CalPERS Principles CII Policies TIAA-CREF Policy Statement AFL-CIO Voting Guidelines ISS
The board should proactively lead and be accounta- ble for the development, implementation, and contin- ual review of a CEO succession plan. Board mem- bers should be required to have a thorough understanding of the characteristics necessary for a CEO to execute on a long-term strategy that optimiz- es operating performance, profitability and share- owner value creation. At a minimum, the CEO suc- cession planning process should:
a. Become a routine topic of discussion by the board. b. Extend down throughout the company emphasiz- ing the development of internal CEO candidates and senior managers while remaining open to external re- cruitment.
c. Require all board members be given exposure to internal candidates.
d. Encompass both a long-term perspective to ad- dress expected CEO transition periods and a short- term perspective to address crisis management in the event of death, disability or untimely departure of the CEO.
e. Provide for open and ongoing dialogue between the CEO and board while incorporating an opportuni- ty for the board to discuss CEO succession planning without the CEO present.
f. Be disclosed to shareowners on an annual basis and in a manner that would not jeopardize the implemen- tation of an effective and timely CEO succession plan. (III.B.2.8)
The board should approve and maintain a detailed CEO succession plan and publicly disclose the essen- tial features in the proxy statement. An integral facet of management succession planning involves collabo- ration between the board and the current chief execu- tive to develop the next generation of leaders from within the company’s ranks. Boards therefore should: (1) make sure that broad leadership development pro- grams are in place generally; and (2) carefully identify multiple candidates for the CEO role specifically, well before the position needs to be filled. To that end, the plan should address both short and long-term succes- sion scenarios. (§ 2.9)
One of the board’s most important responsibilities is the selection, development and evaluation of execu- tive leadership. Strong, stable leadership with proper values is critical to the success of the corporate enter- prise. The board should continuously monitor and evaluate the performance of the CEO and senior ex- ecutives, and should oversee a succession plan for ex- ecutive management. The board should disclose the succession planning process generally. (p. 17)
Planning for the succession of the CEO is one of the primary responsibilities of boards of directors. The voting fiduciary should support proposals that encourage companies to adopt and disclose their succession planning policies. These policies should address both long-term and short-term succession scenarios as well as the company’s leadership de- velopment programs, including the identification of internal candidates for the CEO role. (Guideline IV.A.14)
Proxy Voting Guidelines
Generally vote FOR proposals seeking disclosure on a CEO succession planning policy, considering at a mini- mum, the following factors:
The reasonableness/scope of the request; and The company’s existing disclosure on its current
CEO succession planning process. (p. 18) QuickScore
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VII.D. Formal Evaluation of the Chief Executive Officer40
ALI Principles/Recommendations BRT Principles NACD Report Conference Board Recommendations OECD Principles/Millstein Report The board of directors has five primary functions,
[one of which is to] [r]egularly evaluate . . . the chief executive officer. (§ 3.02, Comment a.1)
The primary function of the board of directors is the selection of the chief executive officer. . . . In its broader sense, “selection” includes monitoring per- formance . . . . (§ 3.02, Comment d, quoting the BRT, “Corporate Governance and American Compet- itiveness”(1990), p. 246)
Making decisions regarding the selection, compensa- tion and evaluation of a well-qualified and ethical CEO is the single most important function of the board. (p. 7)
Under the oversight of an independent committee or the lead director, the board should annually review the performance of the CEO and participate with the CEO in the evaluation of members of senior management. All non-management members of the board should have an opportunity to participate with the CEO in senior management evaluations. The results of the CEO’s evaluation should be promptly communicated to the CEO in executive session by representatives of the independent directors and used by the compensa- tion committee or independent directors in determin- ing the CEO’s compensation. (p. 28)
See pp. 10-12 (responsibilities of the CEO and senior management).
The board should ensure that someone is charged with organizing the board’s evaluation of the CEO and providing continuous ongoing feedback. (p. 4) There are three separate aspects to effective evalua- tion at the board level, each of which constitutes a critical component of board professionalism and ef- fectiveness: CEO evaluation, board evaluation, and individual director evaluation. All three types of evaluation should be assessed vis-à-vis pre-
established criteria to provide the CEO, the board as a whole, and each director with critical information per- taining to their collective and individual performance and suggested areas for improvement.
Boards should regularly and formally evaluate the CEO, the board as a whole, and individual directors. Boards should ensure that independent directors cre- ate and control the methods and criteria for evaluating the CEO, the board, and individual directors. Such an evaluation practice will enable boards to identify and address problems before they reach crisis proportions. (p. 5)
See REPORT OF THE NACDBLUE RIBBON
COMMISSION ON PERFORMANCE EVALUATION OF
CHIEF EXECUTIVE OFFICERS,BOARDS, AND
DIRECTORS (1994).
The board should . . . adopt a process for review and evaluation of the Chief Executive Officer. (Part 2, Principle V)
Boards should develop processes to evaluate the performance of the CEO on at least an annual basis. (Part 2, Principle V, Best Practice 2)
Not covered directly, but see Principle VI (The corpo-
rate governance framework should ensure . . . the effec- tive monitoring of management by the board . . .).
See also Principle VI.D.3 (The board should fulfill cer-
tain key functions, including . . . [s]electing, compensat- ing, monitoring and, when necessary, replacing key ex- ecutives . . .).
See also Annotation to Principle VI.D.4 (In an increas-
ing number of countries it is regarded as good practice for boards to develop and disclose a remuneration policy statement covering board members and key executives . . . specify[ing] the relationship between remuneration and performance, and includ[ing] measurable standards that emphasise the longer run interests of the company over short-term considerations.).
See also Annotation to Principle VI.E (Independent
board members . . . can bring an objective view to the evaluation of the performance of the board and man- agement.).
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Under NYSE listing rules, the compensation committee is required to adopt and disclose a written charter that addresses evaluation of the CEO’s performance in light of corporate goals and objectives. There is no comparable requirement for Nasdaq-listed companies. See Appen- dix. See also 2011 ABA Guidebook at 12-13 (“State corporate statutes emphasize the board’s responsibility to make major decisions on behalf of the corporation and to oversee the management of the corporation. [B]oard responsibilities . . . generally include . . . selecting the CEO, setting goals for the CEO and other senior executives, reviewing their performance, evaluating and establishing their compensation, and making changes when appropriate…”); id. at 82 (“The principal functions of the compensation committee are to . . . review and approve corporate goals and ob- jectives relevant to the CEO and senior executive compensation and annually evaluate executive performance in light of those goals and objectives . . . ”); id. at 103 (“[The nominating and governance] committee, or another board committee should, at least annually, review the performance of the CEO and members of senior management.”); 1994 NACD Report at 1, 3 (“Formal performance reviews of the CEO are necessary. The process can take many different forms, depending on the company. Every board should consider developing a job description for the CEO. The CEO and the board should agree to performance objectives, established in advance of each fiscal year. Such objectives might include quantitative performance factors and qualitative ones, such as integrity, vision and leadership.”)
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