Free Preview

This is a preview of some of our exclusive, member only content. If you enjoy this article, please consider becoming a member.

Nearly 60 percent of property/casualty insurers do not have written CEO succession plans in place, Carrier Management and The Jacobson Group found in a recent survey of CEOs, board members and leaders of human resources representing a cross-section of the U.S. P/C carrier population.

Executive Summary

Less than half of the carriers who have any kind of a CEO succession plan in place don’t include a statement of corporate strategy among the key elements, according to results of a survey by Carrier Management and The Jacobson Group.

This article is the second part of a two-part summary of survey results. See Part 1, “Written CEO Succession Plans Lacking Among P/C Insurers: Research,” for more survey details.

Among P/C carrier representatives who reported having some plan of action at the ready—written or not—to replace the current CEO when necessary, the most commonly reported element of the existing plan is having an internal candidate development process, the survey found.

Sixty-nine percent have internal leadership development activities, and 63 percent said the succession plan also addresses the prospect of putting an emergency or interim CEO in place if needed.

CEO Succession Pg20Answering a slightly different question, however, only 30 percent said their companies could have a new CEO in place immediately in the event of an emergency, while 37 percent said it would take two months of more.

“If we extrapolate these numbers, only 24 percent of companies surveyed (58 percent of 42 percent) have fully identified the skills, experience and competencies of their next CEO,” said Gregory Jacobson, co-CEO of The Jacobson Group. “From experience, the companies that have the most success in CEO succession gave this much consideration as a first step in the process. These findings mean that many companies may find themselves scrambling to determine their needs or utilizing vague decision-making tools when the time comes to put such a plan in place.”

Another troubling statistic: Less than half of the survey respondents said that their company’s succession plan includes a statement of corporate strategy as one of the key elements.

“Ultimately, a successful CEO is one who has the skills to drive the company’s strategy,” Jacobson said, noting that “the strategy statement does not necessarily have to be in the succession document. However, the board must be comfortable that the company has a defined strategy that will drive the required skills of the senior management team. This result may be an indicator that a critical part of strategic planning may be underdeveloped,” he said.

Recognizing that business strategies are constantly evolving, Professor David Larcker at the Stanford Graduate School of Business and Scott Saslow, founder of The Institute of Executive Development, advise organizations to “cast a wide net” in their succession and talent development programs. “Executive talent should be evaluated in terms of its ability to meet future—not just past or current—needs,” they say. (March 2014 report titled 2014 Report on Senior Executive Succession Planning and Talent Development.)

Chamness_Charles_2013“Managing succession is a key risk for the organization, and it is one that is owned by the board and CEO.”
Charles Chamness

Charles Chamness, president and CEO of the National Association of Mutual Insurance Companies, thinks that corporate strategy is being considered in P/C insurer succession plans more than the survey responses would indicate. “That might be a technical difference with the way they put the plans together. While some insurers have very well-developed corporate strategy documents, which are a framework for the plan, the plan itself may not touch on corporate culture or strategy,” he explained.

But Chamness believes that any insurer searches for CEO successors likely include not just thinking about broad corporate strategy but also consideration of near- and long-term company objectives and company culture. “Whether they’re contained specifically in the succession planning document or whether they’re understood as part of the broader framework, I would guess they’re there,” he said.

Commenting on the remaining plan elements, Chamness predicted that survey percentages will be going up in future years, “often driven by company ERM processes.”

“With companies, regulators, rating agencies paying additional attention to enterprise risk, more companies will have an emergency or interim plan. More companies will have an internal candidate development process.

“Managing succession is a key risk for the organization, and it is one that is owned by the board and CEO.”

Chamness stressed that “this is among the most important responsibilities of company leadership, both CEO and boards,” and he noted that they’re spending more time focusing on it.

“We know from a demographic perspective that we’re in a cycle where not only the CEO but a whole generation will soon be retiring—the baby boomers. So it’s never been more important to mentor staff for a future top job,” he added.

Looking Within Company Walls

Only 37 percent of CM/Jacobson survey participants said their CEO succession plans include an external candidate process. Asked specifically if an internal candidate will likely be the next CEO, 65 percent said yes.

Stanford’s Professor Larcker, in his “Seven Myths of CEO Succession,” answers the external/internal question noting that one size does not fit all companies.

“One reason companies fall short at succession planning is that they often select the wrong model for their current situation. A company may need an external recruit to lead a turnaround, for instance, or may have the capability to groom multiple internal executives over a period of time to allow the most promising one to shine through,” he said.

An even greater percentage (84 percent) said the next CEO is expected to come from the insurance industry; only 2 percent said someone outside the industry might come on board to take the helm, while the rest (14 percent) were uncertain.

Jacobson said the survey results revealing an industry bent toward developing internal candidates were in line with his expectations. It is critical that these candidates be “exposed to complex business issues beyond a single discipline,” he advised.

“Most often, when bringing a CEO from outside of the organization, they come from within the industry. There is an increased risk associated with learning a new company and new business at the same time. However, depending on the strength of the senior management team, some companies are able to consider flexibility in the background of a new CEO,” he said.

