CEO succession refers to the process by which

boards of directors A board of directors (commonly referred simply as the board) is an executive committee that jointly supervises the activities of an organization, which can be either a for-profit or a nonprofit organization such as a business, nonprofit organi ...

ensure that their organization has the ability to sustain excellence in CEO leadership over time, with transitions from one leader to the next.

Commercial importance

CEO succession is one of key functions of a board of directors. Changing the head of an enterprise impacts

company culture Historically there have been differences among investigators regarding the definition of organizational culture. Edgar Schein, a leading researcher in this field, defined "organizational culture" as comprising a number of features, including a s ...

, board/CEO relations, and perceptions from multiple

constituencies An electoral district, also known as an election district, legislative district, voting district, constituency, riding, ward, division, or (election) precinct is a subdivision of a larger state (a country, administrative region, or other polity ...

inside and outside the business. The disruption that occurs can impact performance in a positive, neutral or negative manner. Successful companies manage this process well in advance with a concerted set of processes and milestones. Effective CEO succession requires a well-defined program that ensures a supply of highly capable candidates ready to assume the CEO position whether through an unexpected event or a planned transition. Success or failure of a CEO transition is influenced by a host of obvious and non-obvious factors, many of them of a social/psychological nature. How these factors are managed can have an enormous impact on the performance and status of the organization.

Regulatory opinion

In an October 2009 release, the

United States Securities and Exchange Commission The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against marke ...

effectively removed the ordinary business exclusion defense used by companies reluctant to disclose their CEO succession process to shareholders. The policy change allows for a new wave of corporate governance scrutiny, as regulators and shareholders increasingly focus on CEO succession practices. Staff Bulletin (SLB 14E) announced that, in principle, the commission no longer allows companies to exclude shareholder proposals based on an argument that CEO

succession planning Succession planning is a process and strategy for replacement planning or passing on leadership roles. It is used to identify and develop new, potential leaders who can move into leadership roles when they become vacant. Succession planning in d ...

is an ordinary business operations matter. In reversing its position, the SEC acknowledged that poor CEO succession planning constitutes a significant business risk and raises a policy issue on the governance of the

corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and ...

that transcends the day-to-day business of managing the workforce. The change indicates that regulators have reframed CEO succession as a risk management issue and placed its responsibility firmly in the boardroom. Succession planning responsibilities are redefined as “a key board function” and “a significant policy (and governance) issue … so that a company is not adversely affected by a vacancy in leadership.”

References

Books on the subject

* Wackerle, F.W., (2001). ‘’The Right CEO: Straight Talk about Making Tough CEO Selection Decisions’’. New York:

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Articles on the subject

Pellet, J., (2009). “What’s Wrong with CEO Succession?” ''Chief Executive'', 240.

* Charan, R., (2005). ‘’Ending the CEO Succession Crisis,’’ ''Harvard Business Review'', 83(2). * Balloun, J., & McGill, J. (2005). “Succession Planning: A Critical Boardroom Imperative,” ''NACD Directors Monthly'', 29(9).
Dierickx, C., & McGill, J. (2007). “The Dark Side of CEO Succession,” ''Chief Executive'', 225.

Dierickx, C., & Veneziano, J. (2008). “Three Keys to CEO Succession,” ''People & Strategy'', 31(2).

Directorship Magazine (2009). “CEO Succession"

The Conference Board (2010). Examining the impact of SEC guidance changes on CEO succession planning
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