More Board Members Getting Hired as CEOs: An Unwise Corporate Trend

by Sheryl Nance-Nash for Daily Finance, November 2010.

Over the past year, the Fortune 1,000 has seen a significant jump in the number of directors being appointed as the CEOs of companies on whose boards they serve: Ten directors stepped in as permanent CEOs from October 2009 to October 2010, compared to only three tapped as chief during the 12 months prior. One additional director was named interim CEO this year, bringing the total for the past year to 11, according to research from Heidrick & Struggles. In August alone, three directors sat down in the CEO’s seat: Dan Akerson at GM, Fred Chang at online retailer Newegg, and James Shelton of nursing home pharmacy giant Omnicare (OCR).

So why has the number of directors being tapped for CEO posts more than tripled in the past year?

“The main reason is a lack of proper succession planning by companies,” says Anita Skipper, corporate governance director of Aviva Investors. “The need for prompt management changes during the financial crisis may also have compounded the trend. Boards are more risk-averse. If no one from management can quickly step into the CEO’s position, the ‘safe’ alternative is to choose someone well known to the board, who understands the strategy and business, and may have previous experience as a CEO.”

Furthermore, adds John Weckenmann, senior counselor of international client development for Ketchum’s Global Corporate Practice, “Boards are being held more accountable and when a CEO steps down, it has become natural for the board to draw from within its own ranks to fill the CEO position. Presumably, there’s a greater sense of assurance in doing so, ‘We know what we’re getting’, as well as a greater sense of ownership of the situation, ‘We’re not going to leave this to chance.’ ” (continue reading… )

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