Commentary: New CEOs should prioritize relationship building with institutional investors, regulators

Well-executed CEO transition planning engages the organization's stakeholders early and consistently throughout the process

Pensions & Investments | January 28, 2019

The Pensions & Investments article, “Commentary: New CEOs should prioritize relationship building with institutional investors, regulators,” was written by Russell Reynolds Associates Consultant Jack "Rusty" O'Kelley III. In the article, he emphasizes that CEO transitions must be all-encompassing when it comes to shareholders and stakeholders, because any CEO shift produces risk for these parties. The article is excerpted below.

CEO transitions have always been challenging but never more so than in today's environment. We advise our clients to think of transition planning as a distinct process from succession planning that requires attention and thoughtful preparation. Your shareholder base, collectively, is a key stakeholder in the success of a public company CEO transition. The design of a successful CEO change must include shareholder perspectives and concerns.

To gain a sharper sense of the challenges posed by CEO turnovers, as well as the risks involved, Russell Reynolds Associates reviewed CEO tenure and incidents of CEO turnover at S&P 500 member companies from Jan. 1, 2003 to Dec. 31, 2015. Across these 500 companies, there were 688 CEO transitions during that 12-year period, with 40% of the firms experiencing two or more CEO transitions.

During that period, while the average departing S&P 500 CEO had a tenure of 5.9 years, a surprising number of CEOs departed quickly. Fully 13.1% of new CEOs left in less than three years, and 7.8% left within two years. Given the cost of and investment in CEO appointments, those are expensive misses. When looking only at external CEO appointments, the departure rates jump to 17.2% in less than three years and 11% within two years — a notable rate of failure. These are not untested leaders or unsophisticated enterprises. These failed appointments were the product of the succession and onboarding processes used by some of the world's largest and most successful companies.

To read the full article, click here.