'THE DAILY CORPORATE GOVERNANCE REPORT’ (for public company boards, the C-suite and GCs)

? ? ? ? ?Please see the items below with the related links (NOTE: access to link content may be metered, require a no-charge registration or require a paid digital subscription)?

? ? ? ? ? ? ?(i) CEO successions: Conference Board's 2024 report on CEO successions/HBR article on a appointing a board member as the successor CEO/appointing an outsider v. an insider as CEO:

? ? ? ? ? ? ? ? (a) The Conference Board?released on Nov. 4 the 2024 edition of its "CEO Succession Practices in the Russell 3000 and S&P 500 report ", offering "comprehensive data on current trends in CEO succession among US public companies, along with best practices for leadership transitions." Below are some excerpts from the report (which, note, are accompanied in the report by multiple charts):

? ? ? ? ? ? ? ? ? ? ? "Succession rates among older CEOs have dropped since peaking in 2023: CEOs are also staying on longer than ever before,?which could contribute to?2023’s?softening succession rate among older CEOs. Across the Russell 3000, the rate of CEOs with over 15 years of tenure has gradually increased from 11% in 2019 to 18% in 2024. In tandem, the proportion of CEOs aged 60 years and older has also steadily grown, to a current high of 40%. In 2024, the succession rate among CEOs aged 64 and over dropped by 3% in the Russell 3000 and nearly 4% in the S&P 500......

? ? ? ? ? ? ? ? ? ? ?"In-House Experience Widely Valued in Incoming CEOs, but It’s Important to Know When Seeking External Candidates Makes Sense: In 2024, 59% of new Russell 3000 CEOs and 77% of S&P 500 CEOs were promoted from within.?Internally promoted CEOs offer deep company knowledge and cultural alignment, with an average tenure of 14 years in the S&P 500. The COO role remains the most common path to CEO, emphasizing its importance in succession planning. However,?companies with declining performance are more likely to hire externally. Boards should focus on internal CEO promotions to maintain strategic continuity, but also recognize when external hires may be necessary to drive change.....

? ? ? ? ? ? ? ? ? ? ? ? ? ?Companies often prefer to promote from within rather than seek an outside CEO: internal candidates have prior business knowledge, strong alignment with corporate culture, established in-house relationships, and the ability to step into the role with minimal disruption. That said, the rate of internal hires softened in 2023 compared to historical norms. In the Russell 3000, internal hires of new CEOs in 2023 were at their lowest rate since 2017; in the S&P 500, the rate was slightly below the historical 78% average......

? ? ? ? ? ? ? ? ? ? ? ? ? ? Companies clearly value long-term, in-house experience for internal CEOs. This year, the average tenure-in-company of internally promoted CEOs was 14 years in the S&P 500 and 11 years in the Russell 3000, which aligns with historical averages since 2017. The share of CEO promotions given to?“seasoned executives,”?those with at least two decades of company service, remains strong for both the Russell 3000 (16%) and the S&P 500 (27%),?demonstrating the clear value of experience when it comes to internal promotions.

? ? ? ? ? ? ? ? ? ? ? ? ? ? ?The chief operating officer role is often used as a?“training ground” for future CEOs and is a?useful stepping stone role to consider in succession planning. The median tenure for COOs is only two years; over half of companies (57%) dissolved the COO role entirely after promoting a new chief executive, reflecting that this is often a temporary position used specifically for succession planning. Often, a COO is stepping up from a business unit head role, showcasing a tiered pipeline for promising talent. Chief financial officers are another important source of talent, representing 12% of incoming insider CEOs in the Russell 3000 and 15% in the S&P 500 in 2024. Presidents and nonexecutive board members are also a common pathway.

? ? ? ? ? ? ? ? ? ? ? ? ? ? Though promoting from within remains the most common way to ensure strategic and cultural continuity, there are several reasons why a company might want to look outside its walls for new leadership. A common reason is to correct poor performance. When companies are struggling, they are far more likely to look outside for new CEOs, a fact borne out in the data. In 2023, the previous year’s median one-year TSR was down 8% for companies that hired external CEOs and up 2% for those who promoted internally.

