Sudden CEO Departures Can Upend An Unprepared Board

departure
Former Wynn Resorts CEO Steve Wynn.

If board directors don’t have enough to worry about today, there’s the prospect of sudden departure of leadership at the top level. Recent news stories of sexual harassment, substance abuse, dodgy business practices and other triggering events  have led to quick changes in leadership that took board directors by surprise.

The sudden departure of Steve Wynn, the billionaire casino visionary who is widely credited with modernizing Los Vegas stepped down in the face of sexual misconduct allegations. The board of Wynn Resorts has been sued by shareholders, claiming the board knew for years that Steve Wynn, founder and chief executive of the casino operator, had been accused of such misconduct and failed to investigate.

Another powerful self-made entrepreneur, Harvey Weinstein, widely thought to be unassailable was forced to resign when numerous women came forward with lurid examples of sexual assault. Weinstein Co.’s board has had to brace itself for several shareholder lawsuits.

“directors not only must be on top of their company’s succession planning, but they may be called upon to disclose more about succession plans and the health of their leaders.”

But it’s not just the tsunami from the #metoo movement.  CSX Corp.’s Hunter Harrison, 73, died  last December, one day after news of his medical leave pushed the railroad’s shares down the most in six years. The same day, M&T Bank Corp. said its CEO, Robert Wilmers passed away “suddenly and unexpectedly” at age 83 — just months after the death of his own heir apparent.

These passings reflect a fact of shifting demographics: As the  U.S. population ages, so too do the leaders of corporations across the country. The average age of a CEO has risen 4 percent in the last decade and there has been at least one health-related change atop Standard & Poor’s 500 Index companies in each of the past three years, according to executive recruiter Spencer Stuart.

Dr. Kevin Groves,  associate professor of management at Pepperdine’s Graziadio Business School  argues that directors not only must be on top of their company’s succession planning but they may be called upon to disclose more about succession plans and the health of their leaders. “Boards today need to have a detailed profile of the type of individual that is required to lead their organization in the future—and this profile should be different from the one who is leading it today,” says  Groves.

An entrepreneur and veteran board member himself, Groves thinks directors should be familiar with key leaders within their organizations, several steps down from the CEO and ensure that potential candidates have been properly groomed across departments and at other areas within the organization to ensure that high potentials are exposed to different managerial experiences. He points to Kaiser Permanente, Pepsico and GE that are diligent about talent reviews by the board.

“Boards need to own the CEO profile and update it with regularity,” he adds.

Each director will need to immerse himself or herself in the calibration process—not just the lead director. If necessary, hire a recruiting firm to help guide the board’s thinking because the day when action becomes necessary you will want to be ready.