CEO transitions are hard, and boards of all shapes and sizes consistently say that CEO succession planning is one of their biggest challenges. So directors will be keeping close watch as a number of brand name executives plan their exits. This week brings into focus the presumed transitions of iconic leaders like BlackRock’s Larry Fink, JP Morgan Chase’s Jamie Dimon, Apple’s Tim Cook, and, in a repeat performance, Disney’s Robert Iger. While none has revealed specific dates, this generation of iconic leaders is expected to hand over the reins in relatively short order, and bring renewed attention to the art of succession planning. A recent article from the Financial Times suggests that in today’s dynamic business environment, succession planning can involve preparing multiple candidates for the role, so the company is poised to move in one of several directions when the time comes. Meanwhile, former Levi Strauss CEO Chip Bergh, in conversation with Boardspan CEO Abby Adlerman, brings fresh insight and perspective to successful succession planning.
In other news: Supersized CEO pay, rapidly rising director compensation, Tesla directors to repay more than $700 million following allegations that board was overpaid, CALpers to vote against re-election of entire Exxon board, and directors learn to navigate information requests from large shareholders.
In the Spotlight
What’s BlackRock Without Larry Fink?
Investors in the world’s biggest asset manager are asking how much more room it has to grow
“Laurence D. Fink built BlackRock into the world’s largest asset manager with a steely grip, a thick skin and a clear eyed vision of what the company could become. Today, it’s a caretaker of $10.5 trillion of investor money and a provider of sophisticated trading technology, and Mr. Fink has been an informal financial adviser to many governments, including the United States…But Mr. Fink’s age — he is 71 — and BlackRock’s enormous size, which makes it ever harder to find new assets to manage, are clouds on the horizon…. One of the greatest concerns is succession. Mr. Fink, BlackRock’s chief executive and chairman, exerts an unusual level of control for someone leading a firm of its size, with nearly 20,000 employees…Because of Mr. Fink’s all-in approach, the question of who will take over from him has become important, despite a deep bench of talent and several potential successors.” THE NEW YORK TIMES
Jamie Dimon Hints He Is Preparing to Retire as CEO of JPMorgan Chase
In 2021, Dimon was given a special bonus by the board that he can earn by staying as CEO until 2026
“Jamie Dimon acknowledged that he will likely be leaving his role as chief executive officer of JPMorgan Chase in fewer than five years. In a Q&A session with analysts at the bank’s annual investor day Monday, Dimon said the timetable for his departure has changed from his long term boilerplate response to questions of his tenure. ‘The timetable isn’t five years anymore,’ said Dimon, who is 68 years old. He didn’t provide more detail about when he plans to leave…He said that his successor could come from within the bank’s own ranks, as a number of current JPMorgan executives have experience working across different parts of the bank. That includes Jennifer Piepszak, now co-head of the commercial and investment bank, and Marianne Lake, who serves as the head of the consumer banking arm…If Dimon needed an immediate successor, he has Daniel Pinto, the bank’s president and chief operating officer.” THE WALL STREET JOURNAL
Apple’s CEO Succession Plan and Leadership Transition Challenges
Many of its top leaders could step down around the same time
“CEO Tim Cook, who has been in charge of Apple for over a decade is turning 64 this year. Though he might have a few more years to lead the pack, a broad shake up is increasingly likely with Apple CEO succession plan. Apple’s management team is made up of longtime executives nearing the end of their tenures. So who is going to be his replacement and what is the Apple CEO succession plan…. While John Ternus could be next CEO of Apple, the company will also need to find new leaders for its top divisions. Apple Inc.’s executive leadership team is a tight-knit ensemble that has barely seen a shake-up or change for more than a decade. And many of the people in the group, known internally as the ET, are about the same age within a few years of CEO, Tim Cook.” INDUSTRY LEADERS
Inside Disney’s Hunt to Replace Bob Iger as CEO
In 2022, Iger made a surprise return to Disney after a much-heralded (and very brief) retirement
“[Disney CEO Bob] Iger has always been clear: He loves running Disney. But if he was reluctant to retire in the past, he doesn’t appear to be now. By many accounts, the succession question is now a top priority as he and the Disney board narrow in on a handful of internal candidates and consider potential external candidates. The board essentially rubber-stamped Iger’s last choice. It won’t this time....Disney’s board is now stacked with executives who handled their own smooth handoffs.... It’s said that there are now four key internal candidates, who have to figure out how to lobby for the job without looking like they’re lobbying for the job: Disney Entertainment co-chairmen Dana Walden and Alan Bergman, ESPN chairman Jimmy Pitaro, and Disney Experiences chairman Josh D’Amaro.” VANITY FAIR
Grayscale CEO Michael Sonnenshein Steps Down
The crypto asset manager is battling an investor exodus from its flagship bitcoin fund
