Report Finds CEO Succession Is Directors’ Top Concern

Corporate directors, having largely addressed the new requirements of Sarbanes-Oxley, are worried about a new hurdle: CEO succession.

Roughly half of the corporate boards from public, private and nonprofit companies say they are “less than effective” at CEO succession, and only a similar percentage have a succession plan in place, according to a survey by the National Association of Corporate Directors and Mercer Delta Consulting. Less than 15% of the 1,400 directors surveyed said their boards were “highly effective” in managing and developing their executive talent.

The report recommended that CEO transitions should take place over a minimum of a three-to-five-year period so that directors can be assured the new leader has been adequately trained and developed for the job. Elise Walton, partner and head of Mercer Delta’s corporate governance practice, added that a board should have a succession plan from Day One to avoid a crisis if the CEO suite is suddenly vacant.

Meanwhile, the directors surveyed said they needed to improve in overseeing their companies’ business strategies. While most directors (48%) said their boards were “effective” in this area, 28% said they were “somewhat effective” and 8% said they were “below acceptable levels.”

“Directors are feeling frustrated with not really knowing the right way to get involved with strategic planning,” Walton says. “There’s been a move to share more information, but not much specification as to how to share it; they don’t feel as though they’ve figured out the exact right way to handle the issue yet.”

Directors on public boards spent an average of 210 hours on board issues—both inside and outside the boardroom—during 2006, up from an average of 190 hours in 2005.

Jeff Nash

Jeff Nash is a reporter for Financial Week, a sister publication of Workforce Management.