CEO Succession Practices: 2019 Edition

Matteo Tonello is Managing Director at The Conference Board, Inc. This post relates to CEO Succession Practices: 2018 Edition, an annual benchmarking report authored by Dr. Tonello and Gary Larkin of The Conference Board with Professor Jason Schloetzer of the McDonough School of Business at Georgetown University, and made possible by a research grant from executive search firm Heidrick & Struggles.

The Conference Board, in collaboration with Heidrick & Struggles, recently released CEO Succession Practices: 2019 Edition. The report is designed to provide a comprehensive set of benchmarking data and analysis on CEO turnover that can support members of the board of directors and corporate governance professionals in the fulfillment of their succession planning and leadership development responsibilities. It reviews succession event announcements of chief executive officers made at S&P 500 companies in 2018 and the previous 17 years, and it is complemented by results from a 2019 survey of corporate secretaries, general counsel, and investor relations officers on the succession oversight practices of their boards. Drawn from such a review, the following are the key insights for what’s ahead in the field.

CEO Succession Trends (2001–2018)

#MeToo-related departures were a key factor in the 2018 increase of the S&P 500 CEO succession rate. At least five out of 59 registered events of succession (or about 8 percent of the total) were due to misconduct unrelated to financial malfeasance—whether sexual harassment, instances of workplace intimidation or other behaviors the company deemed inconsistent with its core values. They are the dismissals of Martin Anstice at Lam Research, Les Moonves at CBS Corporation, Brian Krzanich at Intel, Brian Crutcher at Texas Instruments, and Steve Wynn at Wynn Resorts. In 2018, those five CEO dismissals related to a #MeToo event represented more than 40 percent of the total number of nonvoluntary departures for that year (12 cases). In comparison, of all CEO successions announced at S&P 500 companies in the 2013-2017 period, only one was attributable to personal conduct unrelated to the company’s operating performance or financial condition (Manuel Rivero of F5 Networks, who resigned in 2015 only after five months on the job).

Nonvoluntary CEO departures reached in 2018 levels not seen in almost two decades, further widening the gap with the rate of CEO exits from better performers and exposing business leaders who fail to achieve performance thresholds. Dismissals are seldom publicly reported as such by the company. In its analysis, The Conference Board therefore qualifies a CEO departure as a “dismissal” (or nonvoluntary succession) if it occurs prior to the CEO age of 64 and the company’s industry-adjusted TSR is in the bottom quartile of all S&P 500 companies. All transitions that do not meet these defining criteria are characterized as voluntary successions. In 2018, the nonvoluntary departure rate for S&P 500 CEOs surged to 30.5 up almost 8 percentage points from the prior year and the highest level recorded since 2002, or just after the burst of the so-called “dot-com” bubble. On average, during the 18-year historical period examined by The Conference Board, nonvoluntary successions are 24.1 percent of the total. Also, when The Conference Board’s definition is applied, 40 percent of CEO succession cases in the transportation industries and 33.3 percent of those in the consumer products sector were the result of nonvoluntary CEO departures; in contrast, none of the successions announced in 2018 in the extraction industry involved a voluntary succession. Today’s CEO are expected to balance the demands of multiple constituents (e.g. customers, employees, suppliers, and communities) while delivering durable shareholder value creation. To be sure, some CEOs are dismissed due to underperformance driven by weak business models rooted in years of prior strategic mistakes. However, in general, in this governance and investment climate, CEOs who achieve better performance benefit from greater job stability while underperforming CEOs are even more exposed to public scrutiny. When evaluating performance, directors take into account factors beyond the control of senior management (including the cyclicality of the business and the competitive landscape); however, such public scrutiny may ultimately limit the discretion that the board of directors can exercise to keep the underperformer.

Recent departing CEOs have served in their roles for an average of 10 years, marking the third time in the past four years CEO tenure has reached this level despite remaining below it since 2002. In the last few years, The Conference Board has been documenting the prolonged tenure of S&P 500 CEOs. From 2001 to 2014, the average tenure was less than 9 years—hitting a low of nearly 7 years in the aftermath of The Great Recession, in 2009. However, the trend towards longer tenures began in 2009, with tenure increasing almost every year during the past decade and a 10-year mark reached in three of the past four years. In 2018, it was 10.2 years, after the record-high 10.9 of 2017. The longest tenured CEOs in the index are Leslie H. Wexner of L Brands, Inc. (who became CEO in 1963) and Warren Buffett of Berkshire Hathaway (49 years). A myriad of factors could be influencing the trend toward longer tenures, including the exceptional longevity of the bull market that followed the 2008 financial crisis, historically high company profits, and a better matching of CEO skills with companies’ stewardship needs. The presence in the S&P index of founder-led companies also warrants additional investigation: for example, a study of 2,327 large U.S. public companies conducted for the 1992-2001 period (or the twenty years preceding the timespan covered by this report) found that while average CEO tenure for the entire universe was 6.36 years, the average tenure of founder-led companies in the universe rose to 16.38 years. [1] It is also interesting to note that more than 40 percent of governance professionals who answered The Conference Board survey stated that, in their opinion, CEO turnover should happen more frequently, irrespective of good performance.

