Report: Keeping Former CEOs on Board Could Have Repercussions | Governance Center Blog

Report: Keeping Former CEOs on Board Could Have Repercussions Governance Center Blog

The Conference Board

Oct 08 2010

Report: Keeping Former CEOs on Board Could Have Repercussions

As many U.S. public companies continue to retain their outgoing CEO for their boards, The Conference Board Governance Center has come out with research that warns such a practice could affect the company’s performance.

In an Oct. 5 Director Notes report, Retaining Former CEOs on the Board, [Download available for member; non-members can obtain copy by contacting me at gary.larkin@tcb.org] author Jason Schloetzer, assistant professor of accounting at Georgetown University wrote “retention [of the CEO] as a board member has important consequences for subsequent board decisions and post-turnover firm financial performance, as there is indication that delayed departures may restrain the maximization of shareholder value.”

In a press release announcing the report, Schloetzer stated, “The retained CEO may be satisfied to continue interacting with long-time colleagues a few times each year during board meetings and executive retreats. But our analysis indicates this is not necessarily the case. News coverage surrounding instances of board retention suggests that these CEOs frequently maintain a high profile and continue to have significant – sometimes damaging – involvement within the firm.”

Matteo Tonello, director of corporate governance research for The Conference Board and director of the Director Notes series, points out the legal ramifications when a board decides to keep a departing CEO for the board. “Directors need to carefully consider the role of the departing CEO as part of their fiduciary duties regarding leadership transition oversight,” Tonello said. “The Conference Board does not recommend a one-size-fits-all solution. In light of the potential negative consequences, the board that ops for this form of succession should discuss the appropriate safeguards.”

A keyword search on Google, Business Wire and PR Newswire yielded some recent news releases and articles showing the practice of retaining departing CEOs for the board is still quite common at public companies. Consider the following:

• John Wiley & Sons Inc.: The longtime book and journal published announced last month a succession plan where President and CEO William Pesce will retire on April 30, 2011 to be replaced by Stephen M. Smith, who will become a member of the board effective May 1, 2011. At the same time, Pesce will be included on a slate of candidates for the board at the company’s September 2011 annual meeting.
• Spectranetics Corp.: The medical device maker announced this week that Emile J. Geisenheimer, its chair, president and CEO, is retiring from all three positions effective Nov. 1. However, he will continue to serve on the board as a director. An executive committee has begun a search for his replacement.
• Oshkosh Corp.: The specialty vehicle manufacturer announced last month that its Chair and CEO Robert G. Bohn will retire effective Dec. 31, 2010. He is being replaced by Charles L. Szews, the current president and COO, effective Jan. 1, 2011. Bohn, who has served as CEO for 13 years and chair for 10 years, will remain on the board until the annual meeting Feb. 1, 2011. At that time, he will be succeeded as chair by current board member Richard M. Donnelly.

As for the report, other findings include:

• Companies that retained former CEOs on boards have relatively lower stock returns compared with the 2,733 companies in which CEOs continued as chief executives (-1.2 percent return compared with a 3.4 percent return, respectively)
• Former CEOs were retained on their companies’ boards for at least two years in 130 of 358, or 36 percent, of turnovers reviewed.
• Attributes relating to CEO power that appear to impact a company’s retention decision include: CEO owning a larger fraction of the firm’s stock; CEO jointly holding the board chair position; relatively fewer independent directors on the board.
• Departing CEOs are often retained if the succession choice enables the former CEO to retain a relatively powerful bargaining position within the firm.

- Gary Larkin

Posted by Gary Larkin at 2:14 PM
Permalink: Report: Keeping Former CEOs on Board Could Have Repercussions

Access Content Source: http://tcbblogs.org/governance/2010/10/08/report-keeping-former-ceos-on-board-could-have-repercussions/

********************************************************
http://dreamlearndobecome.blogspot.com This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.