When Jamie Dimon, chairman and CEO of JPMorgan Chase, revealed recently that he was diagnosed with throat cancer, the announcement was quickly followed by assurances that the bank’s succession plan was in place and ready to be triggered if the situation warrants it.

He was forthright about the existence of the plan, even if details were predictably sparse. In survey after survey, succession planning sits among top concerns for boards and shareholders, and the JPMorgan case could cast a greater spotlight on succession issues. Expect calls for more disclosure on the plans. The challenge for companies will be to balance their need to preserve trade secrets with investors’ demands for transparency.

Another development has also put more attention on succession plan disclosure: The Securities and Exchange Commission is now allowing shareholder resolutions calling for more disclosure to go on the proxy.  In the past, the SEC reflexively issued no-action letters when shareholders called for a vote on succession plan disclosure. That changed, when the Commission moved away from that longstanding policy and announced it would no longer automatically deny these resolutions.

“Investors want to know that boards have thoughtful long-term and emergency executive succession plans,” says Allie Rutherford, director of the Corporate Governance Center at auditing firm EY. “They view succession planning as a fundamental board responsibility and they want succession planning to be addressed regularly, in advance of when it’s needed and regardless of the CEO health or tenure.

Nevertheless, these particular shareholder resolutions are fairly uncommon. They did, briefly, become more popular in 2010 and 2011, bolstered by the high-profile cancer diagnosis of Apple CEO Steve Jobs, but most of those resolutions were ultimately withdrawn by the proponents before being voted upon. Thirteen of the 15 resolutions submitted in 2011 were withdrawn after the proponents and companies reached agreement. The seven proposals that did reach a vote in 2010 and 2011 did, however, received average support of almost 30 percent, “a level at which many boards start to take notice,” Rutherford says.

Boards may have taken notice, but shareholders retreated and succession plan resolutions on the topic became even rarer. In 2014, the only proposal was filed by investor Robert Kurfe regarding Carnival Corp.; it was eventually withdrawn.

Transparency in the United Kingdom

If these resolutions fail to get much momentum in the United States, the same cannot be said for the United Kingdom where a push is underway to increase their use. The National Association of Pension Funds, a coalition of 1,300 pension schemes with 16 million members, is urging investors to demand greater transparency of succession plans, especially at companies with long-serving executives. The issue is important, it says, because roughly 10 percent of companies in the FTSE 100 are expected to see CEO turnover in the near future.

“The development of detailed succession plans, including an internal pipeline of talent, coupled with strong independent boards, is vital in ensuring smooth transition,” Will Pomroy, policy lead on stewardship and corporate governance at the NAPF, told The Guardian newspaper. “There is an increasing desire for greater reassurance to be provided via transparent reporting and open dialogue."

Investors want to know that boards have thoughtful long-term and emergency executive succession plans.
Allie Rutherford, Director, EY's Corp. Governance Center

It remains to be seen, however, whether investors in the United States will similarly rally to the cause. Why are there so few shareholder proposals, and even fewer that ultimately make it to a vote? Behind-the-scenes negotiations play a role. “It is more common for succession planning to be addressed through company-shareholder engagement conversations outside of the proxy process,” Rutherford says. “Companies often agree to have substantive dialogues with investors and address their questions and concerns directly.”

“Because most companies have some sort of process in place, they are probably negotiating with proponents to show that they have already substantially implemented their proposals,” Elizabeth Dunshee, a shareholder with the law firm Fredrikson & Byron, says. "Maybe they will make some changes based on what a shareholder proponent has suggested, but we don’t hear about it publicly because it is all done behind the scenes and very few of them go so far as the company’s proxy statement.”

How much information companies are willing to share, versus what shareholders may want to know, can create tension. While investors thrive on transparency, boards are hesitant to tip their hat as to their talent pool or future strategy.

Typically, succession plan proposals request the adoption of a written policy, to be included in the Corporate Governance Guidelines, says Matteo Tonello, managing director, corporate leadership, for The Conference Board. Specific talking points may include a commitment by the board for an annual review of the CEO succession plan; developing criteria for the selection of the CEO position and ensuring that criteria is tied to business strategy; and committing to introduce internal leadership development practices.

Savvy shareholders will generally not seek the specifics of company succession plans. “Instead, they seek disclosure around the company’s succession planning practices,” Rutherford says. “They’re looking for boards to demonstrate that they are taking this responsibility seriously and are approaching succession planning on an ongoing and dynamic basis. They also want to see that long-term succession planning is tied to the company’s strategic plan and the development of executive talent, and that succession plans have the flexibility for changes as corporate strategy shifts.”

When shareholders move away from strategy to demand specifics, companies can be expected to circle their wagons.


The following is a tally by The Conference Board of shareholder resolutions pertaining to succession planning.

Source: The Conference Board.

“CEO succession planning concerns which internal candidates the board may be considering for the C-suite and CEO role, as well as whether the board is considering external candidates,” Rutherford says. “Made public, these details could impact a company’s stock price, market valuation and investor activity.  Shareholders do not seek disclosure of sensitive information. Instead, they want to see that the board is actively addressing succession planning and pipeline development in a thoughtful and dynamic way.”

“Companies push back on proposals that call upon the board publishing an annual report for succession planning,” Dunshee says. “That is not something they want to do.”

“Companies do not want to give away too much in their disclosures, so there is a tension there,” she adds. “Shareholders want to know that a plan is in place, and it is something the board is paying attention to on a regular basis. But companies, for competitive reasons, don’t want to actually name who they might be considering or get into the nitty-gritty details. A lot of what you see in disclosure relates to process and not the actual details of the plan.”

Succession Plan To-Do List

What investors want to see often hews close to what corporate best practices should be, Rusty O’Kelley, member of the CEO and Board Services Practice at Russell Reynolds, an executive leadership and search firm, says.

“What investors need to be concerned about is that there is a vigorous process that is regularly updated,” he says. “The company is very right to want to limit the amount of information it gives. If it shares all the information, or a lot of information, it could be tipping its hand to competitors as to who the company can go to recruit. It is your list of best talent and you do not want to disclose the names of people.”

Plans should be reviewed at least annually, with candidates added to the list and removed, O’Kelley says. Plans should consider emergency appointments, but also look five years into the future. “Succession plans need to be based on where the company is headed, as the strategic direction is evolving,” he says. “For example, with the healthcare industry, and healthcare reform, there is a dramatic shift in how companies will make money. Succession plans need to be updated to reflect those new skills and new experiences. You need to recruit new talent to keep up with the pace of change.”

Is there evidence on how many public companies actually have a plan?

Although plans are assigned to one of the board’s key committees, typically compensation or nominating, companies don’t always have a robust, ongoing process for managing immediate, short-term and long-term CEO succession, Rutherford says. “But, as awareness around the importance of this topic continues to grow, more companies are looking into how they can make their succession planning process better,” she says.