The appointment of internal candidates to the CEO position rose in 2018 to the highest level ever recorded by The Conference Board, with insiders who have at least 20 years of company tenure leading the way. In particular, the solid economic performance of the United States has contributed to the decision made by many boards to execute succession plans that guarantee strategic continuity and organizational stability. In 2018, nearly nine out of 10 CEO transitions resulted in an internal candidate taking over the CEO reigns. This finding is in contrast to less than six out of 10 internal CEO appointments in 2017, even though it appears consistent with the data captured for earlier years in the decade. The average tenure of insiders at the time of their CEO appointment is of 15.5 years. As an indication that boards are sticking with the status quo and not seeking significant strategic shifts, twenty of these internal successors had at least 20 years of company experience (what The Conference Board calls “seasoned executives”), while 25 percent of these seasoned executives have enjoyed a tenure of at least 30 years with their company (they are: Sam Hazen, HCA Healthcare; Greg Johnson, O’Reilly Automotive; David Rowland, Interim CEO of Accenture; Michael Roman, 3M Company; Noel White, Tyson Foods). The rate of incoming CEOs in 2018 who are seasoned executives reached its second highest level recorded by The Conference Board at nearly 4 out of 10 internal appointments. It is also worth noting that all of the youngest incoming CEOs in the S&P 500 are internal placements.

After several years of higher-than-average CEO succession rates, transitions among companies in the retail and wholesale sector declined to their lowest level recorded by The Conference Board, signaling that management shakeups might have run their course. The Conference Board has consistently found an inverse correlation between CEO succession rate and overall industry performance, with the highest turnover rates generally associated to cyclical industries. This finding suggests that CEOs of those industries could be blamed for (and be exposed to the consequences of) factors outside of their control. But the retail sector, in particular, shows that the analysis is more complex and that other factors may play a role, including the overall CEO tenure and other demographics in a certain industry. In 2018, among S&P 500 companies, the CEO succession rate was 11.8 percent, slightly above the historical average of 10.9 percent, for a total of 59 announced CEO succession events. After consecutive years of significantly higher rates of transition—22.7 percent in 2017 and 16.3 percent in 2016, 11.3 percent in 2015, and 18.5 percent in 2014—the rate of CEO succession among companies in the retail and wholesale sector declined to only 7.1 percent in 2018, or the second-lowest in The Conference Board’s industry analysis. Of those, 33.3 percent were considered nonvoluntary successions. Business performance in the coming seasons will be critical, but the sudden drop seems to suggest that the aptly named “retailpocalypse” affecting department stores and other trade businesses besieged by the Amazon behemoth might have run its course. Retail and wholesale companies that announced a CEO succession in 2018 were Lowe’s Companies, McKesson Corporation, and O’Reilly Automotive. In aggregate, in the 2001-2018 period, the S&P 500 wholesale/retail trade industry announced 90 CEO transitions (for an average succession rate of 10.3 percent), compared to 160 of consumer product companies (9.9 percent) and 216 manufacturing companies (11.8 percent).

For only the third time in the past 18 years, the number of CEO positions held by women in the S&P 500 has declined, marked by the departure of four female CEOs and the addition of only one. At the end of 2018, there were 22 female CEOs among S&P 500 companies, a sharp decline from the 27 of 2017 and 26 of 2016. The departure of Margaret Georgiadis of Mattel, Indra Nooyi of PepsiCo, Denise Morrison of Campbell Soup, and Debra Reed of Sempra Energy, along with two female CEO departures due to their firms leaving the S&P 500 index (Geisha Williams of PG&E Corp and Virginia Drosos of Signet Jewelers Ltd), were countered by only one new addition, in the manufacturing sector: Kathy Warden of Northrop Grumman. As a result, the total number of S&P 500 companies with a female chief is now at its lowest level since there were 21 female CEOs in 2015, and is only slightly higher than in 2012, when there were 20 female CEOs. This decline underscores the degree to which gender parity remains elusive in corporate leadership, despite the unrelenting pressure from investors to improve gender balance in the C-suite and the boardroom. This finding is even more troublesome when read in conjunction with the recent academic research indicating that activist investors are more likely to target female CEOs because of the gender stereotypes that still influence investment managers (specifically, the conviction that attributes typically associated with business leaders—including decisiveness, competitiveness and aggression—are more likely to be found in males than in females). [2] In the 2014-2018 period, the highest concentration of female CEO departures is seen in the manufacturing sector (7.8 percent of the total number of CEO successions for the period) while the lowest (2.4 percent) is in the services industries.

