CEO succession planning low on boards' priority

Succession planning is 4th in priority for boards, lower than strategic planning, regulatory compliance and sustainability, finds a survey

For most companies, succession planning only begins when a chief executive officer (CEO) departs, finds a study by Institutional Investor Advisory Services (IiAS). 

Succession planning is fourth in priority for boards, lower than strategic planning, regulatory compliance and sustainability, finds the survey of 30 listed companies and 37 respondents, mostly CEOs, executive or independent directors. Around 27 per cent of respondents said they discuss succession planning only in the event of a CEO’s departure. Further, 27 per cent said their boards discussed CEO succession planning once a year.

To tide over a CEO departure, 64 per cent said they preferred internal candidates over external ones. In companies without a formal succession plan, 74 per cent identified potential internal candidates by name in the plan. While 65 per cent said succession planning for a CEO was an ongoing process, 33 per cent took three months or more to identify a successor before the last CEO departed. The survey found most companies did not hire external consultants for succession planning. Only 30 per cent of respondents turned to consultants for the search process, the study said. 

“While corporate India is learning from past experiences of succession planning, its disclosure levels continue to remain a concern,” the study noted. Of the companies surveyed, 27 per cent did not have a CEO succession plan. In 54 per cent, the plan was for internal use only. Only eight per cent had their CEO succession plan on their website or annual report.  Framing a succession planning policy was formally included as one of the key responsibilities of the board of a listed company under the Sebi (Listing Obligations and Disclosure Requirements) Regulations, 2015. This provision was absent under earlier laws. 

The report ‘CEO Succession Planning in India’ was brought out in association with IFC’s South Asia Corporate Governance Program, supported by the ministry of finance, Japan.