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Succeeding at CEO Succession Presented by: Dayton Ogden
Presented to: Senior Men’s Club
March 2, 2018
2 PROPRIETARY AND CONFIDENTIAL. ALL RIGHTS RESERVED
Trends Among Large Public Companies
Case Studies – Seeing the Trends in Action
New CEOs – Accelerating Superior Performance
Agenda
Trends Among Large Public Companies
4 PROPRIETARY AND CONFIDENTIAL. ALL RIGHTS RESERVED
Rising Trend Toward Internals » For the past 10 years, the trend towards internal promotion to CEO has been growing
• The main causes for this evolution include:
1. Sarbanes-Oxley legislation
2. The professionalization of the Human Resources function
3. Commitment to long-term succession planning being scrutinized by Boards as a best
practice
» However, through a combination of normal retirements, strategy shifts, activist investors and
regulatory missteps, we saw a slight reversal of this trend in 2017
5 PROPRIETARY AND CONFIDENTIAL. ALL RIGHTS RESERVED
Trade-Offs in CEO Selection Criteria » Boards, when selecting a CEO, have to make difficult trade-offs relative to the following 4 questions:
1. Who is your best strategist?
(e.g. smartest, innovative, understands applications of technology)
2. Who is your best operator?
(e.g. shows consistent results; turn around underperforming assets; team builder)
3. Who is your best communicator?
(e.g. confidence as ambassador talking to customers, shareholders, employees, Wall Street, community)
4. Who has the aptitude to deal with the extraordinary pace of change?
(e.g. most agile, best listener, most adaptable, emotional maturity to be on a constant diet of learning)
6 PROPRIETARY AND CONFIDENTIAL. ALL RIGHTS RESERVED
Pressure On Diversity » Although boards are doing a better job of recruiting strong female directors…
» …the CEO landscape among large companies is still dominated by males. Women currently hold 26 (5.2%) of CEO
positions at S&P 500 companies:
• Mary T. Barra, General Motors • Gail Boudreaux, Anthem • Heather Bresch, Mylan N.V. • Michele Buck, Hershey • Debra A. Cafaro, Ventas • Safra A. Catz, Oracle (co-CEO) • Mary Dillon, Ulta Beauty • Virginia C. “Gina” Drosos, Signet Jewelers • Adena Friedman, Nasdaq • Margaret "Margo" Georgiadis, Mattel • Lynn J. Good, Duke Energy • Tricia Griffith, Progressive • Marillyn A. Hewson, Lockheed Martin
• Vicki Hollub, Occidental Petroleum • Margaret Keane, Synchrony Financial • Beth E. Mooney, KeyCorp • Denise M. Morrison, Campbell Soup • Indra K. Nooyi, PepsiCo • Phebe N. Novakovic, General Dynamics • Patricia K. Poppe, CMS Energy • Debra L. Reed, Sempra Energy • Barbara Rentler, Ross Stores • Virginia M. Rometty, IBM • Susan N. Story, American Water Works • Meg Whitman, Hewlett-Packard Enterprise • Geisha Williams, PG&E
of new directors in
2017 are women or minorities
women (a 20-year high)
minority men
Small steps:
of all directors are
women in 2017, versus 21% in 2016 and 17% in
2012 2017 2016 2012
Case Studies – Seeing the Trends in Action
8 PROPRIETARY AND CONFIDENTIAL. ALL RIGHTS RESERVED
Case Study 1 – Financial Services Finding Successor for a Retiring CEO
» Current CEO planning to retire voluntarily earlier than expected
» Culturally, the institution was more comfortable with an internal choice
» However, Board wanted to consider external options
» The company faces significant disruption and changes to its core business
» Therefore, company needed to select an individual who can simultaneously run and change the company
» Unclear whether next-gen internal executives are legitimate long-term successors
» Therefore, the appointment of a ‘bridge solution’ was debated at length
» The incumbent CEO is also the Chairman and there is an independent Lead Director who is nearing retirement age
9 PROPRIETARY AND CONFIDENTIAL. ALL RIGHTS RESERVED
Case Study 2 – Industrial Next Generation Development for CEO Succession
» Iconic owner-founder close to retirement age
» After internal assessments and external benchmarking, an internal candidate was promoted to President/COO
» This individual will be in his mid-60s when he becomes CEO
» Therefore, there is a major emphasis on next-generation assessment and development
» Concurrently, the company is facing many strategic opportunities, as well as potential disruption from Amazon,
Uber, etc.
