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CEO succession planning disclosure needs improvement in the US

US companies who have successfully replaced their chief executives (CEOs) were far more likely to have provided shareholders with more disclosure about their CEO succession plans, according to a study by the Investor Responsibility Research Center Institute (IRRCi). However, these are a minority of companies as the report also found that nearly a quarter of companies that changed CEOs in 2012 did not disclose anything about succession planning in the three years prior to the change.

Companies that executed a successful CEO transition were more likely to have provided shareholders with stronger disclosure regarding the CEO succession plan in the years prior to the leadership transition by a 56% to 44% margin. Successful transitions were considered those which met all or all but one of the following conditions: the new CEO is still serving, a new CEO was named expeditiously, there was no interim CEO, and the CEO was an inside candidate. Of the 137 companies which appointed a permanent CEO in 2012, 20% had to undergo another chief executive transition within two years.

However, the report found that just 2% of companies described the board of directors’ process to identify CEO candidates, or how the directors are exposed to high-potential executives within the company.  Only 10%  noted how often the board reviewed succession planning. Only about half (52%) of companies disclosed which board committee had responsibility for CEO succession planning, or if it was the responsibility of the board as a whole. 

The study, Does CEO Succession Planning Disclosure Matter, was conducted by Annalisa Barrett, founder and CEO of Board Governance Research. The study examined CEO transitions taking place in 2012, allowing for an analysis of proxy statement disclosures made in the three years prior to a transition and the outcome of a CEO change in the years following the transition.

“The lack of disclosure of a process for CEO succession planning by nearly a quarter of companies is fairly shocking,” said Jon Lukomnik, IRRCi executive director. “Choosing a CEO is one of the core responsibilities of corporate directors. One would think directors would not only want an appropriate succession planning process in place, but also would see the value of disclosing that a process exists.”

The report presents the results of a study of CEO succession planning disclosures made by the Russell 3000 companies that had a CEO transition during 2012.  Executive pay data experts, Equilar, provided the data that was used to identify the 205 Russell 3000 companies that had a CEO transition during 2012 for companies headquartered in the U.S. that had a CEO departure due to a resignation, termination, retirement or medical reason. Not included in the analysis are departures triggered by a merger or acquisition transaction or change in control of any type.

What do you think?