Emergency succession planning: get it done: it is up to the board to manage the risk of an unexpected CEO departure--yet many boards are falling short in this duty. Here is a checklist of what boards need to know and to do.

• Author: Sherman, Bruce
• Position: SUCCESSION PLANNING

ASK ANY BOARD MEMBER whether they have an emergency succession plan and the answer is often, "Yes." Dig a little deeper and ask, "What's in it?" The response may surprise you. You will most likely learn the plan is comprised of two to three names and a phone tree. Ask to see it and no one seems to know exactly where it is.

Even as many organizations focus more diligently on succession planning, few consider the need to develop comprehensive emergency plans that address contingencies due to the unexpected departure of the chief executive officer. In fact, a 2009 survey of 600 respondents who work with or within U.S. public company boards found that 61% had no emergency succession plan in place.

Independent research and ratings agencies suggest that the lack of an emergency succession plan is among the key succession risks. Moreover, shareholders can require additional transparency with respect to succession planning as a result of the SEC's recent change in position, now recognizing that "CEO succession planning raises a significant policy issue regarding the governance of the corporation that transcends the day-to-day business matter of managing the workforce."

Mounting evidence depicts the degree to which companies are woefully unprepared to address leadership changes and protect the interests of stakeholders. Consider the following (drawn from Conference Board reports):

--CEO turnover is currently running at 14% per year; 1,227 CEO transitions occurred in 2009;

--46% of successions (in 2008) were unplanned;

--48% of directors currently see CEO succession as the sole responsibility of the CEO;

--57% of directors say that they do not know when their CEO plans to step down;

--40% of CEOs are fired or "retired" within 18 months; 64% never make it to their fourth anniversary.

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Purpose of a plan

The purpose of an emergency succession plan is to ensure that the organization is able to achieve its strategic and operational goals and maintain effective relationships both within and outside the organization in the event of an unexpected departure of its CEO or other key executive. The plan is designed to address two unexpected situations:

* A permanent change in the CEO resulting from events such as a voluntary resignation, death, illness, disability, or termination.

* A temporary absence lasting more than several weeks requiring the appointment of an interim CEO, resulting from events such as illness, a family emergency or...