While the rate of successions among older chief executives continues to climb, due to the prolonged tenure registered in the last few years there are still more CEOs aged 75 and over than there are CEOs under the age of 45. In 2018, among S&P 500 companies, the rate of CEO transitions among CEOs age 64 and older was 22.9 percent, exceeding the average rate from 2001 to 2018 of 19.5 percent. Moreover, the rate in 2018 was higher than the 18.3 percent rate of 2017, the 16.1 percent rate of 2016, and the 15.1 percent rate of 2015. This stands in contrast to the rate of CEO transitions among CEOs under the age of 64, which was 9.6 percent in 2018, similar to the average rate from 2001 to 2018 of 9.5 percent. Average CEO age in 2018 was 60.7 years, up from the 59.9 years recorded in 2017 and slightly higher than the average of 60.2 years for the 2001-2018 period. According to the industry analysis of the 18-year period, the highest CEO age by industry is seen in the transportation and communications sectors (62.2 years), while the lowest (57.6 years) is among services companies. Average incoming CEO age was 54 years in 2018, or one year higher than the average for the 18-year period, with the financial sector reporting the highest incoming CEO age for the 18-year period. Despite the higher rate of succession among older CEOs, at the end of 2018 there were seven sitting CEOs who are age 75 or older compared with six sitting CEOs who are under the age of 45. Among the CEOs age 75 and older are Alan Miller of Universal Health Services (he is 80 years old), Steven Roth of Vornado Realty Trust (76), and Leslie Wexner of L Brands (81). Their younger counterparts include the recently appointed Matthew Maddox of Wynn Resorts (42 years old), Ryan Marshall of PulteGroup (43), and Conor Flynn of Kimco Realty (37).

The appointment of interim CEOs is not infrequent, especially in the case of unexpected succession events or when the designated outside successor is not yet available. On average, interim CEOs remain in the position for six months, while they are rarely named to the role on a permanent basis. From 2013 to 2018, an interim CEO was appointed in 12.8 percent of succession events, and the rate in 2018 was 13.6 percent. This has happened, for example, at Intel Corp in response to the sudden dismissal of its CEO; at Gilead Sciences to fill the gap between a CEO departure and the start date of its permanent, externally-appointed CEO; and at Equinix after an eight-month search for its new CEO. In these and other cases, the length of service for interim CEOs ranged from two months to eight months. Ultimately, however, only in one instance from the list of interim CEOs appointed in 2018, the company—Intel Corp—offered the permanent position to the executive serving in the interim. Previously used mainly in situations of emergency, the practice no longer necessarily reveals shortcomings in the planning process or the need to indefinitely prolong the search for a successor. Instead, it can be implemented for a variety of reasons: to audition the person who is already expected to become permanent CEO; for the interim to groom the eventual candidate to the position; or to steer the organization and better manage the public relations aspects of a lengthier or otherwise complex leadership transition. In two cases in 2018, companies appointed an independent director on their board as CEO: Dover Corporation (Richard J. Tobin) and Mattel, Inc. (Ynon Krelz).

Board Practices on CEO Succession Planning (2018)

While all directors are responsible for CEO succession planning, about one fifth of companies delegate the process to the specialized skills of the nominating/corporate governance committee or the compensation committee. Needless to say, CEO succession planning is a key board responsibility. Succession planning functions are performed in practice either directly by the full board (61 percent of nonfinancial services companies, 41.5 percent of manufacturing companies, and 49.2 percent of financial firms) or through delegation to the compensation committee (19.7 percent of manufacturing companies) or the nominating/corporate governance committee (21.5 percent of nonfinancial companies). Nominating committees are valued for their skill assessment and search protocols, while compensation committees can seek incentives to promote the performance of succession and leadership development responsibilities by senior executives. Of the smallest companies in manufacturing and nonfinancial services, with annual revenue under US$1 billion, 24.8 percent entrust CEO succession planning to the nominating/governance committee—the highest share found in the analysis by company size and annual revenue; of the largest companies with annual revenue of $20 billion or higher, 22.1 percent delegate the task to the compensation committee. Instead, only a small fraction of organizations across industries and size groups assign CEO succession planning oversight responsibilities to a dedicated, stand-alone board committee, with only 2 percent survey respondents from manufacturing companies disclosing this practice.

Smaller companies continue to lag behind in CEO succession planning, with at least one-third of respondents to The Conference Board survey placing it on the board agenda only when an emergency arises and more than two-thirds reporting a decrease in the frequency of the plan review over the last few years. Across industries and all but one size group, the majority of companies that participated in The Conference Board survey reported that their boards review the CEO succession plan annually. The only exception in the analysis by company size is in companies with annual revenue under US$1 billion, where less than one-third of companies are methodical in their review of the succession plan and do it at least annually, while about one-fourth report a less frequent assessment. Several factors may help to explain this finding, including the fewer resources available in smaller organizations, a higher concentrations of ownership interests, and an inclination to rely on personal and family connections in the leadership search process. In fact, the smallest companies reported the highest percentage of cases (33.5 percent) where the CEO succession plan is reviewed only when a change in circumstances warrants it—for example, in the event of retirement, sudden death or illness, or other emergencies. The smallest size group also had the highest share of respondents indicating that the frequency of the board’s CEO succession plan review has declined in the last five years.

