Korn Ferry Releases Report on Trends in Board Governance
October 11, 2012
LOS ANGELES – October 11, 2012 – Korn/Ferry International (NYSE: KFY), a premier global provider of talent management solutions, today announced the release of the 2012 Korn/Ferry Market Cap 100, the 37th in the firm's annual reports on trends in board governance.
The report was released at the FT-ODX directors-only conference, which concludes today.
The new edition, subtitled Smooth CEO successions: Lessons in passing the baton, examined contrasting case studies—including transitions where the successor CEO came from inside, outside, and off the board of directors itself—to find the common denominators of success.
To create the report, three vice chairmen at Korn/Ferry International with expertise in CEO succession—Dennis Carey, Stephen Mader, and Jane Stevenson—interviewed current and former top executives and directors at AmerisourceBergen Corporation, Marriott International Inc., MasterCard Worldwide, and Newell Rubbermaid Inc.
Alongside accepted best practices for succession planning, the report suggests boards should weigh ten other factors when changing CEOs, including:
Agree on the strategy first.
The board must reach consensus on the future business environment and the strategy to address it. Then, and only then, is it ready to define the attributes that the new CEO must have to pursue that strategy.
Pick your succession leader with care.
Whether it’s the lead director, board chairman, or a committee chair, this person needs to be: highly disciplined, able to devote significant extra time to the task, intuitive about people, and trustworthy in the eyes of the board. CEO experience is also highly recommended so that the search leader knows firsthand what the role will demand of a candidate.
Define the full board’s role.
The search for a new CEO can be delegated to a committee. Pick that approach if it plays to your board’s strengths and dynamics, recognizing that there are tradeoffs. Involving every director may require more time to make decisions and pose confidentiality issues. A narrow approach may limit the process’ focus and make final consensus harder.
Define the sitting CEO’s role.
The CEOs in some circumstances lead and manage the succession process. In others, the CEO is cast as an important advisor. The key is to make a conscious decision and reach a clear agreement with the CEO on his or her participation.
In addition, the report details how MasterCard successfully brought in its next CEO in as president and COO ten months before handing him the reins, and how Newell Rubbermaid handled a tricky situation: sizing up a sitting director to be CEO.
The KFMC100 also includes an analysis of proxy and governance statements. Among the notable findings from this year's report:
CEO succession planning is still not universal.
25 percent of the KFMC companies did not specify in those public documents that they had any succession plan in place. The other 75 percent explicitly state that they maintain or review a succession plan.
Many companies are unprepared for an emergency leadership transition.
Only 17 percent of the companies specified that they had a plan or person at the ready in the event of a sudden CEO departure, including 4 percent that have had a stated plan for an interim CEO, 7 percent with a list of potential successors, and 6 percent that put written procedures in place.
Succession plans are getting deeper.
57 percent of companies are planning for who will move into all sorts of leadership roles, not just the CEO job, including 46 percent who are looking at all senior managers and 11 percent who are looking at all key corporate officers.
Director turnover stays very low.
Only 90 board seats changed hands in FY2011, just 7.6 percent of available directorships, creating concern for how quickly boards can add more diversity to their ranks or adapt to rapidly changing business shifts. At that rate, it would take 13 years for boards to completely refresh. The tenure of a retiring or departing director in FY2011 was 11.1 years on average.
Individuals serving fewer boards.
Most directors serving on the boards of these 100 large companies are only on one or two boards. But in FY2010 about 13 percent of directors served on four or more boards. For FY2011, that number dropped to 5 percent.
CEO experience harder to secure for boards.
Public company CEOs, past and present, remain highly desirable, but are harder to find as companies limit their own CEOs availability for outside board service. Among sitting directors, 43 percent had CEO experience, but among those joining in FY2011, just 35 percent did.
To download the report, executives can go to http://www.kornferryinstitute.com/reports-insights/kornferry-market-cap-100-smooth-ceo-successions.
About Korn/Ferry International
Korn/Ferry International is a premier global provider of talent management solutions, with a presence throughout the Americas, Asia Pacific, Europe, the Middle East and Africa. The firm delivers services and solutions that help clients cultivate greatness through the attraction, engagement, development and retention of their talent. Visit www.kornferry.com for more information on Korn/Ferry International, and www.kornferryinstitute.com for thought leadership, intellectual property, and research.