» Historically, the long-term CEO has functioned as Chief Strategy Officer for the company
» As a result, the best and the brightest in the next-gen group are significantly more versed in operations than
strategy
» Very strong culture; have not brought in many outsiders
10 PROPRIETARY AND CONFIDENTIAL. ALL RIGHTS RESERVED
Case Study 3 – Technology Activist Involvement
» Contacted by the Board to conduct a market mapping exercise for the client
» Prior to engaging Spencer Stuart, the board had developed a CEO Success Profile, containing relevant
information about the spec for the next CEO
» To augment and elaborate, our team interviewed the Chairman, CEO and 4 members of the Compensation
Committee
» Using the criteria developed, Spencer Stuart considered 25 external CEO-ready executives and prioritized and
profiled a dozen prospects through subsequent conversations and vetting with the Committee
» There was no outreach to the priority candidates with specific reference to the company
» Subsequently, our team had a discussion with the Committee and reviewed status at the fall Board meeting
» All of this was done against the backdrop of an activist shareholder, who was seeking 3 board seats
» The activist had been publically critical of the incumbent CEO and had made a series of proposals relative to the
management of the company, as well as changes in governance
11 PROPRIETARY AND CONFIDENTIAL. ALL RIGHTS RESERVED
Case Study 4 – Industrial Finding a Successor for a Retiring CEO; External Placement
» Originated following the incumbent CEO’s decision to retire at the end of 2017
» A succession committee of the Board, led by the Chairman, was formed to manage the process
» Three internal candidates were assessed against a CEO spec by an assessment firm
» There was a consensus on the Board that none of the internals were ideal succession candidates
» Spencer Stuart conducted a thorough CEO search, which resulted in the presentation of 5 candidates, whom we
exhaustively referenced, and a complex compensation negotiation with the finalist
» Spencer Stuart is currently advising the new CEO-elect and the Chairman about best practices relative to the
transition. The appointment to CEO took effect on January 1, 2018.
New CEOs – Accelerating Superior Performance
How We Advise on Strategy
Governance: Effective Relationship Between CEO and Board
13 PROPRIETARY AND CONFIDENTIAL. ALL RIGHTS RESERVED
What Your New CEO Is Thinking Once selected, new CEOs quickly pivot to a few important questions:
What are some potential early wins?
What kind of support do I need from the board and my team?
Where am I most confident/ least confident in my
team’s capabilities? What are the board’s expectations of me?
What are the best
elements of our culture?
How well is our organization aligned? Is my team structured effectively?
What issues should be on my agenda for the first 100 days and first year?
What are the biggest challenges the company faces and the issues we need to resolve?
14 PROPRIETARY AND CONFIDENTIAL. ALL RIGHTS RESERVED
In short,
strategy is making
choices;
operations is making
a plan
Overview of Strategy – Three Key Components
Participation = where we play (geography, customer focus, channels)
Competitive = how we will build and sustain advantages
(differentiation, cost/asset)
How we define 'winning‘ = linking strategy to metrics, goals and targets
15 PROPRIETARY AND CONFIDENTIAL. ALL RIGHTS RESERVED
Key Enablers of Successful Strategy
An aligned organizational structure
(minimal barriers)
The best possible talent, culture and ability of teams to work effectively
A robust and streamlined set of decision processes (creativity with pace)
A reward system that incentivizes the behavior needed to plan and execute
16 PROPRIETARY AND CONFIDENTIAL. ALL RIGHTS RESERVED
Governance: Effective Relationship Between CEO and Board » Before You Start
• Debrief with succession advisers to gain insights about director perspectives, board dynamics and
expectations that emerged during the selection process.
• Ask if a board effectiveness assessment has been conducted recently and if you can review it.
• If you are a first-time CEO, ensure you are knowledgeable about fundamentals of board governance.
» First 100 Days
• Schedule one-on-one conversations with board members to understand the stated and unstated
motivations of the board, and their perspectives on challenges and opportunities for the company.
• Share thoughts on leadership team challenges with the board chair/lead director and any emerging themes
from your reviews to date that you may want to test.
• Establish an effective communications protocol. Tailor your communication and management style to the
needs of the board.
• Schedule a formal board session to share your first-100-days observations and updates on your game plan.
Questions?