Analyzing Credit and Governance Implications of Management Succession Planning

Abstract

Oversight of CEO and senior management succession planning has always been a critical board responsibility, but recent high-profile CEO departures have brought the issue to the fore. Changes at a number of high profile issuers recently have highlighted the risks companies may face due to sudden, unforeseen CEO and senior management departures or dismissals. Moody's expects unprecedented investor and media attention on succession issues in 2008, due to factors that include: fallout from the turmoil in the financial markets; a more challenging operating environment; and continued pressure from activist investors. Within this context, Moody's views effective succession planning - in particular CEO succession planning - as critical to the sound management and oversight of an organization. While we analyze succession issues on a case-by-case basis, and while the degree of headline risk may vary, we have found there are a number of processes and best practices that help to instill investor confidence and reduce risk, based on our governance reviews of over 700 North American companies. This special comment describes how Moody's views best practices for the role of boards in overseeing succession planning and management development. This comment is part of a series of Moody's reports that describe the benchmarks against which Moody's evaluates the quality of corporate governance within rated issuers as part of determining the effect of governance on those firms' debt ratings.