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?