• Even fewer FTSE 100 companies have Deputy CFOs
• Investors more attracted by companies with good succession planning
Only 6% of FTSE 100 companies currently employ a Deputy CEO despite calls from shareholders for companies to improve their succession planning, shows new research by Edward Drummond, the leading executive search firm.
Edward Drummond says that even fewer (4%) FTSE 100 companies have taken the step of appointing a Deputy CFO.
The Association of British Insurers (ABI) – which represents some of the UK’s biggest investors – recently recommended that companies improve their succession planning. Describing poor succession planning to replace board members as a threat to shareholder returns, ABI research found that 50% of FTSE 100 boards admitted that succession planning required additional focus.
Edward Drummond explains that one way in which companies can improve their succession planning is by putting in place a Deputy CEO who can offer strong support to the CEO and make for an easy transition when the CEO moves on.
Edward Drummond say that in the case of a CEO, the board may still decide that it is better to run a broader search than to promote the Deputy CEO, but shareholders can be reassured that there is a contingency in place and someone who can take up the Interim-CEO role at a moment's notice.
Edward Drummond says that a Deputy CEO should have built up a closer relationship with shareholders, non-executive board members, a broader range of executives below board level and other stakeholders than other executive directors.
A Deputy CEO can also strengthen a company's ability to make strategic moves with the additional internal support allowing the company to focus on growth opportunities.
Neill Fry, Director at Edward Drummond, comments: “It is surprising that so few of the FTSE 100 companies have Deputy CEOs or CFOs in place. Having a robust and sustainable CEO succession plan is one of the most vital functions a board’s nomination committee can perform. Having a Deputy CEO can provide a board with a broader range of options and offer stability and continuity regardless of whether the Deputy CEO takes up the CEOs role on an interim or permanent basis.
“There is no reason why a current CFO should not also take on the Deputy CEO role.
“Poor succession planning has plagued many of the UKs largest companies recently with the disruptions having a negative impact on shareholder value.”
Neill Fry adds: “Institutional investors see succession planning as vitally important for a company’s long term viability – they don’t like big surprise choices for CEOs sprung on them.”
Edward Drummond explains that the banking industry has seen a number of high-profile cases recently where shareholders have put pressure on the banks to improve their succession planning.
Royal Bank of Scotland, for example, faced strong criticism from investors during the credit crunch for its handling of the departure of Sir Fred Goodwin as CEO. RBS also suffered a blow in December 2013 when Finance Director, Nathan Bostock, left the bank to join Santander as Deputy CEO after just 10 weeks in the position.
Edward Drummond points out that in addition to improving succession planning and growth, a Deputy CEO can also provide additional support when a company is struggling.
Neill Fry adds: “Standard Chartered is one example where a company has appointed a Deputy CEO to bolster the executive team and help the CEO respond to a series of disappointing corporate news.”
“Having a Deputy CEO isn’t required under any of the corporate governance codes but it is but it is an area where we expect to see more active recruitment.”