What shareholders should know about ceo succession plans, and why. Presentation to the 2013 Activist Investor Conference, 01/22/2003, New York City.

1. What Shareholders
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Should Know About
CEO Succession Plans,
and Why. Master subtitle style
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What Shareholders Should Know About CEO Succession Plans, and Why.
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2. Setting the Stage
“The responsibility for succession planning belongs in the
boardroom, and nowhere else.” - The Conference Board
Clickistojob that is more important for the Board than
“There no
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selecting the company’s CEO and planning for his/her
succession.” - Wachtell, Lipton, Rosen & Katz
“A board’s biggest responsibility is succession planning. It’s the
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one area where the board is completely accountable, and
choice has significant consequences, good and bad, for the
corporation’s future.” - National Association of Corporate Directors (NACD) Report
For citations, see Examining the Impact of SEC Guidance Changes on CEO Succession Planning,
by Edward Ferris and Justus O’Brien, The Conference Board Director Notes, Vol. 2, No. 7, 2010
What Shareholders Should Know About CEO Succession Plans, and Why.
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3. Setting the Stage
Securities and Exchange Commission
Staff Bulletin (SLB 14E), October 27, 2009
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CEO Succession – no longer “ordinary business operations”
Succession planning responsibilities are redefined as “a key
board function” and “aMaster policy (and governance) issue
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… so that a company is not adversely affected by a vacancy in
leadership.”
What Shareholders Should Know About CEO Succession Plans, and Why.
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4. Setting the Stage
At The Time:
42% of companies had no CEO succession plan
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
 46% of successions were unplanned
 40% of companies were not prepared for an emergency succession
 48% of directors saw CEO succession as the sole responsibility of the CEO
 More than 60% of companies reported that the CEO recommended his/her
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successor
 57% of directors said they did not know when their CEO planned to step down
 Only 16% of directors believed their board to be effective at CEO succession
planning
For citations, see Examining the Impact of SEC Guidance Changes on CEO Succession Planning,
by Edward Ferris and Justus O’Brien, The Conference Board Director Notes, Vol. 2, No. 7, 2010
What Shareholders Should Know About CEO Succession Plans, and Why.
about
1/23/2013 4

5. Setting the Stage
Its Important to Note
External CEOs are often paid significantly more than internally groomed
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
ones; insiders tend to perform better and stay longer
 40% of CEOs leave within 18 months; 64% never make it to their fourth
anniversary
 It is commonly estimated that the faulty integration of a senior executive can
cost a company 10 to 20 times the executive salary in opportunity costs
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 The leader effect can account for up to 40% of variance in corporate
performance and value
 CEOs tend to achieve more in the first half of their tenure
For citations, see Examining the Impact of SEC Guidance Changes on CEO Succession Planning,
by Edward Ferris and Justus O’Brien, The Conference Board Director Notes, Vol. 2, No. 7, 2010
What Shareholders Should Know About CEO Succession Plans, and Why.
about
1/23/2013 5

6. Reputation Matters
The Reputation of a New CEO Matters to Investors.
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32% base decision on perception of CEO
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CEO Transitions and the Risk to Enterprise Value, FTI Consulting, October 2011
What Shareholders Should Know About CEO Succession Plans, and Why.
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7. Value at Risk
With Greater Surprise Comes Greater Value at Risk
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Planned successions present the lowest risk and can even have a
positive impact on stock prices at the time of the announcement.
CEO Transitions and the Risk to Enterprise Value, FTI Consulting, October 2011
What Shareholders Should Know About CEO Succession Plans, and Why.
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1/23/2013 7

8. H-P after Mark Hurd
Marc Andreessen to Maria Bartiromo
CNBC Special Report, August 6, 2010
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“We will run a search as fast as we can, but insuring we get the best possible
candidate. We will look at both internal and external candidates in that process.
We have just formed a committee, so work will begin on this immediately. But
we’re going to dive right into it.
And fundamentally, you know, we’re looking for someone who is outstanding,
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who we can pair up with a truly great company. The company is in great shape,
it’s extremely well positioned for the future.
We’re executing on the strategy. The performance is strong, so we’re look at
someone who can both maintain that level of performance and then build on it.”
What Shareholders Should Know About CEO Succession Plans, and Why.
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9. Market Reaction
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HP’s market value fell by $10 billion, close to a 10 percent decline,
following the resignation.
What Shareholders Should Know About CEO Succession Plans, and Why.
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10. Shareholder Proposals
 The Board of Directors will review the plan annually;
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 The Board will develop criteria for the CEO position which will reflect the
Company’s business strategy and will use a formal assessment process to
evaluate candidates;
 The Board will identify and develop internal candidates;
 The Board will begin non-emergency CEO succession planning at least three
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years before an expected transition and will maintain an emergency
succession plan that is reviewed annually;
 The Board will annually produce a report on its succession plan to
shareholders.
What Shareholders Should Know About CEO Succession Plans, and Why.
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11. Institutional Investors
“A (corporate) board should approve and maintain a detailed CEO succession plan
and publicly disclose the essential features”.
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“Poor CEO succession planning and inadequate internal development of
managerial talent could result in a panicked board vastly overpaying a
replacement chief executive.
Shareowners would be able to assess the strength and appropriateness of CEO
succession plans if the essential features of such policies were publicly disclosed.”
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What Shareholders Should Know About CEO Succession Plans, and Why.
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12. What Shareholders
Should Know
Succession Planning Disclosure Should Include:
 Assurance that a CEO succession planning process is in place;
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 Identification of the board committee that is responsible for CEO succession
planning, and its charter;
 Assurance that the committee members are qualified to oversee the CEO
succession planning process;
 The frequency with which this committee meets to discuss CEO succession
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and the process; in general terms, what this review looks like;
 The frequency with which the full board discusses CEO succession and
reviews the CEO succession plan and process; in general terms what this
review consists of.
Copyright 2012 Charlesmore Partners International, LLC. All Rights Reserved.
What Shareholders Should Know About CEO Succession Plans, and Why.
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13. What Shareholders
Should Know
The Board Should Publicly Verify:
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 That a candidate profile for the next CEO has been developed and approved,
and that this profile incorporates qualifications necessary to lead the
company’s business strategy in the time frame anticipated;
 That it is satisfied with the quality and effectiveness of the CEO succession
planning process, and that a timeframe for CEO succession has been
developed and approved;

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That viable successor candidates have been identified who are either
currently qualified, or who are on customized development programs to gain
those experiences and competencies necessary to meet the successor profile
criteria within the anticipated time frame;
Copyright 2012 Charlesmore Partners International, LLC. All Rights Reserved.
What Shareholders Should Know About CEO Succession Plans, and Why.
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1/23/2013 13

14. What Shareholders
Should Know
The Board Should Publicly Verify:
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 That external searches are underway (or scheduled) to deepen executive
bench strength, supplement the CEO succession pipeline, or fill perceived
capability gaps, should the board deem it necessary;
 That a program of board exposure to succession candidates is in place;
 That a CEO selection process has been defined, and that valid measures have
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been developed to assess and select the next CEO of the company;
 That an emergency CEO succession plan has been developed and approved,
including the process for immediate appointment and communication of a
successor, and how frequently this plan is reviewed and updated.
Copyright 2012 Charlesmore Partners International, LLC. All Rights Reserved.
What Shareholders Should Know About CEO Succession Plans, and Why.
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1/23/2013 14

15. What Shareholders
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Should Know About
CEO Succession Plans,
and Why. Master subtitle style
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Edward Ferris - (215) 353-6472
What Shareholders Should Know About CEO Succession Plans, and Why.
about eferris@charlesmore.com
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