Succeeding at CEO Succession - ncmens.club• Indra K. Nooyi, PepsiCo • Phebe N. Novakovic,...

Succeeding at CEO Succession Presented by: Dayton Ogden

Presented to: Senior Men’s Club

March 2, 2018

2 PROPRIETARY AND CONFIDENTIAL. ALL RIGHTS RESERVED

Trends Among Large Public Companies

Case Studies – Seeing the Trends in Action

New CEOs – Accelerating Superior Performance

Agenda

Trends Among Large Public Companies


Rising Trend Toward Internals » For the past 10 years, the trend towards internal promotion to CEO has been growing

• The main causes for this evolution include:

1. Sarbanes-Oxley legislation

2. The professionalization of the Human Resources function

3. Commitment to long-term succession planning being scrutinized by Boards as a best

practice

» However, through a combination of normal retirements, strategy shifts, activist investors and

regulatory missteps, we saw a slight reversal of this trend in 2017


Trade-Offs in CEO Selection Criteria » Boards, when selecting a CEO, have to make difficult trade-offs relative to the following 4 questions:

1. Who is your best strategist?

(e.g. smartest, innovative, understands applications of technology)

2. Who is your best operator?

(e.g. shows consistent results; turn around underperforming assets; team builder)

3. Who is your best communicator?

(e.g. confidence as ambassador talking to customers, shareholders, employees, Wall Street, community)

4. Who has the aptitude to deal with the extraordinary pace of change?

(e.g. most agile, best listener, most adaptable, emotional maturity to be on a constant diet of learning)


Pressure On Diversity » Although boards are doing a better job of recruiting strong female directors…

» …the CEO landscape among large companies is still dominated by males. Women currently hold 26 (5.2%) of CEO

positions at S&P 500 companies:

• Mary T. Barra, General Motors • Gail Boudreaux, Anthem • Heather Bresch, Mylan N.V. • Michele Buck, Hershey • Debra A. Cafaro, Ventas • Safra A. Catz, Oracle (co-CEO) • Mary Dillon, Ulta Beauty • Virginia C. “Gina” Drosos, Signet Jewelers • Adena Friedman, Nasdaq • Margaret "Margo" Georgiadis, Mattel • Lynn J. Good, Duke Energy • Tricia Griffith, Progressive • Marillyn A. Hewson, Lockheed Martin

• Vicki Hollub, Occidental Petroleum • Margaret Keane, Synchrony Financial • Beth E. Mooney, KeyCorp • Denise M. Morrison, Campbell Soup • Indra K. Nooyi, PepsiCo • Phebe N. Novakovic, General Dynamics • Patricia K. Poppe, CMS Energy • Debra L. Reed, Sempra Energy • Barbara Rentler, Ross Stores • Virginia M. Rometty, IBM • Susan N. Story, American Water Works • Meg Whitman, Hewlett-Packard Enterprise • Geisha Williams, PG&E

of new directors in

2017 are women or minorities

women (a 20-year high)

minority men

Small steps:

of all directors are

women in 2017, versus 21% in 2016 and 17% in

2012 2017 2016 2012

Case Studies – Seeing the Trends in Action


Case Study 1 – Financial Services Finding Successor for a Retiring CEO

» Current CEO planning to retire voluntarily earlier than expected

» Culturally, the institution was more comfortable with an internal choice

» However, Board wanted to consider external options

» The company faces significant disruption and changes to its core business

» Therefore, company needed to select an individual who can simultaneously run and change the company

» Unclear whether next-gen internal executives are legitimate long-term successors

» Therefore, the appointment of a ‘bridge solution’ was debated at length

» The incumbent CEO is also the Chairman and there is an independent Lead Director who is nearing retirement age


Case Study 2 – Industrial Next Generation Development for CEO Succession

» Iconic owner-founder close to retirement age

» After internal assessments and external benchmarking, an internal candidate was promoted to President/COO

» This individual will be in his mid-60s when he becomes CEO

» Therefore, there is a major emphasis on next-generation assessment and development

» Concurrently, the company is facing many strategic opportunities, as well as potential disruption from Amazon,

Uber, etc.

