From Boardroom to C-Suite: Why Would a Company Pick a Current Director as CEO?

Abstract

Many observers consider the most important responsibility of the board of directors its responsibility to hire and fire the CEO. To this end, an interesting situation arises when a CEO resigns and the board chooses neither an internal nor external candidate, but a current board member as successor. Why would a company make such a decision? In this Closer Look, we examine this question in detail.

We ask:

• What does it say about a company’s succession plan when the board appoints a current director as CEO? • What is the process by which the board makes this decision? • Are directors-turned-CEO the most qualified candidates, or do they represent a stop-gap measure? • What does the sudden nature of these transitions say about the board’s ability to monitor performance?

The Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance and executive leadership. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important. Larcker and Tayan are co-authors of the books Corporate Governance Matters and A Real Look at Real World Corporate Governance.

Keywords: Succession planning, leadership, chief executive officers, labor market, executives, board of directors, emergency CEO, interim CEO, CEO turnover, corporate governance research

JEL Classification: D20, G30, G39, J44,L20, M12