Amid investors’ and proxy advisors’ general opposition to CEO duality models, the immediate appointment of the incoming CEO as board chairman is seen only in rare circumstances. Only 7 percent of the S&P 500 CEO successions announced in 2018 involved an immediate joint appointment as board chairman, a decline from the rate found by The Conference Board in five of the last six years and the 6-year average of 9.5 percent. They include Ynon Krelz at Mattel, Inc. and Howard Willard at Altria Group, Inc. Leading proxy advisor Institutional Shareholder Services (ISS) and other major institutional investors generally recommend supporting shareholder proposals requiring that the chair position be filled by an independent director, even though it admits exceptions in consideration of the CEO’s performance as well as the company’s overall governance structure and system of checks and balances. [3] However, this finding should also be put in a broader context and reviewed in conjunction with data on U.S. board practices, which evidences a growing disparity between larger and smaller companies on this practice: According to disclosure information gathered by The Conference Board and data-analytics firm ESGauge, in 2018 52.8 percent of S&P 500 companies still combine the two roles, compared to 38.8 percent of Russell 3000 companies; new-economy sectors such as information technology and communication services are the least inclined to concentrate leadership powers in a single individual (CEO duality is seen in 35.8 percent and 35.5 percent of companies in those lines of business, respectively). [4]

Policies that permit retaining a departing CEO on the board are also seen only in a minority of companies, as most organizations wish to avoid the risk of undermining the new leadership. Policies that explicitly permit keeping the former CEO involved as a board member are adopted by a small minority of today’s firms, according to respondents to The Conference Board’s survey. Across industries, a large majority of companies indicated that they do not have a formal policy of this type, with the largest percentage, or 70.2, found in financial services. In fact, in the manufacturing sector, 31.6 percent of firms have a requirement for the departing CEO to also resign from the board, whereas only 8.2 percent explicitly permit continued board tenure. There is also a clear correlation between the requirement for the departing CEO to step down from the board of directors and the size of the company, when measured by annual revenue. Sixty percent of companies with annual revenue of US$20 billion or greater formally require that the CEO leave the board as part of his or her succession plan. This finding compares with the mere 21 percent of companies with annual revenue between US$1 and 4.9 billion and 7 percent of those under US$1 billion in revenue. To be sure, departing CEOs who are retained on the board may serve in a director capacity only for a short period of time (typically less than one year) and to guarantee an orderly transition, especially in the case of an internal appointment. This practice is consistent with executive preparedness programs where the departing CEO is asked by the board to mentor the incoming one, including in the months following his or her appointment. [5]

Few companies force their CEOs to leave when they reach a certain age, as retirement policies tend to be viewed as an overly rigid, one-size-fits-all solutions that would deprive the business of experienced and well-performing leaders. Researchers established that every additional year in CEO age is associated with a 0.3 percent decrease in firm value. Older CEOs are also found to be less active (in terms of engagement in M&A activity, for example) and less innovative. [6] Nevertheless, most companies choose not to institute a CEO retirement policy based on age, possibly because a one-size-fits-all approach may unnecessarily restrict the tenure of well-performing executives. [7] Retirement policies are seen in only 18 percent of nonfinancial services companies, 21.9 percent of manufacturing firms, and 25.1 percent of financial institutions. The analysis by size shows a correlation between the use of CEO retirement policies and the annual revenue of the business: While about one-quarter of larger manufacturing and nonfinancial services companies do require CEOs to step down upon reaching a certain age, a similar policy is used only in 7.8 percent of companies with revenue under $1 billion. Instead, in the financial sector, the smallest companies are more inclined to use a mandatory retirement policy than the largest ones (28.6 percent of those with asset valued $10 billion or less and 16.7 percent of firms with $10 billion and over in asset value). When a retirement policy is adopted, the typical limit is set at 65 years of age.

In the nonfinancial sector, the majority of public companies delegates the assessment of CEO performance to the compensation committee of the board of directors but more than one-quarter do not have process for the systematic reporting to the board of C-suite reviews. Among manufacturing and nonfinancial services companies, the process for evaluating CEO performance is most frequently delegated to the compensation committee of the board of directors rather than the full board (this is seen in 36.4 percent and 56.7 percent of cases, respectively). The scrutiny of the link between pay and performance and the increasing specialization of the compensation committee in defining the appropriate performance targets for the C-suite provide the most likely explanation for this trend. Compensation committee are in charge of CEO performance assessment in 67.2 percent of the largest manufacturing and nonfinancial services companies, with annual revenue of $20 billion and over. In the financial services industry, however, 71.2 percent of respondents to The Conference Board survey reported assigning CEO performance assessment responsibilities to the full board of directors, compared to the 21.1 percent in that industry that delegate those responsibilities to the compensation committee. Across sectors and company size group, CEO performance reviews are almost always conducted annually. It is interesting to note that boards of directors are not always apprised of the outcome of C-suite performance reviews, despite the critical role that senior executive development plays in the CEO succession planning process: From one-third to one-quarter of manufacturing and nonfinancial services businesses do not report C-suite performance assessments to the board, and this share grows to almost 40 percent in the smallest size category, with annual revenue under $ billion.

