Success at the Top: CEO Evaluation and Succession

High Stakes, High Priority

The stakes of CEO evaluation and succession are high. Executive leadership is integral to the prosperity of any corporation. The right CEO and team can inspire a lackluster organization to greater achievements, while mediocre leadership is lucky to maintain the status quo. It is no wonder that according to the National Association of Corporate Directors’ (NACD’s) 2014–2015 Public Company Governance Survey, boards ranked both CEO succession and executive talent development among their top five priorities.

There is real value in proactively addressing CEO performance. Discussions about leadership style and vision can be sensitive and difficult without a formal evaluation process. As such, dialogue about any problems between the board and CEO may fail to take place. A formal CEO evaluation process provides a natural forum for a direct exchange of opinions on important topics relevant to the leadership and management of the company.

Practical Guidance

Because the core principles of CEO evaluation and succession are in many ways interrelated, we have constructed this handbook as a series of modules. The first two modules focus on process: Module One contains an overview of the performance evaluation and Module Two discusses CEO succession planning. Module Three looks at the major players—specifically the roles of the board and management in evaluation and succession. The final modules address the action steps: selection and compensation of the next CEO in Module Four, and the transition and assimilation of the new CEO in Module Five.

While reading this handbook, board members may wish to consider the following questions:

• What is a good process for managing CEO evaluation?
• What is an effective process for managing CEO succession?
• What are the key roles in CEO evaluation and succession and who fulfills them?
• How can the board find the “right” CEO?
• What are some considerations for negotiating compensation?
• How can directors ensure a smooth transition and assimilation?

Much of the text in this handbook draws from the enduring recommendations of NACD Blue Ribbon Commissions, from the earliest commission on CEO succession, chaired by Jefrey Sonnenfeld, to the most recent commission exploring talent development, co-chaired by Greg Lau and Mary Pat McCarthy. NACD’s staff has gathered all of this information into a single source of practical guidance. We trust that you will find it useful.