Shareholders and stakeholders place considerable emphasis on the importance of reliable CEO succession planning. Nevertheless, it is far from clear that CEO succession planning is any better today than a decade or two ago. In this Closer Look, we consider the perspective of ValueAct Capital, an institutional investor with extensive, direct experience serving on the boards of directors of portfolio companies during multiple succession events. We explore common deficiencies to the succession process and discuss how succession planning can be improved through use of an outcomes-based CEO scorecard that matches candidates’ skills against the value drivers of the business. We ask: Why do boards commonly fail at succession planning? Would succession planning improve if boards used an outcomes-based CEO scorecard? How difficult is it to accurately find the information to populate an outcomes-based scorecard? Do boards understand and agree on the key strategic and operational goals that underpin an such a scorecard? Would the CEO succession process be improved if it more closely resembled the investment process?
Copyright held by A.J. Galainena, David F. Larcker, Mason Morfit, Bloor Redding, Amit Seru, and Brian Tayan. Further inquiries about reproduction and use should be directed to the Corporate Governance Research Initiative.