Other Board Practices on CEO Succession Planning

  • Less than one-fifth of the surveyed companies report using metrics related to CEO succession planning as part of the board’s performance assessment process. The highest share (19 percent) is found in the financial services sector. The percentage of firms that deploy these metrics in their executives’ incentive plan is even lower: the highest share is seen among financial institutions, and it is 4.5 percent.
  • Search professionals are widely used but one-fifth of manufacturing and nonfinancial services companies and 12 percent of financial institutions do not engage outside advisors as part of their CEO succession planning process. Internal candidates are generally viewed as more likely to be successful CEO successors and, in an orderly internal succession, search firms are considered unnecessary. But a common practice adopted by boards to strengthen the CEO succession planning process and document the performance of their fiduciary duty of care is to assess leading internal candidates against a cadre of prospective outsiders proposed by search professionals. When involved, search firms are usually retained by the board of directors or one of its committees.
  • Remarkably, about 30 percent of manufacturing and nonfinancial services companies do not formalize their CEO succession planning protocol in an internal document outlining tasks and responsibilities. When these documents are available, they more frequently include the description of the role that the board, board committees, committee chairs or individual board members; the report on the assessment of CEO candidates and their development process; and the compilation of a diverse slate of CEO candidates.
  • Business performance is considered the most decisive driver of CEO turnover by almost two-thirds of survey respondents, while 14 percent and 11 percent, respectively, said that the decision should be made in response to market circumstances or to the tenure of the incumbent CEO. In a CEO selection, the board should prioritize the expected future needs of the organization for 65 percent of survey respondents. Thirty-percent believe that existing needs are more important, while 4 percent said that neither existing nor future needs should be the primary selection factor.

C-Suite Leadership Development Practices (2018)

A large majority of companies have an in-house leadership development program, with mentoring from a professional executive coach and the assignment of special stretch projects being the program’s most common features. Literature on CEO succession planning praises the benefits of CEO “auditioning” practices, during which an outside candidate is not placed directly into the CEO slot but is first trained and tested by the board through temporary tasks and assignments of the type that a top business leader would be expected to execute. Among companies that rely on a leadership development program for members of the C-suite and that participated in The Conference Board survey, about half of the manufacturing and financial services companies include auditioning periods in the program; the share is much lower (29.3 percent) in the nonfinancial services industries. Instead, a higher percentage opts for individual special projects or stretch assignments without the restraints of a predefined auditioning time period (as much as 92.3 percent of cases in the financial services sector, compared to 62.2 percent in manufacturing and 40.9 percent in nonfinancial services).

Unlike CEO auditioning or stretch assignments, CEO apprenticeship is the period of time preceding the official succession announcement in which a CEO candidate accompanies the CEO on a number of strategic and highly visible tasks. It is used for the purpose of vetting the candidate’s leadership skills and offering new opportunities for exposure within and outside of the organization. Apprenticeship programs are more marginally used in the manufacturing and nonfinancial services sectors, even though they are found in 29.1 percent of financial services companies with asset valued at $10 billion or less. In general, there are no clear correlation between the use of certain leadership development practices and the size of the company: An exception, however, is the engagement of an outside consultant to provide executive coaching support, which is seen in 18.8 percent of the smallest size group by revenue and 70.2 percent of the largest. The practice of maintaining lists of CEO-ready executive is widespread: survey respondents report it for all financial companies and 91 percent of manufacturing and nonfinancial services companies with annual revenue of $20 billion and over. The prevalent view among governance professionals is that either the full board of directors (for 46 percent of respondents) or a board committee (38 percent) should be accountable to compile a short list of CEO-ready executives; only 10 percent of respondents stated that the responsibility should fall on the CEO, either alone or together with other members of senior management.

Boards of directors use a range of tools and techniques to assess executive preparedness, beyond the review of performance reports. A majority of surveyed companies reported deploying 360-degree surveys (58.1 percent across business sector, with a peak of 65.6 percent in financial services) and the feedback from mentors or leadership coaches (56.6 percent on average) as part of their process to assess top-executive preparedness to the CEO position. But The Conference Board’s survey reveals the availability of a broader array of tools and techniques, including: psychological assessments (as much as 53.2 percent of financial companies with assets valued at $10 billion and over), the review of employee engagement scores (35.6 percent of nonfinancial services firms and 62.2 percent of companies with annual revenue over $20 billion), reports received on the executive’s performance on external board services (20.3 percent, on average, across survey respondents), and an evaluation of the individual’s life experiences (37.6 percent) and social skills (21.7 percent).

There is a clear direct correlation between the practice of conducting reputation assessments among key stakeholders and the size of the company: these studies, which can be quite costly and time-consuming, are seen in 83.3 percent of the largest manufacturing and nonfinancial companies with annual revenue of $20 billion or higher but only in 4.3 percent of the smallest ones under $1 billion. A similar (albeit less pronounced) disparity is seen in the financial sector. Interestingly, an inverse company size correlation is found with respect to the practice of evaluating social skills: While 46 percent of smaller companies by revenue use it, the share declines as the size of the organization grows, and it drops to 12.7 percent among the largest organizations.

