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: Institutional Shareholder Services -- Corporate Governance Blog

Laborers Ask Firms for Better CEO Succession PlansSubmitted by: L. Reed Walton, Publications

The Laborers' International Union of North America has filed a new proposal that urges Toll Brothers and three other firms to adopt a detailed CEO succession policy and disclose it to shareholders.

The proposal asks that the board collaborate with the current CEO on succession planning to develop criteria for the job, identify internal candidates, and institute a formal process to evaluate candidates. The Laborers also filed the resolution at Merrill Lynch, Bank of America, and Verizon Communications, and plan to submit it at a few more firms for the 2008 proxy season, said Jennifer O'Dell, assistant director of the Laborers' office of corporate affairs.

In the Toll Brothers proposal, the union pension fund writes that "our [c]ompany's CEO, Robert Toll ? has been CEO of the [c]ompany since its inception in 1986. His long tenure indicates a need for a clear succession plan." According to the company's corporate governance guidelines, the board should be "sensitive" to succession planning issues, but the document does not spell out specific policies in case of a CEO's retirement or emergency departure.

The Moody's ratings firm has recommended that boards should have an emergency succession plan in place in case the CEO is abruptly unable to continue the job.

"If the board appears to make the plan up in the heat of firing a CEO, this highlights the board did not focus on emergency CEO planning," the Moody's report stated. Having a succession plan in place can limit the possibility of overly large severance packages and prevent additional expenses such as "make whole" payments or other premiums for hiring a CEO from outside the company, the report stated.

Full post as published by Institutional Shareholder Services -- Corporate Governance Blog on December 17, 2007 (boomark / email).