iThe senior executive evaluation and succession practices of health systems may be informed by the 2017 edition of The Conference Board report, CEO Succession Practices, which annually documents and analyses succession events of chief executives of S&P 500 companies. The new report provides several findings of direct relevance to health systems and other major nonprofit organizations.
An overarching finding is that 2016 CEO exits from underperforming companies have risen to a level unseen in 15 years (attributable, in part, to record-high dismissals in the retail sector). More specifically, in 2016 the CEO of a poorly performing company had a 40 percent higher probability of being replaced than in 2015, and a 60 percent higher probability of being replaced than the CEOs of better-performing companies. A related finding is that companies are becoming more communicative about CEO succession events, which may help to avoid surprising constituents and regulators. Such communications practices commonly include a description of the role performed by the board of directors in the CEO succession process, and offering more details on the reasons for the transition.
Other findings of relevance to health systems include the following: (i) the stability seen in the succession rate of better-performing companies may indicate that increased scrutiny over executive pay and performance has started to produce results; (ii) one in 10 CEO successions in 2016 were navigated by an interim CEO, a role once used only in situations of emergencies and unplanned transitions; (iii) gender diversity continues to be elusive at the helm of the largest US public companies, as only six of the 63 CEO positions that became available in the S&P 500 in 2016 were filled by a woman; (iv) after years of sharp rise, the succession rate of older CEOs has started to normalize at levels seen before the financial crisis, confirming the completion of a generational shift in business leadership; and (v) departing CEO tenure in 2016 was nine years, but five percent of S&P 500 companies are led by CEOs with tenures of 20 years or longer.
As CEO performance oversight and evaluation is a primary function of the governing board, a discussion of these and other relevant portions of The Conference Board’s report by the board’s search/succession and executive compensation committees may be useful.
