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Examining the Impact of SEC Guidance Changes on CEO Succession Planning

In an October 2009 release, the United States Securities and Exchange Commission effectively removed the ordinary business exclusion defense used by companies reluctant to disclose their CEO succession process to shareholders. The policy change allows for a new wave of corporate governance scrutiny, as regulators and shareholders increasingly focus on CEO succession practices. Companies and boards would do well to prepare.The change indicates that regulators have reframed CEO succession as a risk management issue and placed its responsibility firmly in the boardroom. Succession planning responsibilities are redefined as “a key board function” and “a significant policy (and governance) issue … so that a company is not adversely affected by a vacancy in leadership.” The implications seem clear: boards will have to set more specific standards and requirements for CEO succession, take responsibility for results, and exercise discernable independence in the process.Against this backdrop, this report seeks to answer three questions: What is the likely impact of this policy reversal? How will it practically affect the board? What should shareholders know about CEO succession plans, and why?