refers to a series of changes in CEO in a firm over time.
CEO succession refers to the CEO transitions that take place in a firm
A firm is a business.Firm or The Firm may also refer to:-Organizations:* Hooligan firm, a group of unruly football fans* The Firm, Inc., a talent management company* Fair Immigration Reform Movement...
. It is a firm process of changes in the CEOs over time. Changing the head of an enterprise
A company is a form of business organization. It is an association or collection of individual real persons and/or other companies, who each provide some form of capital. This group has a common purpose or focus and an aim of gaining profits. This collection, group or association of persons can be...
impacts company culture
Organizational culture is defined as “A pattern of shared basic assumptions invented, discovered, or developed by a given group as it learns to cope with its problems of external adaptation and internal integration" that have worked well enough to be considered valid and therefore, to be taught to...
, board/CEO relations, and perceptions from multiple constituencies inside and outside the business. The disruption that occurs can impact performance in a positive, neutral or negative manner. Successful companies manage this process well in advance with a concerted set of processes and milestone
A milestone is one of a series of numbered markers placed along a road or boundary at intervals of one mile or occasionally, parts of a mile. They are typically located at the side of the road or in a median. They are alternatively known as mile markers, mileposts or mile posts...
s. Effective CEO succession requires a well-defined process that ensures a supply of highly capable candidates ready to assume the CEO position whether through an unexpected event or a planned transition. Success or failure of a CEO transition is influenced by a host of obvious and non-obvious factors, many of them of a social/psychological nature. How these factors are managed has enormous impact on the performance and status of the organization.
There are five key outcomes of an effective CEO succession: http://www.boardmember.com/Article_Details.aspx?id=3127
- A board aligned on the company’s vision, strategy, and challenges
- An effective CEO in place with sufficient candidates in the pipeline (both internal and external)
- Well-managed and minimized risks associated with CEO transition
- A company prepared to take advantage of the opportunities associated with CEO transition
- Stakeholder consensus that the succession process is fair, well executed, and results in a good succession decision
In an October 2009 release http://www.sec.gov/interps/legal/cfslb14e.htm
, the United States Securities and Exchange Commission U.S. Securities and Exchange Commission effectively removed the ordinary business exclusion defense used by companies reluctant to disclose their CEO succession process to shareholders. The policy change allows for a new wave of corporate governance scrutiny, as regulators and shareholders increasingly focus on CEO succession practices.
Staff Bulletin (SLB 14E) announced that, in principle, the commission no longer allows companies to exclude shareholder proposals based on an argument that CEO succession planning is an ordinary business operations matter. In reversing its position, the SEC acknowledged that poor CEO succession planning constitutes a significant business risk and raises a policy issue on the governance of the corporation that transcends the day-to-day business of managing the workforce. The change indicates that regulators have reframed CEO succession as a risk management issue and placed its responsibility firmly in the boardroom. Succession planning responsibilities are redefined as “a key board function” and “a significant policy (and governance) issue … so that a company is not adversely affected by a vacancy in leadership.” http://charlesmore.com/cms/files/Examining_the_Impact_of_SEC_Guidance_Changes_on_CEO_Succession_P_ID73041.pdf