Having prior experience as the CEO of another company is considered extremely important for a CEO candidate only by 15 percent of governance professionals who participated in The Conference Board opinion survey, while as much as 47 percent view it as unimportant. However, 45 percent of respondents said that it is somewhat important for a CEO successor to have served as a public company board member. On the other hand, only 8.8 percent of newly appointed CEOs include prior board experience among their professional qualifications.

Moreover, twenty-five percent of survey respondents believe that the board should engage shareholders (especially large institutional investors) in the CEO succession planning process and have them play a role in the selection of the new chief executive. Nineteen percent indicated that rank-and-file employees should be engaged, while only 8 percent see a role for financial analysts and other gatekeepers. Three-quarters of the survey sample stated that the board should decide independently, without being influenced by outside stakeholders.

The Interaction Between Board and C-Suite Executives

  • Less than one-third of companies across business sectors stated that non-employee directors and senior executives interact (without the presence of the CEO) at least quarterly. In the nonfinancial sector, a small share of respondents disclosed semi-annual (6.8 percent) and annual interactions (4.5 percent). Quarterly interactions are found in 38.2 percent of companies with revenue of $20 billion and more, while the same group reports that board members (minus the CEO) interacts with the senior management team only when circumstances warrant.
  • Interactions (without the presence of the CEO) take different forms, including: through visits to regional plants or offices (57.2 percent, on average, across survey respondents and as much as 67.4 percent and 72.3 percent of the largest groups, by revenue and asset value) or in-person meetings with teams of senior executives (more common among smaller companies: e.g., 52.2 percent of in-person meetings with teams of senior executives); through the service by board members as mentors to senior executives; and by attending departmental/divisional meetings (21.7 percent).
  • The practice of requesting the attendance by C-suite executives at board and board committee meetings is widespread. Across business sectors, more than 90 percent of respondents to The Conference Board survey state that senior executives were invited more than three times to a full-board meeting in the previous 12 months.

Communication Practices on CEO Succession (2018)

Outside of the financial sector, public disclosure of CEO succession planning remains scarce, as most companies object to divulging strategically relevant information and are wary of investors’ intrusion in organizational practices. In a Staff Legal Bulletin issued in 2009, the SEC reversed its earlier position on shareholder proposals regarding CEO succession disclosure and stated that it will no longer grant no-action letters to companies that intend to exclude those proposals from the voting ballot on the ground that the issue pertains to ordinary business operations. [8] A decade later and despite the more systematic attention that boards of directors pay to the succession process, many companies, especially of smaller size and in the manufacturing and nonfinancial services sectors, remain circumspect and do not publicly share many details on the subject. In particular, boards hesitate to signal their intentions to internal candidate as they could lose some of the front runners.

The size review shows that larger companies are the most transparent: in particular, disclosure has become a predominant practice among the largest financial companies, and 84.9 percent of those with assets valued at US$10 billion and greater regularly update their investors on this topic. Disclosure may include information on who oversees the planning process and a description of the firm’s leadership development program. (The average percentage across the financial industry, to which the asset value breakdown refers, is also quite high, at 64.4). The Dodd-Frank Act of 2010 introduced the requirement of establishing a separate risk committee composed of independent directors for publicly traded bank holding companies with US$10 billion or more in assets and publicly traded nonbank financial companies supervised by the Federal Reserve. [9] These regulatory developments and the efforts by many financial institutions to strengthen their risk management process after the 2008 credit crunch help explain such disparities in disclosure practices. To be sure, numbers are much lower in manufacturing and nonfinancial services (32.6 percent and 35.6 percent, respectively), where many organizations are prudent about the dissemination of strategically relevant details or object to investors’ intrusion in the business judgment of the board of directors. In its 2009 Staff Bulletin, the SEC does add that a CEO succession disclosure resolution can be excluded from the vote if it seeks to micro-manage the company by probing too deeply into matters of a complex nature upon which shareholders, as a group, would not be in a position to make an informed judgment. [10]

Despite a new wave of investigative reporting resolute in giving voice to #MeToo allegations and the spread of business watchdogs on social media, corporate communications on CEO succession often remain scarce of details. Investigative journalism has helped to propel the #MeToo movement, [11] which in turn has spurred the growth of unofficial and unsupervised channels to report and discuss episodes of abuse of power. [12] In this climate, the speculation surrounding unanticipated CEO departures is amplified to levels we had never seen before.

