Review Cites Succession Planning and Board Composition as Important Issues for Directors in 2014

February 14, 2014

Executive compensation, management succession planning and talent development will be areas of focus for directors in 2014, according to a recent update by Amy Goodman and John Olson of Gibson Dunn & Crutcher.  Pay for performance and effective shareholder engagement will also continue to be a priority in 2014.

  • Management Succession Planning and Talent Development.  Several recent surveys of corporate boards have shown that directors are increasingly interested in directing their time and attention to both senior management succession planning and talent development generally.  As the authors note, although "these efforts generally have focused on developing ordinary course and emergency succession plans for the CEO," there is a growing awareness that talent development below the CEO level is equally important in constructing a solid talent pipeline that will establish good bench strength for years to come.  Boards are considering their role in ensuring effective implementation of talent management, including efforts to introduce key talent below the NEO level to the Board early in the process.  This is particularly important for CHROs, who are expected to work with their CEOs in identifying the top talent.

  • Board Composition.  Issues of board diversity and board tenure have also increasingly come under the microscope. The alert cites a recent Ernst & Young study on board diversity indicating that in the next few years there may be a significant exodus of retiring board members.  The E&Y study notes that 45 percent of S&P 1500 board seats are held by directors with at least 10 years' tenure, and the alert reminds companies that they should have an effective board succession planning process in place that considers rotation of directors across committees as well as recruitment of new directors, another area in which many CHROs play an important role.  These concepts were reflected in ISS's 2013 policy survey in which it asked issuers and investors whether long director tenure is problematic.  ISS also explored adopting a policy of whether, as in the UK, directors with a certain tenure should be automatically presumed to be non-independent.