SUCCESSION PLANNINGAMY SMITH, VON BELL, DUSTIN BANK, JOSH KING

SUCCESSION PLANNING

• What is it?

• Why is it important?

• What is the role of the board?

• Examples of well executed and not so well executed strategies

WHAT IS SUCCESSION PLANNING?AMY SMITH

SUCCESSION PLANNING

A process used by an organization to recruit and develop employees to potentially fill key roles within the company.

• Greater number of employees able to “answer the call”

• Allows a board/company to know the skills sets they need to keep company on track

• Allows a board/company to know if they LACK internal candidates

• Allows a board to know what changes they may want to make with a new CEO.

THE BAD

WHAT IT SEEMS LIKE…

WHAT IT SHOULD BE LIKE…

THE VERY BAD

SUCCESSION PLANNING……….THE CONS

WHY IT MATTERS

Without adequate succession planning organizations can be time bombs waiting to explode when top executives or CEOs leave…………..what can

happen?

• Places the organization at risk

• Misaligned strategy and objectives

• Negative Environment Effect

• Decrease in financial profits

• Difficulty finding lenders

WHY IT MATTERSVON BELL

SUCCESSION PLANNING…….THE PROS

Organizations who identify and develop internal talent for leadership roles in the event current leaders leave……..how can it help?

• Minimizes risk for the organization

• Provides continuous leadership

• Improves Organization Culture /Employee Morale

• Increases organization value

WHY IT MATTERS

Prevents Succession

Crisis

Improves Employee

Retention Rate

Allows Continuous Growth

Provides Leadership

Stability

HOW SUCCESSION PLANNING ADDS VALUE

ROLE OF THE BOARDDUSTIN BANK

THE BOARD’S ROLE

PRIMARY RESPONSIBILITIES:

• Change or Status Quo?• Objectivity• Own the succession process

SELECTING INTERNALLY

• Only if the board is pleased with performance

• Work with CEO to identify candidates and

plan strategy

• Constantly “groom” and evaluate

internal candidates for succession

SELECTING EXTERNALLY

• Only if the board determines the need for change

• Identify candidates matching the needs, goals and personality of the company

• Carefully weigh the pros and cons of

using a headhunter

A LONG-TERM APPROACH

• Take as much time as necessary to “court” prospective successors

• Continual reassessment of succession strategy

• Use a “forward-looking… living document” to profile the ideal CEO (Miles, 2009)

SUDDEN NEED FOR A CEO!

This should never catch the board off-guard

EVALUATING NEW CEO

• Interests of the new CEO and the company must be aligned

•Mutually agreed upon goals/standards/timeframes

• Board should “onboard” the successor

REAL WORLD EXAMPLESJOSH KING

GE AND JACK WELCH

• 3 way race-• Bob Nardelli• James McNerney• Jeffrey Immelt*

Named #17 worst American CEO’s of all time by Conde Naste portfolio.com magazine

Left GE for 3M, then Boeing in 2005

JEFFREY IMMELT AND GE

3/1/2009 Down 34.99%

JEFFREY IMMELT AND GE

• 3/1/2009 – Rating scare from Egan-Jones combined with dividend cut

• Actions are his own- GE Finance, GE Appliance Division**

• Taking GE in a different direction

• Mixed reactions on his performance to date

• Note- Somewhat unrelated to succession from Jack Welch

DAVID FARR AND EMERSON ELECTRIC

• Smaller, less high profile than GE

• 43 unbroken years of earnings gains- Slow growth

• 8 Internal candidates vetted over 4 years

• Wall Street reaction- meh

• Criticisms

• No top line growth

• Closely aligned with the overall economy

• “Highly-Cyclical Industrial Company” (Hoerth, 2016)

EMERSON ELECTRIC

Up 31.33%

HP AND THE REVOLVING DOOR

• CEO Lewis Platt – 1992 - 1999

• CEO Carly Fiorina – 1999 – 2005

• CEO Mark Hurd - 2005 – 2010

• CEO Leo Apotheker - 2010 – 2011 (11 months) • ($30 Billion Loss in Market Capitalization)

• CEO Meg Whitman- 2011 – current* As of 1/14/2016

HP UNDER LEWIS PLATT

700% growth in stock price

HP UNDER CARLY FIORINA

16% decrease in stock price

HP UNDER MARK HURD

37% increase in stock price

HP UNDER LEO APOTHEKER

50% decrease in stock price

HP UNDER MEG WHITMAN

42% decrease in stock price

THREE WAY RACE

73% growth in stock price

PARTING THOUGHT

According to a recent study by Strategy&, companies that are forced to replace their

CEO through poor planning forgo on average $1.8 billion in shareholder value,

compared with those that implement leadership changes through a planned CEO

succession process.

WORKS CITED

Adams, S. “Dilbert,” Comic strip, 1/20/05 and 1/21/05: print

Berman, P. “Emerson Changes Its Spots,” Forbes Magazine, 12/24/2001, p 66-68

Bower, J. “Solve the succession crisis by growing inside outside leaders,” Harvard Business Review, November 2007, p. 91-96

Carr, Marie, & Cathryn Marsh, Emily Dunn, Kristen Grigorescu (September, 2015). Building the bench: Strategic planning for CEO and executive succession. PwC (A publication of PwC’s Financial Services Institute). Retrieved on January 12, 2016, from  http://www.pwc.com/us/en/corporate-governance/management-succession.html.

Colley, Jr., John L., and Jacqueline L. Doyle, George W. Logan, Wallace Stettinius (2003). Corporate Governance (p.60). New York, NY: McGraw-Hill Companies, Inc.

Conde Naste. “Portfolio’s Worst American CEOs of All Time,” CNBC.com; Accessed 1/13/2016 http://www.cnbc.com/2009/04/30/Portfolios-Worst-American-CEOs-of-All-Time.html?slide=5

Egan-Jones Ratings Company, “General Electric- GE,” Accessed 1/14/2016; http://www.eganjonescsca.com/reports/GE/

Hoerth, C. “Emerson Electric Looks Great: Here’s Why I’m Avoiding It,” The Street, 1/13/2016

WORKS CITED CONT’D

Miles, Stephen A. (July 31, 2009). Succession Planning: How To Do It Right. Forbes. Retrieved on January 12, 2016, from http://www.forbes.com/2009/07/31/succession-planning-right-leadership-governance-ceos.html.

Ogden, Dayton, & John Wood (March 25, 2008). Succession Planning: A Board Imperative. Bloomberg Business. Retrieved on January 12, 2016, from  http://www.bloomberg.com/bw/stories/2008-03-25/succession-planning-a-board-imperativebusinessweek-business-news-stock-market-and-financial-advice.

Strategy&, “2014 study of CEO.s governance, and success & The value of getting CEO succession right,” April 14, 2015

Yahoo Finance, Stock Quotes and Company Performance. Accessed 1/14/2016 and 1/15/2016 http://finance.yahoo.com/echarts?s=GE+Interactive#{"useLogScale":true,"customRangeStart":946706400,"customRangeEnd":1451541600,"range":"custom","allowChartStacking":true}