While companies have an obligation to avoid misleading the market, it is not uncommon for press releases to remain vague on the reasons for a CEO departure. Under SEC disclosure rules, when a CEO leaves abruptly, the company must file a Form 8-K, but the form only needs to indicate that the departure has occurred and its date. [13] (There are many reasons for this reticence, and they may depend on the specific circumstances of the departure: From the concern about misrepresenting the complex details that influenced the board’s decision to dismiss the executive to the frequent presence of non-disclosure or non-disparagement clauses in employment contracts with executives. [14] To be sure, the fewer details the better for the company in those situations where the termination for cause leads to litigation.) But in the age of social media murky press releases announcing the CEO’s sudden decision to spend more family time risk adding fodder for conjectures. The Mark Hurd case at Hewlett Packard is considered emblematic. By being elusive when it announced that Hurd was leaving, in August 2010, and omitting details on the personal conduct issue an internal investigation had unveiled, the company ended up fueling a level of media fascination about the story that resulted exactly in “the sort of PR nightmare the board hoped to avoid.” [15]

And yet, the review of the 2018 cases of CEO succession related to #MeToo types of events do not contain any indication that communication practices are evolving and becoming more forthcoming. In particular, it remains difficult to understand whether the executive really resigned or was forced out, and the conduct is rarely characterized more specifically than a violation of the company’s code of conduct or core values. While CBS and Wynn Resort were already at the center of very public scandals when they announced their CEO departures, at least two other #MeToo cases had not yet been in the news when the companies issued statements on their impending CEO successions. In July 2018, the board of Texas Instruments told stakeholders why its CEO, Brian Crutcher, was leaving after only six-weeks in the job: “Crutcher resigned due to violations of the company’s code of conduct. The violations are related to personal behavior that is not consistent with our ethics and core values, but not related to company strategy, operations or financial reporting.” [16] In December, when Lam Research’s CEO Martin Anstice abruptly left his post, the board issued a press release detailing: that the CEO was resigning amid a company investigation of employee allegations against him; that the investigation would be overseen by a committee of the board chaired by the lead independent director and assisted by an outside law firm; the non-financial nature of the allegations against Anstice; and the fact that Anstice would not be receiving any of his severance benefits. [17] In both cases, the companies cared to clarify that the conducts in question were not of the type suggesting an internal control issue, but they did not state what internal rule they violated—whether an anti-fraternization or anti-harassment policy, a rule against nepotism, or a commitment to anti-discrimination.

In public disclosures and media interactions, companies frequently do not emphasize the role that a board-led succession planning process has played in the appointment of a new CEO. In a majority of the reviewed 2018 press releases, the board chair rather than the lead director assumed the responsibility for the announcement of the succession. However, nearly six out of 10 succession announcements do not indicate that the transition is the result of a formal CEO succession plan. In particular, fewer than half of companies that announced a transition in 2018 state in their press releases that the CEO transition is the result of an internal CEO succession planning process designed and overseen by the board of directors. For companies that do indicate the transition is the result of a board-led succession plan, the insights provided into the planning process are limited. Often, press releases simply mention a multi-year planning effort preceding the transition without discussing the role performed by the departing CEO, the full board, or a board committee, and to what extent external benchmarking and executive recruiters were involved.

CEO transitions are much broader than the replacement of one executive, as more than half of succession announcements disclose multiple changes to top management and the board. As evidence that CEO succession planning is a process that goes well beyond the replacement of one executive, 52.6 percent of S&P 500 companies in 2018 detailed other changes to the top management team and the board at the time a CEO succession was announced. When it occurs, on average 1.8 positions within top management and the board are affected, with a range of one other change to senior leadership to a maximum of six other changes (this was the case at CBS Corp, which had a significant revamping of its board when Les Moonves was dismissed due to issues of personal conduct). The fact that other senior leadership positions are affected during a CEO transition is a reminder of the need for a robust succession planning process.

Other Communication Practices on CEO Succession Planning

  • The Conference Board also reviewed the concentration of CEO succession announcements by month in 2018. The largest percentages are seen in March, August, and September (seven announcements, or 11.9 percent of the total in each of those months) or at the end of the year (six announcements in December, or 10.2 percent). The monthly distribution appeared more even in 2018 than in previous years. In 2017, for example, succession announcements were clustered around the beginning and ending of the calendar year (January and December) and around the typical timing of annual shareholder meetings (June and July).
  • Of the S&P 500 companies that announced a CEO succession in 2018, 74.6 percent provided stakeholders with advance notice of the transition, a figure that is quite consistent with the one reported in the last couple of years and up from the 68.9 percent seen in 2015. Among these companies, the average lead time before the succession event becomes effective is 89 days, down slightly from the 100-day lead time recorded for 2017 and similar to the lead times recorded for 2016, 2015, and 2014 of approximately 80 days. The remaining 25.4 percent of companies did not provide stakeholders with advance notice, generally continuing the trend since 2013 of fewer companies announcing successions that are effective immediately.
  • Some 66.1 percent of the succession announcements among S&P 500 companies in 2018 linked the departure of the CEO to “retirement.” This represents a significant increase from the 38.1 percent rate of 2016 and is approaching the 66.7 percent rate in 2013. In 2018, 20.3 percent of the S&P 500 succession announcements linked the departure of the CEO to resignation or “stepping down.” This is a reversal of the upward trend from 2013-2016 and is a marked decrease from the 2016 rate of 60.3 percent.

The complete report is available here.


