Tuesday, March 13, 2012

Are Companies Prepared for the Sudden Death of a CEO?

David F. Larcker and Brian Tayan at the Corporate Governance Research Program examine succession plans, what a board can do if the market reacts positively to the death of its CEO, and whether the board should revise its succession plan if its CEO engages in risky hobbies or lifestyle habits.

It is very difficult for shareholders to know detailed information about CEO succession planning among the companies they have invested in. Although CEO deaths are rare, the sudden death of a CEO can provide insight into the quality of succession planning and governance of a company. Whereas some companies are able to appoint a successor immediately, others take weeks or months to do so.

In this Closer Look, we examine this issue in detail.

We ask:

  • Why haven’t more companies done a “reality check” on whether they have a truly operational succession plan?
  • What can a board learn and what should it do if the market reacts positively to the death of its CEO?
  • Should the board revise its succession plan if its CEO engages in risky hobbies or lifestyle habits?

Read the complete Closer Look Series research piece

Explore More Topics, Issues and Controversies in Corporate Governance via the Stanford Closer Look Series

The Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important.