NAMIC’s Chamness said the survey results regarding insiders and candidates from within the industry are in the ballpark of what he would expect based on member experiences. Specifically, member companies seek successors with knowledge of the industry, often with experience in many different aspects of the industry, sometimes even including agency experience.

SECURA’s David Gross, who came up through the ranks of his company, discusses his career and preparation for the top spot in a related article, “Successor Spotlight: Gross Takes the Helm at SECURA.”
Beyond that, having “knowledge of the mutual insurer [structure], and then distinct company culture, I think would be the two next threshold tests that CEO candidates would be faced with…Many [NAMIC members], then, would lean toward the inside candidate who would have that kind of broad experience, be known to the company, and understand the culture of both mutual insurance and the company world.”

The figures from the CM/Jacobson study are in line with successions actually taking shape across the broader corporate world, in that the majority of new CEOs in various industries tend to be insiders. The percentages of insiders in the cross-industry reports, however, are somewhat higher than the 65 percent figure predicted by insurers.

Consider, for example, the 2013 Chief Executive Study conducted by Strategy&, which profiled an incoming class of CEOs among the largest 2,500 public companies two years ago. Roughly 14.4 percent of these companies had to appoint new CEOs in 2013, and 76 percent of the newbies were promoted from within, the study found.

Roughly one-quarter (26 percent) of these new chief executives had only worked at one company for their entire career, and some 58 percent joined their company from another in the same industry.

Similar to the Strategy& analysis, Spenser Stuart’s analysis of 2014 CEO transitions among S&P 500 companies through the first nine months of the year found 35 out of the 45, or roughly 78 percent, promoting from within.

The Strategy& analysis also found that new CEOs among the 2,500 largest public companies (by their market capitalization) in 2013:

  • Were not terribly global, with only 20 percent born in a country other than the one in which their company is headquartered and only 35 percent having worked in a different country.
  • Had more MBAs than any prior class of CEOs, with 28 percent MBAs—the highest recorded in the 14-year history of the Strategy& (formerly Booz & Co.) study.

(Details of the Strategy& 2013 Chief Executive Study were published in a strategy+business magazine article titled “The Lives and Times of the CEO,” Summer 2014 edition. The study is also summarized online at www.strategyand.pwc.com/chiefexecutivestudy.)

Internal Candidate Development Processes

With 69 percent of P/C carrier representatives saying that internal candidate development processes are part of their CEO succession plans, the amount of attention that insurers give to this item also seems consistent with other studies, if not a little better.

According to the 11th Annual “What Directors Think” survey released last March by NYSE Governance Services and executive search firm Spencer Stuart, most boards have formal processes to assess internal candidates for the CEO spot—nearly 60 percent of those responding to a nationwide survey of close to 600 directors across various industries.

As for developing successor candidates, Larcker and Saslow found that only 46 percent of respondents to a smaller survey have a formal process. The Stanford/IED report is based on in-depth interviews with executives and directors of 20 companies (“2014 Report on Senior Executive Succession Planning and Talent Development“).

Focusing on one specific place where companies drop the ball, in a different report Larcker said that directors need to be more active in getting to know internal candidates outside the boardroom, basing that observation on a survey of 159 external members of boards of North American public companies (12 percent sitting on boards of financial services companies). Documenting the findings in a report titled “How Well Do Corporate Directors Know Senior Management?,” (March 2014 edition of Director Notes published by The Conference Board), he said that while “many directors interact with senior executives periodically in a boardroom setting, they do not have extensive exposure to them outside of the boardroom, nor do they have detailed knowledge about their skills, capabilities or performance.”

“This can be a serious liability when the time comes to identify a successor to the CEO and can unnecessarily extend the CEO search process.”

Directors should move beyond interacting with executives “when circumstances warrant,” he said, recommending that they volunteer to serve as informal mentors or advisors “and, with the approval of the CEO, meet periodically with executives in the context of their everyday work environment.”

Using a Search Firm—For More Than a Search

Eighty-one percent of CM/Jacobson survey respondents said their firms have not developed a relationship with an executive search firm to assist in the succession planning process—a figure that is a bit out of sync with the fact that only 65 percent said they are grooming someone internally for the successor role.

Jacobson noted that “a search firm’s true value is in evaluating fit and facilitating the process, not just recruiting candidates.”

“There is significant value in having a relationship with an executive search firm prior to the immediate need. It is critical that a search firm understands the company mission, board environment, corporate culture, marketplace position and success factors of the leadership team in order to be successful in bringing the right talent to the table. The best way to do this is through early interaction and engagement.

“Our firm is often asked to do short board facilitation projects on succession planning best practices as a way to get to know a company years in advance of an intended succession,” he noted.

Part 1 of this summary of the CM/Jacobson survey, “Written CEO Succession Plans Lacking Among P/C Insurers: Research,” discusses the roles that CEOs and boards play in succession planning.)