Taking the emergency out of the CEO's emergency succession.

• Author: Dysart, Theodore L.
• Position: HEIDRICK & STRUGGLES GOVERNANCE LETTER

Even for boards that conduct long-term succession planning, CEO emergency succession may never quite make it onto the agenda. Here are five steps that boards can take to best fulfill that responsibility and minimize risk.

According to the 2014-2015 National Association of Corporate Directors (NACD) Public Company Governance Survey, almost 30% of directors report that their boards lack a formal emergency CEO succession plan. And many of the formal plans may be long on form and short on substance. For example, we recently asked each director of a regional bank if the board had an emergency succession plan in place. All 11 directors assured us that it did. But when we asked for the successor's name, three different names emerged. In another instance, a global bank's emergency succession planning document unambiguously identified the company's president as successor. Yet when the directors were polled privately, almost all admitted that they had no confidence in the choice they had ostensibly approved.

Prudent boards seek to minimize such ambiguities and avoid leaving emergency succession to chance. They recognize that the topic is fraught with implications for the company and its stakeholders--implications that bear careful forethought. Among them: an ill-considered choice could leave the company adrift during a critical time, resulting in weaker performance, reputational damage, or both. In some cases, a delay might even put the company into play as a takeover target. On the more positive side, emergency succession planning offers an opportunity for the board to review the company's pipeline of top talent as well as the competencies required for the next leader.

Why, then, don't all boards make a habit of rigorous emergency succession planning? For starters, it's an uncomfortable conversation. Directors may worry that bringing up the subject of emergency CEO succession will suggest a lack of confidence in the leader. "The last thing you want to do is make the CEO think you lack confidence in his or her leadership," said the board member of a Fortune 500 industrial company. "It seems like CEOs are taking fire from all sides today. I'm just a little reluctant to make the CEO feel like I'm taking a shot at him too." Further, it is a somewhat unusual agenda item, set apart from topics like financial results, risk, proposed investments, and legal matters. Even on boards that conduct long-term succession planning, emergency succession planning may never quite make it onto the agenda.

Nevertheless, formal emergency succession planning remains a fundamental responsibility of the board and is increasingly...