? ? ? ? ? ? ? ? ? ? ? "Edge Cases: Interim CEOs: Interim CEOs are often used for short-term leadership issues, like when a CEO leaves unexpectedly for health reasons or a company crisis.....Interim roles typically last between two and 10 months and are frequently filled by board members. Approximately one-third of interim CEO appointments at Russell 3000 companies in 2024 were former board directors, although only one transitioned to the permanent CEO role. Overall, just 9% of interim CEOs at Russell 3000 firms secured a permanent position in 2024,?reinforcing the role’s primary function as a short-term solution....."

? ? ? ? ? ? ? ? ? ? (b)?Interesting article in the current issue of the?Harvard Business Review Magazine (the November-December 2024 issue), "Should Your Next CEO Come from Your Board? ", making the case that?in certain situations appointing a board member as CEO may be option "well worth considering", and offering guidance for boards considering such appointments. Below is the headnote summary:

? ? ? ? ? ? ? ? ? ? ? ? ?"Summary: These days a growing number of companies are hiring their directors to be their new CEOs. From 2018 to 2023, 10% of incoming CEOs across the S&P 500 and Russell 3000 came from the board. Though this choice is still more an exception than a rule, there are compelling reasons to consider it. As insiders, board members have a valuable feel for the company’s culture, history, and strategy, and as outsiders, they can more easily challenge the company’s existing ways of operating.?Board-to-CEO transitions must be handled with care, however.?In this article, the authors describe when it makes sense to appoint a board member to the top office, what can go wrong, and how to manage the sensitive dynamics involved to boost the odds?of success."

? ? ? ? ? ? ? ? ? ? ? ? ? Below are some excerpts from the body of the article:

? ? ? ? ? ? ? ? ? ? ? ? ?"When a company gives the?CEO job?to one of its own board members, people often assume that something must have gone wrong behind the scenes.?Maybe the company is desperately trying to get itself out of a protracted period of tumult. Maybe the previous CEO’s departure was unexpected or forced, and only a tried-and-true board member can keep the ship sailing steadily until a permanent replacement can be found.?Maybe the CEO’s departure was routine and expected, but somehow the succession-planning process just came up short.

? ? ? ? ? ? ? ? ? ? ? ? ?"Those are all reasonable explanations. During the past 10 years, however, as the complexity of the CEO role has increased, some companies have hired a board member to be their next leader for a different reason: It was the best option. A growing number of companies are making this choice. From 2018 to 2023, board-to-CEO appointments increased threefold across the S&P 500 and the Russell 3000.....

? ? ? ? ? ? ? ? ? ? ? ? ? "Hiring a CEO from the board is still more of an exception than a rule. But there are compelling reasons to consider the possibility. Most notably, board members often can effectively adopt both internal and external perspectives. As insiders, they have a valuable feel for the company’s culture, history, and strategy; as outsiders, they can more easily challenge the company’s existing ways of operating. But the board-to-CEO transition is a delicate one. Much can go wrong.....When internal candidates are passed over in favor of a board member, they can become demotivated?and even quit. If handled without the appropriate care, a board-to-CEO transition can sap morale and destroy enterprise value.

? ? ? ? ? ? ? ? ? ? ? ? ? "These are questions we’ve thought deeply about. We’ve spoken extensively with CEOs who’ve been hired from boards—and with the boards that hired them. We’ve also conducted an analysis of the board-to-CEO transitions that took place during the past five years among the S&P 500 and the Russell 3000.?In this article, drawing on what we’ve learned in our client work and research, we’ll offer useful guidance?for everybody involved—boards that are considering one of their own as a potential CEO, board members who have been selected for the top job, and HR leaders who have to manage the many sensitive dynamics involved......

