Internal candidates are the most likely to succeed a CEO, but new
research reveals a critical stumbling block in the succession process:
how well boards of directors know senior executives one level below the
CEO and a lack of board involvement in talent development. These
findings emerged from a study conducted by The
Conference Board, Stanford
University Rock Center for Corporate Governance, and The
Institute of Executive Development (IED).
In a report titled "How
Well Do Corporate Directors Know Senior Management?" the authors
detail the results of a survey of more than 150 corporate directors of
public companies in North America. The study results appear in the
latest edition of Director Notes published by The Conference
Board. Additional analysis of survey data and statistics regarding CEO
turnover events at S&P 500 companies will be included in the 2014
edition of The Conference Board's CEO Succession Practices,
slated for release in early April.
"While we found that many directors interact with senior executives
periodically in a boardroom setting, they do not have extensive exposure
to them outside of the boardroom nor do they have detailed knowledge
about their skills, capabilities, or performance," observes study
coauthor and Stanford
Graduate School of Businessfaculty member David
Larcker. "This can be a serious liability when the time comes to
identify a successor to the CEO, and can unnecessarily extend the CEO
According to coauthor and founder/CEO of IED Scott Saslow, the survey
results also suggest that board members have only passive involvement in
the development of senior leaders. "Boards would be well served to
formalize the process of explicitly identifying the required
capabilities for the CEO and the executive team, and then methodically
evaluate the candidates against this set of criteria," he says. "Often
this is not the case, and boards rely on informal evaluations and
instinct to make decisions about who is preferred as successor, and why."
Previous research also indicates that boards do not have extensive
knowledge about talent and succession-related issues at their companies.
For example, a 2010
survey found that only 54% of companies reported grooming a specific
successor for the CEO position, and 39% claimed to have no viable
internal candidates to succeed the CEO on a permanent basis if required
to do so immediately.
Building on these earlier findings, the current study uncovered the
The study authors provide recommendations for improvement that include:
For more detailed results and in-depth recommendations, the study is
publicly available at: http://www.gsb.stanford.edu/cldr/research/surveys/directors-managers.html.
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