Are current directors good replacements for departing CEOs?

Posted Feb 5th 2008 6:45PM by Zac Bissonnette
Filed under: Management, Newspapers

A piece (subscription required) in The Wall Street Journal looks at the increasingly common practice of companies selecting new CEOs from the ranks of their current directors.

Proponents of the practice believe that a current director will already have some familiarity with the company and its people and that that makes for a smoother transition. But the Journal adds that "Some investors disagree. They contend that a chief chosen from the board signals cronyism and weak succession planning. A director's comfort with a colleague obscures `a clear view of the individual's suitability to be a successful CEO,' says Richard Breeden, an activist investor and former chairman of the Securities and Exchange Commission."

Another concern that I have that wasn't touched on in the article is that in many cases, a member of the board is brought in to replace a CEO who has been pushed aside because of poor performance.

But oftentimes the director who is tapped to lead the company was part of the board that presided over the destruction of value under the recently-departed CEO -- so the company chooses someone who was part of the problem to be the solution. That's stupid.

For instance, Nautilus (NYSE: NLS), which has come under fire for poor management and recently lost a proxy fight to Sherborne Investors tapped Robert Falcone to run the company in August of 2007 after he had been serving on the board since 2003. The precipitous decline in the company's share price has continued unabated under his stewardship.

When a CEO retires in a blaze of glory after a long and wonderful career -- and it really is to spend more time with his family -- then a CEO from the board might be OK. But when he leaves with his tail between his legs, you have to wonder whether any member of the board that was there watching while he screwed up should be his replacement.

Tags: board of directors, BoardOfDirectors, CEO, corporate management, CorporateManagement, management, sucession planning, SucessionPlanning

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Reader Comments (Page 1 of 1)

2-05-2008 @ 7:33PM

mark said...

departing ceos use dump trucks to collect there severence pay.no one is worth what the majority of departing ceos get. 5 years as head of a company then get 35 mil as a parting gift?

anyone looking for a ceo? i need a new job.