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By Che Odom
March 3 — Companies that disclose their CEO succession plans to shareholders are more likely to be successful in making a switch at the top, a study of securities filings found.
“Disclosure means they've thought about it and planned,” Jon Lukomnik, executive director of Investor Responsibility Research Center Institute (IRRCi), said at a March 3 webcast announcing the study's findings. “Of course they had better transitions.”
IRRCi commissioned the study by Annalisa Barrett, founder and chief executive officer of Board Governance Research LLC, to find out if a correlation exists between disclosure of a plan and the successful selection of a replacement chief executive officer. In a nutshell, Barrett found that a connection existed among the Russell 3000 companies that experienced a change at the top in 2012.
A successful transition is one in which the new CEO remained in the position for more than a couple of years, according to the study.
Barrett looked at CEO transitions in 2012 so that she could analyze proxy-statement disclosures made in the three years prior to the transition and the outcome of the CEO change in the years following it. She found that 24 percent of companies provided no disclosure of their succession plans.
“The lack of disclosure of a process for CEO succession planning by nearly a quarter of companies is fairly shocking,” Lukomnik said.
Of the 205 companies that had a CEO transition in 2012, nearly 40 percent did not file a Form 8-K announcing the CEO's departure until the day of the event or later, Barrett said during the webcast.
She said only 2 percent of companies described the board’s process of identifying candidates or how the directors are exposed to high-potential executives within the company.
Only 10 percent noted how often the board reviewed succession planning, and half did not disclose which board committee had responsibility for CEO succession planning, or if it was the responsibility of the board as a whole, the report said.
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The report is available at http://irrcinstitute.org/wp-content/uploads/2016/02/Final-CEO-Succession-Planning-Disclosure-Report.pdf.
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