Succession Issues Spotlight Board Deficiencies

Suddenly empty CEO seats at Merrill Lynch and Citigroup are turning up the pressure on boards to do a better job grooming talent from the corporate ranks, Financial Week reports.

For many companies, the difficult task of overseeing succession planning falls on the board's nominating and governance committee. Just as audit committees took the brunt of shareholder criticism following the Enron and WorldCom blowups, and compensation committees were on the firing line to comply with new Securities and Exchange Commission disclosure rules last year, nominating committees seem headed for the hot seat in 2008.

“Absolutely—the focus is shifting to the nominating committee,” said Richard Koppes, a lawyer at Jones Day and a director at Apria Healthcare Group and Valeant Pharmaceuticals International. “This is the committee that will have to reach out and engage with shareholders on some really tough issues in the coming year.”

Many boards admit they're struggling with succession planning. A study [link to study] earlier this year by the National Association of Corporate Directors and Mercer Delta Consulting found that roughly half the directors surveyed from public, private and non-profit boards said their boards were “less than effective” at the task.

Such ineffectiveness can carry a high cost: CEOs recruited from the outside earned median pay of $13 million in 2005, compared with $5 million for those promoted from within, according to the Corporate Library, a governance research firm.