1Rudiger Fahlenbrach, “Founder-CEOs, Investment Decisions, and Stock Market Performance,” Journal of Financial and Quantitative Analysis, Volume 44, No. 2, April 2009, pages 439-466. See, in particular, Table 3 on p. 447.(go back)

2Vishal K. Gupta, Sandra Mortal, and Daniel B. Turban, “Activist Investors Are More Likely to Target Female CEOs,” Harvard Business Review, January 22, 2018. Also, Id. With Seonghee Han and Sabatino Silveri, “Do Women CEOs Face Greater Shareholder Activism Compared to Male CEOs? A Role Congruity Perspective,” Journal of Applied Psychology, Vol. 103, Issue 2, 2018, pages 228-236. Moreover, see: Bill Francis, Yinjie (Victor) Shen, Qiang Wu, “Do Activist Investors Target Female CEOs? The Role of CEO Gender in Hedge Fund Activism,” SSRN Electronic Journal, January 2007; John D. Stoll, “Are Activist Investors Sexist?” Wall Street Journal, August 2, 2019.(go back)

3United States Proxy Voting Guidelines. Benchmark Policy Recommendations, Institutional Shareholder Services (ISS), December 6, 2018, p. 19. Also see, for an example of similar voting guidelines adopted by institutional investors: 2019 Global Procedures and Guidelines, JP Morgan Asset Management, April 1, 2019, p. 15. On the other hand, other asset managers such as Vanguard determine that the matter of CEO-board chair combination should be within the purview of the board of directors: Proxy Voting Guidelines for U.S. Portfolio Companies, The Vanguard Group, April 1, 2019, p. 7.(go back)

4Matteo Tonello, Corporate Board Practices in the S&P 500 and Russell 3000, The Conference Board, Research Report, R-1687-RR-19, p. 17.(go back)

5Also see John Harry Evans III, Nandu Nagariajan and Jason Schloetzer, “CEO Turnover and Retention Light: Retaining Former CEOs on the Board,” Journal of Accounting Research, Vol. 48, Issue 5, pp. 1015-1018, May 2010.(go back)

6Brandon N. Cline and Adam Yore, “Silverback CEOs: Age, Experience and Firm Value,” Journal of Empirical Finance, Vol. 35, 2016, pp. 169-188; the study extends to S&P 1500 companies in the 1993-2005 period.(go back)

7See Walter Frick, “Should Older CEOs Be Forced to Retire,” Harvard Business Review, February 15, 2016.(go back)

8”We now recognize that CEO succession planning raises a significant policy issue regarding the governance of the corporation that transcends the day-to-day business matter of managing the workforce. As such, we have reviewed our position on CEO succession planning proposals and have determined to modify our treatment of such proposals.” See SEC Staff Legal Bulletin No. 14E (“Shareholder Proposals”), October 27, 2009, available at back)

9Section 165(h).(go back)

10Id., SLB No. 14E. Also see Exchange Act Release No. 40018 (“Amendments to Rules on Shareholder Proposals”), May 21, 1998, available at back)

11For an analysis of the critical role played by investigative reporting, see Jessica A. Clarke, “The Rules of #MeToo,” University of Chicago Legal Forum, forthcoming, 2019.(go back)

12“While unofficial reporting can advance important ends, the rise of informal accusation also raises concerns that bear directly on the need to enhance formalized accountability for sexual assault and harassment,” as observed in Deborah Turkheimer, “Unofficial Reporting in the #MeToo Era,” University of Chicago Legal Forum, forthcoming, 2019.(go back)

13Instructions to Form 8-K Item 5.02(b), available at When the CEO is also a member of the board, which is almost invariably the case, Form 8-K instructions also require a “brief description of the circumstances” of the disagreement that caused the departure, but they do not specify the level of detail that needs to be provided.(go back)

14On this topic, see, for example, David A. Hoffman and Erik Lampmann, “Hushing Contracts,” Washington University Law Review, Institute for Law and Economics Research Paper No. 19-08, 2019.(go back)

15Adam Lashinski, “What Really Happened Between HP ex-CEO Mark Hurd and Jodie Fisher?,” Fortune, November 5, 2010.(go back)

16“Rich Templeton to reassume President and CEO roles in addition to his current role as Chairman; Brian Crutcher resigned as CEO,” Texas Instruments press release, July 17, 2018.(go back)

17“Lam Research Corporation Announces Martin Anstice Resigns as Chief Executive Officer,” Lam Research press release, December 5, 2018. Material related agreements or changes to material agreements resulting from the departure are in fact considered subject to reporting requirements under Item 5.02(b) of Form 8-K; see Ze-ev Eiger and Anna Pinedo, “Frequently Asked Questions About Form 8-K,” Morrison Foerster, 2017, available at Agreements and amendments to agreement with executives or directors, including severance payments made under the those agreements, are typically considered material.(go back)

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One Comment

  1. John Oliver
    Posted Tuesday, March 31, 2020 at 10:34 am | Permalink

    Hi there, I’ve been reading your CEO succession reports for a few years now and always find them very interesting.

    I’m an academic researcher from a UK business school and am thinking of undertaking a similar research project – but for the FTSE 100.

    Do you have copy of your survey questions and definitions that you would be willing to share?

    Best wishes,