“Grayscale Investments Chief Executive Michael Sonnenshein has stepped down, after a decade-long career helping build the company into the world’s largest crypto asset manager. Peter Mintzberg, who currently serves as the global head of strategy for Goldman Sach’s asset and wealth management division, will become Grayscale’s CEO in August, the company said. Mintzberg, whose 20-year Wall Street career spans BlackRock, OppenheimerFunds and Invesco, will join Grayscale’s board at that time…. Grayscale’s board and parent company Digital Currency Group began a search for a new CEO for the asset manager in late 2023, according to people familiar with the matter.” THE WALL STREET JOURNAL
In Case You Missed It
Why CEO Succession Is So Difficult To Get Right
Boards are forced to think about finding future leaders earlier as shareholders demand greater insight
“... more companies are choosing, or being forced to, think about the next in line earlier than they once would as shareholders demand greater insight. Rather than one or two years before a planned exit, boards are under pressure to provide guidance five years ahead of time, headhunters say. Just as it has become normal to stress test corporate strategies and plan for different scenarios, they are now doing the same with succession. Do they need someone to maintain the status quo, pursue growth or shift strategy altogether? This could mean prepping three different people in case there is an abrupt change of context. ‘It’s about risk management and business continuity in today’s environment. They need a plan B and a plan C,’ said Patricia Lenkov, an expert on corporate governance and succession.” FINANCIAL TIMES
From Boardspan this Week:
The Art of CEO Succession Planning: Secrets of a Winning Strategy
Chip Bergh, the departing CEO of Levi Strauss & Co. and Abby Adlerman, CEO of Boardspan, host an insightful conversation about Succession Planning. In his role at LS&Co. and as the Chair of the Board of HP, Inc., Chip has proven to be world-class at leading long-term succession planning, including helping to guide his own transition. |
Across the Board
Musk Effect Drives Spread of Supersize CEO Pay Packages
More executives make $50 million and up—with potential for growth over time
“Elon Musk didn’t just upend the global auto business and space missions. The billionaire is also reshaping the landscape of executive pay. Musk’s multibillion-dollar pay package from 2018 has set the tone for other high-end pay deals, despite being thrown out by a Delaware court earlier this year. More executives have gotten outsize pay packages, and those packages have been bigger, in the years since Musk’s came to light. They also have the potential to keep growing for years—generating value for CEOs along the way.” THE WALL STREET JOURNAL
The Highest Paid CEOs of 2023
Stock awards push median package to a record $15.7 million; tech executives top the list
“The chiefs of America’s biggest companies reached new pay heights in 2023 as stock awards swelled the value of compensation packages. Half of the executives in a Wall Street Journal analysis made at least $15.7 million, a record for median CEO pay in the annual survey, with several making more than $50 million. Median pay for the same companies a year earlier was about $14.5 million…. Most of the executives received year-over-year raises of at least 9%—one in four got 25% or more—and most companies recorded annual shareholder returns of at least 13%...Eight tech executives ranked among the 25 top earners, as did five each heading financial companies and media or entertainment companies. Hock Tan, the highest-paid CEO in the Journal’s analysis at $162 million, has to stay on the job for five years and Broadcom’s share price must reach certain targets after October 2025 to get the full value of most of his pay.” THE WALL STREET JOURNAL
Director Pay Surges, Beating Inflation and CEO Pay Growth
Equity-linked pay emerged as the dominant component of director compensation packages
“Despite an extensive literature on CEO and executive compensation spurred by public concerns about corporate governance and excess compensation, director compensation has received limited research attention. One reason could be that for decades before the 1990s, director compensation showed little variation over time and across firms, predominantly comprising a fixed retainer with additional fees allocated for specific roles on board committees…However, director compensation has undergone significant shifts over the past two decades. Notably, the average total compensation for directors at U.S.-listed entities surged from $133,930 in 2000 to $342,030 in 2020, surpassing both inflation rates and the growth in CEO compensation. Considering that outside directorship is not a full-time role and many directors serve on multiple boards, such compensation levels are high both in relative and absolute terms.” HARVARD LAW SCHOOL FORUM ON CORPORATE GOVERNANCE
Tesla's Board of Directors Will Return $735 Million on Claims They Were Overpaid
That includes $458.6 million in company shares and $276.6 million in cash, settlement excludes Musk
“The team of directors – which includes Oracle co-founder Larry Ellison, Rupert Murdoch's son James Murdoch, and Elon Musk's brother Kimbal Musk – said they would return stock and cash made on exercised options from 2021 through this year, according to court filings…. The directors denied wrongdoing as part of the settlement and said they agreed to the deal to ‘eliminate the uncertainty, risk, burden, and expense of further litigation,’ the filing reads. The settlement is awaiting approval from Delaware Chancery Court's chief judge…. The $735 million settlement stems from a 2020 lawsuit, wherein Detroit's Police and Fire Retirement System accused Tesla's board members of overpaying themselves in the form of stock options from 2017 to 2020.” MSN
