September 9, 2014

Which Factors Influence Board Leadership Structure (& How)?

This recently published Korn Ferry/NACD board leadership survey of the S&P 500 and S&P 400 is particularly noteworthy because it delves into a number of important topics aside from merely identifying leadership structure types and trends.

Survey results include:

  • Continued trend toward separation of the CEO and board chair roles – which reflects almost equally increases in independent and non-independent chairs
  • Smaller companies are more likely to separate the CEO/chair roles than larger companies.
  • Larger companies that separate the roles are more likely to later recombine them.
  • About 50% of companies changed their leadership structure upon a succession event (i.e., new CEO or chair).
  • A slight majority of companies experiencing a succession event chose a combined rather than separated structure.
  • With the exception of founders stepping aside, separating the roles is more likely when an unexpected resignation or crisis (as opposed to a planned succession) triggers the succession event.
  • Planned successions involving founders are more likely to result in separating rather than combining the roles.
  • 40% of succession events in 2012 included some sort of transition – such as the former CEO/chair remaining as chair for some time period after the new CEO was in place.
  • Certain industries (some characterized by having more founder-chairs) like IT tend to separate the roles at a much higher rate than other industries.

Based on the findings, the survey reaffirms that there is no “right” board leadership structure; rather, each company needs to determine for itself the most appropriate structure based on its particular facts and circumstances – which evolve over time. See more surveys, memos and other helpful resources in our “Board Leadership” Practice Area.

Enhancing CEO Succession: Directors Mentoring Executives

This recent Heidrick & Struggles article discusses how pairing directors with high-potential internal CEO succession candidates in formal mentoring relationships – well in advance of planned succession events – can reduce risks associated with CEO successsion, and motivate and improve company performance. Mentoring allows directors to gain an in-depth understanding of candidates’ leadership potential – not just past performance, which isn’t sufficient to predict future success.

So-called “soft skills” such as self-awareness and empathy, which are detectable by directors over the course of the mentoring relationship and which most CEO candidates lack, are described as the key differentiators between candidates that can succeed as CEOs vs. those that fail. The article also discusses a form of mentoring program implemented by Frontier Communications (see this 2010 WSJ article), and describes how companies can set up their own program.

This is certainly not the first article to tout the benefits of directors serving as mentors for potential CEO successor candidates. Among others, this report by The Conference Board (discussing the findings of a survey that focused on how well directors know senior executives positioned to succeed to the CEO) recommended that – while CEOs are ultimately responsible for mentoring and developing their direct reports, the board still play an active role by, e.g., serving as informal mentors or advisors, noting:

“It is important for directors to move beyond interacting with executives “when circumstances warrant” (as is commonly reported). Developing true insight into the professional quality and personal character of an executive requires dedicated time and effort.”

Contrary to the recommendation, however, the survey found that only a small percentage (7%) of companies currently assign a director to serve as a mentor for their senior executives.

More on “The Mentor Blog”

We continue to post new items daily on our blog – “The Mentor Blog” – for members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– Auditor Engagement Letters: No Company Intervention in Auditor-Directed Work
– PCAOB Roundtable: Mixed Views of Proposed Changes to Auditor’s Report
– Perceived Board Effectiveness Linked to How Board Allocates its Time
– FINRA: Pre-IPO Selling Procedures Need to Be Adequately Supervised
– Board Trends at the S&P 1500

– by Randi Val Morrison