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GLOBAL: "The Role of the United States in the Harmonization Process: A Proposed Scorecard" article

GLOBAL: "The Role of the United States in the Harmonization Process: A Proposed Scorecard" article. 7-page article by Dan Malone, Director Global Automotive Practice, Butzel Long and published by BNA, Inc.

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back to index backGLOBALtalk May,  2007


America's Most Admired Companies Favor Internal CEO Candidates

Hay Group Research Identifies Big Gaps Between Admired Companies and Peers.

Hiring a new CEO from outside the company may be a dramatic gesture, but it’s not the way that more than three-quarters of America's Most Admired Companies (MACs) do business.  Their boards (77%) have a preference for internal candidates, according to Hay Group, the management consulting firm that has been conducting MAC research since 1997.

Hay Group's research covered more than 150 companies eligible to participate in the MAC rankings and compared the winners’ responses with those of the remaining peer group.  Only 60% of the peer group boards, for example, preferred internal candidates.

"Good boards understand that selecting the right CEO is probably the most important act that they will take," said Hay Group Vice President Ron Garonzik.  "The consequences are too severe if they fail to do so, as recent turnover in CEO positions worldwide has proven."

It’s no surprise, then, that 91% of MACs agree that "We have a well defined plan to cover the emergency loss of the CEO that is discussed at least annually by the Board," v. 65% of the peer group.  The MACs are also more likely (70% v. 57%) to "have developed a comprehensive profile for the CEO's successor that reflects our strategy and business model."

"Having a well-structured and defined succession plan in place ensures seamless business continuity in the event of an emergency and is often cost-effective for a company," says  Garonzik. 

WMAC Boards are more likely to be involved in human capital management:  82% of agree that "Our company has a human capital strategy that has been reviewed and approved by the Board," v. 67% for the peer group. 

"The study illustrates that Boards of Most Admired Companies are not only demanding a more significant role in the succession planning proces, they are devoting much more time and effort to it than other Boards are," said Beverly Behan, Managing Director of the Board Effectiveness Practice of Hay Group.  "Increasingly, 'rigor' has replaced 'rolodex' as the watchword in CEO succession planning—meaning that the best boards aren't looking for a rolodex of outside candidates when it comes to the corner office; they are looking for rigorous processes to help them develop and assess their internal executive talent to make smart decisions about corporate leadership."

Boards of Most Admired Companies are:

- 19% more likely than the peer group to provide expertise to the CEO and management on human capital issues
- 21% more likely to have a well-defined succession plan in place to prepare for the long-term replacement of the CEO and other senior executives
- 23% more likely to evaluate CEOs on success in developing human capital, in addition to evaluating financial outcomes and strategy implementation
- 21% more likely to have well-defined plans to cover the emergency loss of the CEO and other top executives and discuss the aforementioned plans on an annual basis, at the very least
- 15% more likely to receive regular updates on the development of internal candidates for top leadership positions
- 22% more likely to have a human capital strategy that has been reviewed and approved by the Board
- 23% more likely to have developed a comprehensive profile for the CEO's successor that reflects the company’s strategy and business model
- 13% more likely to have an effective succession plan for senior executive positions

The research, conducted in the fourth quarter of 2006, divided the Fortune WMAC survey of 3,322 executives, directors, and analysts into two groups: those that ranked among the top three in their industry and all the rest.  Hay Group then surveyed executives at more than 150 of these companies around the world about board governance and how they manage human capital.

Source:  Hay Group - GAI


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