CalPERS to Vote Against Exxon Board Members
The asset manager was successful in its 2021 board challenge at Exxon
“CalPERS, the biggest public pension plan in the United States, said on Monday it would vote against all ExxonMobil board members at its upcoming annual meeting on May 29, citing the oil major's legal action against activist investors. Exxon, which is frequently the focus of critical shareholder resolutions, filed a lawsuit earlier this year seeking to block a vote on a climate proposal submitted by two small activist investors, sidestepping the usual regulatory process to fend off similar measures…The investors withdrew their resolution but Exxon continued the lawsuit, seeking legal costs and other relief. CalPERS, which has about $490 billion in assets under management, said in a statement the legal action could diminish investor rights. Its vote is ‘more than symbolic’, even though there is no alternative slate of directors, CalPERS CEO Marcie Frost told reporters. She aimed to send a message to the board that ‘if they don't want to do the governance they should step aside,’ Frost said.” REUTERS
Boeing Shareholders Vote to Re-elect Departing CEO to Company’s Board
Proxy adviser Glass Lewis had recommended shareholders vote against the re-election of Calhoun
“Boeing’s departing CEO, Dave Calhoun, was re-elected to stay on the troubled company’s board on Friday, even as the planemaker’s chair said he was gathering feedback from customers and others in its search for a new chief executive. Boeing is dealing with a sprawling crisis that includes multiple investigations, possible prosecution for past actions and slumping production of its strongest-selling jet…Steven Mollenkopf, Boeing’s chair and the former boss of Qualcomm, is leading the search to replace Calhoun, who said he would retire by year-end as part of a management shakeup following a January mid-air blowout on a new 737 Max 9.” THE GUARDIAN
Nasdaq’s Quest To Increase Board Diversity Faces New Legal Challenges
Challenges to the board diversity rules underscores a broader shift within the stock market
“In August 2021, the SEC sanctioned Nasdaq's initiative mandating listed companies to either comply with board diversity guidelines or explain their non-compliance. This ‘comply or explain’ approach requires transparent disclosure of diversity statistics, fostering a culture of inclusion within corporate governance…. Several judges pressed SEC and Nasdaq lawyers during oral arguments in New Orleans on whether the 1934 Securities Exchange Act limits the types of disclosure requirements the SEC can approve for a stock exchange. As investors scrutinize the indexes and the broader U.S. stock market today more than ever, understanding the implications of Nasdaq's focus on diversity information becomes not just a matter of regulatory compliance but a significant strategic advantage.” FORBES
Shareholders: The New Rules Of Engagement
Boards must walk a fine line between answering questions and oversharing
“In a world of instant information, some of it fake and much of it muddled, it’s understandable that shareholders get anxious about their holdings—and turn to the people entrusted to represent their interests for answers. Boards are being forced to adapt to a world where large shareholders seek intel from directors on any number of subjects—from what’s being done to comply with a new regulation to what plans are underway to confront a disruptive competitor. And that can bring on a whole suite of challenges for directors.” CORPORATE BOARD MEMBER
Report: The Percentage of Directors with Environmental or Social Credentials Is Growing
Still, certain important industries, like health care and utilities, are lagging
“In 2018, only 22 Fortune 100 boards had sustainability/ESG committees. Today, 89 do. In the same year, only 29% of Fortune 100 board members had ESG credentials. Today, 43% do. This demonstrates a greater focus on sustainability by boards as a strategically important issue for their companies. In fact, sustainability topics like climate change, worker welfare, water scarcity, cybersecurity, customer safety and corruption continue to grow in financial materiality for corporations, and regulators are asking for clarity into board oversight (e.g., the recent SEC climate regulations).... Unfortunately, certain industries and companies continue to underperform in terms of ESG board credentials. The utility sector, for example, which has huge environmental risks ranging from extreme weather destroying infrastructure to regulatory frameworks calling for decarbonization, has one of the lowest percentages of board members with ESG credentials and zero board members with environmental credentials.” DIRECTORS & BOARDS
Shareholder Willingness to Protect Workers’ Rights May Be Growing
Shareholder letters to McDonald's and Wendy's may indicate a broader trend regarding employee rights
“McDonald’s and Wendy’s shareholders who manage more than $2.5 trillion in combined assets recently sent letters to the two companies asking that they improve their efforts to stop child labor law violations at their franchised restaurants. The shareholder groups also enlisted several state treasurers and comptrollers to sign onto the letters in a show of support. Although this effort specifically targets child labor laws, it may be an indication of a broader trend of shareholders becoming more willing to team up with government entities and regulators to get corporate boards to act on employee rights issues.” CORPORATE BOARD MEMBER
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