Governance at Stanford University, and The Miles Group, 2013 Executive Coaching Survey (www.gsb.stanford.edu/cldr/research/surveys/ coaching.html).
Do nonemployee directors receive updates or progress reports on the development of senior executives below the CEO?
Yes 74.8%
0
No 25.2
100%
www.conferenceboard.org
However, directors do not claim to have particularly strong insight into the professional capabilities and shortcomings of these executives (Chart 4). Just over half (55.1 percent) of directors reported understanding the strengths and weaknesses of senior executives extremely well or very well. By contrast, a third (33.5 percent) said they understand these strengths and weaknesses only moderately well, and the remainder (11.4 percent) reported understanding them slightly well or not at all well. Only two-thirds (66.5 percent) of directors reported knowing the full senior management team in a professional manner (Chart 5)for example, by interacting with managers on a specific task or discussing ideas beyond through a formal presentation. Roughly 20 percent of directors reported knowing more than half of the management team in a professional manner, and 13.9 percent report knowing less than half.
Outside directors also do not play a formal role in the perfor mance evaluation of senior management. Less than a quarter (22.6 percent) claimed to do so, while a significant majority (77.4 percent) do not (Chart 6). For the most part, directors have exposure to senior execu tives through a formal board setting. The vast majority of directors (88.7 percent) reported attending three or more presentations per year by senior management in full board meetings (Chart 7). These results are not surprising, given the common practice of senior executives making presentations to the board on their specific functional domain, such as the chief financial officer presenting a review of the companys financial information, or the chief marketing officer presenting a review of the marketing strategy. In addition, a significant majority of directors (81.6 percent) attend three or more presentations per year by senior management in committee meetings (Chart 8).
Chart 7
Chart 4
How well do nonemployee directors understand the strengths and weaknesses of senior executives below the CEO?
Extremely well 8.9%
0
Slightly well
In the last year, how many times was a senior executive below the CEO asked to attend a meeting of the full board of directors for the purpose of making a presentation or weighing in on an agenda item?
More than three times Three times 0.6 Twice 6.3 88.7%
7.6 3.8
100%
How many members of the senior management team do nonexecutive directors know in a professional manner?
All 66.5%
0
In the last year, how many times was a senior executive below the CEO asked to attend a meeting of a committee of the board of directors for the purpose of making a presentation or weighing in on an agenda item?
More than three times Three times Twice 3.8 7.0 2.5 5.1 81.6%
Do nonemployee directors formally participate in the performance evaluation of the senior executives below the CEO?
Yes 22.6%
0
No 77.4
100%
Once Never
www.conferenceboard.org
Furthermore, nonemployee directors claim to have direct access to senior management without first receiving approval from the CEO (Chart 9). The vast majority (91.1 percent) of directors reported having such access. However, directors do not take advantage of this access very frequently (Chart 10). Just over a quarter of directors (28.0 percent) meet with senior executives outside the presence of the CEO on a quarterly basis. Less than 1 percent do so semi-annually. The majority (65.0 percent) do so when circumstances warrant, and the remaining 6.3 percent never take advantage of this opportunity. Consistent with this minimal exposure, only a small minority of directors reported visiting a company office on a regular basis outside of the presence of the CEO (Chart 11). Less than 8 percent do so quarterly, 1.4 percent do so semi-annually,
and 3.5 percent do so annually. The majority (70.8 percent) claim to do so on an intermittent basis, and 16.7 percent never do so. Despite these statistics, the large majority of directors (83.0 percent) claim to maintain a short list of senior executives ready to take over the CEO position on an immediate basis, should the need arise (Chart 12). The creation of a list, however, is not necessarily indicative of an operational CEO succession plan. Whether a listed candidate is ultimately selected for succession will depend on the quality of the pool of candidates, the degree to which directors truly understand and are comfortable with the strengths and weaknesses of candidates, and whether directors understand the skills and capabilities required for the next CEO to develop in order to execute on a forwardlooking strategy for the company.
Chart 9
Chart 11
Do nonemployee directors have direct access to management below the CEO level without CEO approval?
Yes 91.1%
0
How frequently do nonemployee directors visit a company ofce or work location without the CEO present?
No 8.9
100%
Quarterly
7.6
How frequently do nonemployee directors meet with senior executives below the CEO without the CEO present?
Quarterly 28.0
Never
65.0%
Does the board maintain a short list of senior executives considered ready to immediately assume the functions of the CEO should a succession be necessary?
Yes 83.0% No 17.0
100%
www.conferenceboard.org
www.conferenceboard.org
The survey results discussed in this Director Notes are also included CEO Succession Practices as part of a comprehensive look at board practices in CEO succession planning in the forthcoming research report by The Conference Board, CEO Succession Practices: 2014 Edition (RR 1544-14), slated for release in April. The study illustrates year-by-year succession rates and examines specific aspects of the succession phenomenon, including the influence of firm performance on succession and the characteristics of the departing and incoming CEOs. In addition, it includes summaries of 12 episodes of CEO succession that made headlines in 2013, selected to highlight key circumstances of the process.
2014 Edition INCLUDING ANALYSIS OF S&P 500 CEO TURNOVER EVENTS
For more information about CEO Succession Practices: 2014 Edition, visit www.conference-board.org/publications or contact Melissa Aguilar at melissa.aguilar@conference-board.org.
Note: Percentages do not total 100 percent because multiple responses were allowed. Source: The Conference Board, IED, Stanford University, 2014.
www.conferenceboard.org
Acknowledgments
The authors would like to thank Michelle E. Gutman, Nancy Thomas, and Matteo Tonello for their assistance in the preparation of this survey and article.
www.conferenceboard.org
For more information on this report, please contact: Melissa Aguilar, researcher, corporate leadership at 212 339 0303 or melissa.aguilar@conferenceboard.org THE CONFERENCE BOARD, INC. | WWW.CONFERENCEBOARD.ORG AMERICAS | + 1 212 759 0900 | CUSTOMER.SERVICE@CONFERENCEBOARD.ORG ASIA | + 65 6325 3121 | SERVICE.AP@CONFERENCEBOARD.ORG EUROPE, MIDDLE EAST, AFRICA | + 32 2 675 54 05 | BRUSSELS@CONFERENCEBOARD.ORG THE CONFERENCE BOARD OF CANADA | + 1 613 526 3280 | WWW.CONFERENCEBOARD.CA
To learn more about The Conference Board corporate membership, please email us at membership@conferenceboard.org
2014 by The Conference Board, Inc. All rights reserved.