? ? ? ? ? ? ? ? ? ? ?(c) On Oct. 30/24, Estée?Lauder announced in this press release ?the appointment of a new CEO from inside the company (see item (ii) from Oct. 30/24), while on Oct. 28/24 Nasdaq-listed, discount department store chain Ross Stores,?Inc. announced in this press release ?the appointment of a new CEO from outside the company (and note that on Nov.7/24, NYSE-listed, automotive and e-mobility supplier BorgWarner Inc.?announced in?this press release ?the promotion of its COO to the position of CEO: see item (iii)(a) from this Monday). The debate over appointing a CEO from inside or outside the company is discussed in this Fortune article last Thursday, "Do insider or outsider CEOs perform better? Estée Lauder and Ross Stores’ new leaders illuminate the divide ", with particular reference to the recent CEO appointments at Estée?Lauder?and Ross Stores:

? ? ? ? ? ? ? ? ? ? ?"When Estée Lauder Cos announced last week that a long-time insider, Stéphane de La Faverie, was going to be its next CEO,?many on Wall Street felt that the slumping beauty giant would have been better off choosing an outsider to really shake things up and bring in new perspectives more than a lifer could. In contrast, Ross Stores, whose business is healthier than Estée Lauder’s though softer than that of its direct rivals, chose an outsider in Jim Conroy, CEO of Boot Barn, despite him coming from a different kind of retailer?and Ross’s strong talent development machine. The two appointments underscore how often the insider vs. outsider debate at a company is shaped by what can be contradictory pressures.?

? ? ? ? ? ? ? ? ? ? ?"Your company might need a bit of a shock to the system that new blood can bring, but it might also need someone who knows where the bodies are buried so that he or she can spring more quickly into action.?In de La Faverie, who takes the Estée Lauder reins on January 1, the company has a new CEO who knows the company intimately?and has even helped craft its existing turnaround plan.....But Estée Lauder is dealing with ongoing difficulties......De La Faverie, who has been at Estée Lauder for more than 12 years,?“won’t have to go through a lengthy assessment and adjustment phase, and can start to implement changes quickly,” wrote Linda Bolton Weiser, an analyst at D.A. Davidson. Then again, a long time insider might not be the change agent the 78-year-old beauty company needs.?“Some in the investor community were likely hoping for an external hire who could lend a fresh perspective and make more dramatic changes to the organization,” wrote Oliver Chen, an analyst at TD?Cowen last week......

? ? ? ? ? ? ? ? ? ?"Ross Stores, an off-price retailer whose business relies on securing merchandise from vendors that weren’t able to sell it via other retailers, went in the other direction. The board was clearly drawn to Conroy’s strong track record at Boot Barn, where revenue rose five-fold to $1.67 billion in the last decade..... But Boot Barn is a far smaller retailer than Ross,?which last year brought in more than $20 billion, and Conroy does not have any experience in off-price retail, in which the required skills executives must have are very specific......

? ? ? ? ? ? ? ? ? ? "Earlier this autumn we saw the saw the same insider vs. outsider CEO debate play out at Nike?and?Starbucks.?Nike?in 2019 chose an outsider with no retail experience in former CEO John Donahoe,?drawn by his background in tech. But after his disastrous tenure ended this autumn, Nike did a 180 degree turn and went to a Nike?lifer, Elliott Hill,?for his deep knowledge of the business and ability to rally the troops. At Starbucks, they chose an outsider. But in former Chipotle Mexican Grill?CEO Brian Niccol, the coffee store chain chose someone who has fixed a large chain of restaurants serving food and beverages and put it on a path of growth but also brings in a new outside perspective.

? ? ? ? ? ? ? ? ? ?"Choosing a CEO is an intensely complex matter for the search committees of corporate boards, with many factors behind why a company might choose an insider when an outsider might make more sense, and vice versa.?“Board have to juggle a lot of considerations between the articulation of future strategy, skills, experiences, competencies, and then also the cultural and personal attributes,” says Brenda Malloy, the CEO of Herbert Mines Associates, an executive search firm......."

? ? ? ? ? ? ? (ii) peak performance years of a CEO: during year's 3 to 6 of a CEO's tenure?: Last month, “The Life Cycle of a CEO: The Myths and Truths of How Leaders Succeed ", by two business consultants, Claudius Hildebrand and Robert Stark (the former being a member of Spencer Stuart's CEO Practice and Leadership Advisory Services) was published, based on "a massive research project (the authors) undertook aimed at analyzing the performance of every twenty-first-century CEO of the S&P 500 throughout the years of their tenure.....studying more than 2,000 chief executives, tracking their experience over time." ?Below is from this WSJ review ?of the book last Thursday:

? ? ? ? ? ? ? ? ? ?"Chief executives have distinctive life cycles—like butterflies and frogs—and each phase has certain qualities worth identifying and paying attention to. That, at least, is the thesis of “The Life Cycle of a CEO: The Myths and Truths of How Leaders Succeed.”.....?The cycles can be easily summarized.....