» Historically, the long-term CEO has functioned as Chief Strategy Officer for the company

» As a result, the best and the brightest in the next-gen group are significantly more versed in operations than

strategy

» Very strong culture; have not brought in many outsiders


Case Study 3 – Technology Activist Involvement

» Contacted by the Board to conduct a market mapping exercise for the client

» Prior to engaging Spencer Stuart, the board had developed a CEO Success Profile, containing relevant

information about the spec for the next CEO

» To augment and elaborate, our team interviewed the Chairman, CEO and 4 members of the Compensation

Committee

» Using the criteria developed, Spencer Stuart considered 25 external CEO-ready executives and prioritized and

profiled a dozen prospects through subsequent conversations and vetting with the Committee

» There was no outreach to the priority candidates with specific reference to the company

» Subsequently, our team had a discussion with the Committee and reviewed status at the fall Board meeting

» All of this was done against the backdrop of an activist shareholder, who was seeking 3 board seats

» The activist had been publically critical of the incumbent CEO and had made a series of proposals relative to the

management of the company, as well as changes in governance


Case Study 4 – Industrial Finding a Successor for a Retiring CEO; External Placement

» Originated following the incumbent CEO’s decision to retire at the end of 2017

» A succession committee of the Board, led by the Chairman, was formed to manage the process

» Three internal candidates were assessed against a CEO spec by an assessment firm

» There was a consensus on the Board that none of the internals were ideal succession candidates

» Spencer Stuart conducted a thorough CEO search, which resulted in the presentation of 5 candidates, whom we

exhaustively referenced, and a complex compensation negotiation with the finalist

» Spencer Stuart is currently advising the new CEO-elect and the Chairman about best practices relative to the

transition. The appointment to CEO took effect on January 1, 2018.

New CEOs – Accelerating Superior Performance

How We Advise on Strategy

Governance: Effective Relationship Between CEO and Board


What Your New CEO Is Thinking Once selected, new CEOs quickly pivot to a few important questions:

What are some potential early wins?

What kind of support do I need from the board and my team?

Where am I most confident/ least confident in my

team’s capabilities? What are the board’s expectations of me?

What are the best

elements of our culture?

How well is our organization aligned? Is my team structured effectively?

What issues should be on my agenda for the first 100 days and first year?

What are the biggest challenges the company faces and the issues we need to resolve?


In short,

strategy is making

choices;

operations is making

a plan

Overview of Strategy – Three Key Components

Participation = where we play (geography, customer focus, channels)

Competitive = how we will build and sustain advantages

(differentiation, cost/asset)

How we define 'winning‘ = linking strategy to metrics, goals and targets


Key Enablers of Successful Strategy

An aligned organizational structure

(minimal barriers)

The best possible talent, culture and ability of teams to work effectively

A robust and streamlined set of decision processes (creativity with pace)

A reward system that incentivizes the behavior needed to plan and execute


Governance: Effective Relationship Between CEO and Board » Before You Start

• Debrief with succession advisers to gain insights about director perspectives, board dynamics and

expectations that emerged during the selection process.

• Ask if a board effectiveness assessment has been conducted recently and if you can review it.

• If you are a first-time CEO, ensure you are knowledgeable about fundamentals of board governance.

» First 100 Days

• Schedule one-on-one conversations with board members to understand the stated and unstated

motivations of the board, and their perspectives on challenges and opportunities for the company.

• Share thoughts on leadership team challenges with the board chair/lead director and any emerging themes

from your reviews to date that you may want to test.

• Establish an effective communications protocol. Tailor your communication and management style to the

needs of the board.

• Schedule a formal board session to share your first-100-days observations and updates on your game plan.

Questions?

Succeeding at CEO Succession - ncmens.club• Indra K. Nooyi, PepsiCo • Phebe N. Novakovic,...

Documents

Transcript of Succeeding at CEO Succession - ncmens.club• Indra K. Nooyi, PepsiCo • Phebe N. Novakovic,...