? ? ? ? ? ? ? ? ? "Reinvention. Years three to six are the period during which the early moves of successful CEOs start to kick in, building trust inside and outside the company. Messrs. Hildebrand and Stark look at Larry Merlo’s year-three decision at CVS, back in 2014, to stop selling tobacco products, giving up $2 billion in annual revenue. The move helped redefine CVS as a health company, and by the end of Mr. Merlo’s fourth year the company’s share value was up 200% over the beginning of his tenure, versus 56% for the S&P 500.?

? ? ? ? ? ? ? ? ? "Pepsi’s Indra Nooyi describes her sense of confidence during the reinvention years: “I really had my legs under me as CEO.” GM’s Mary Barra, in her fourth year (2017), launched a company-redefining goal of “zero crashes, zero emissions, and zero congestion.” It’s at the reinvention stage, say Messrs. Hildebrand and Stark, that the market begins 'to differentiate which CEOs to put its faith in.'........"

? ? ? ? ? ? ? ? ?The book is also discussed in this Spencer Stuart?post on its website last week, "The Five Stages of CEO Leadership Success ."

? ? ? ? ? ? ? (iii) press releases/precedent of the day (CFO employment offer letter):?

? ? ? ? ? ? ? ? ? ?(a) NYSE/TSX- listed CAE Inc. announced yesterday in this press release a "CEO succession plan", as follows:

? ? ? ? ? ? ? ? ? ? ? ?"CAE?announced today that after 20 years at CAE, including 15 as President and Chief Executive Officer, and after spearheading the making of CAE as a global leader in training for civil aviation and defence and security forces, Marc Parent?will be leaving the company at next year's Annual General Meeting in?August 2025, as part of an ongoing succession plan. Until this time, Mr. Parent will continue to lead CAE in his role as CEO and as a member of the Board of Directors, advance CAE's strategic objectives and ensure an effective transition......

? ? ? ? ? ? ? ? ? ? ? ? ?"Consistent with its ongoing and rigorous succession planning process, the Board of Directors has retained a leading executive search firm to conduct a comprehensive global search, which will include evaluating internal and external candidates, to identify a new CEO to lead the Company into the future. The Human Resources Committee of the Board will oversee the search process with support and assistance from Mr. Parent."

? ? ? ? ? ? ? ? ? ? (b) On Oct.3/24, Nasdaq-listed, fast-food chain Jack in the Box?Inc.?(one of the largest U.S. hamburger chains), announced in this press release? the departure of its CFO who had "accepted a new position outside of the restaurant industry", with the Controller being appointed as interim CFO (see item (iv)(b) from Oct.7/24). Yesterday, Jack in the Box?announced in this press release ?Lance Tucker, who served as the company's CFO from March 2018 to July 2020, as the company's new CEO, follows:

? ? ? ? ? ? ? ? ? ? ? ?"Jack in the Box Inc.?is pleased to announce?the return of Lance Tucker as Chief Financial Officer effective January 13, 2025. Tucker is currently Chief Financial Officer of Davidson Hospitality Group, while having also served as CFO at CKE Restaurants Inc. and Papa John’s International, Inc. Tucker brings a wealth of experience, a deep understanding of the company’s business operations, and a proven track record of driving results.?

? ? ? ??? ? ? ? ? ? ? ? "Tucker served as CFO of Jack in the Box Inc. from March 2018 to July 2020......In his role as CFO, Tucker will oversee all aspects of financial strategy, planning, and operations.?He will also collaborate closely with the executive team to ensure Jack in the Box remains agile in the rapidly evolving fast-food landscape......"

? ? ? ? ? ? ? ? ? ? ? ?In connection with the appointment of the new CFO, the company and the new CFO entered into this Employment Offer Letter , as summarized in the related Current Report filed with the SEC.

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