kfmc100 smooth ceo successions

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The Korn/Ferry Market Cap 100

2012

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Page

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

The inside lane: AmerisourceBergen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

The dark horse: Newell Rubbermaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

The head start: MasterCard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

The standout final lap: Marriott . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Conclusion: Winning a race with no finish line . . . . . . . . . . . . . . . . . . . . . . 27

Appendix A: The KFMC100 companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Appendix B: The KFMC100 directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Appendix C: The KFMC100 boards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Contents

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4 Korn/Ferry InternatIonal

Introduction

Two facts about CEO succession are unassailable. The first is that every chief executive now in office will, sooner or later, be replaced. The sec-ond is that many companies have either done little to prepare for a smooth transition or are using a process that is flawed.

Yet some companies get it right. They recognize that CEO succession car-ries risks even as it offers new opportunities. Reducing those risks, by using best practices, is among a board’s most important tasks.

To identify best practices, three vice chairmen at Korn/Ferry Interna-tional with expertise in CEO succession—Dennis Carey, Stephen Mader, and Jane Stevenson—interviewed current and former top executives and directors at four companies that had changed chief executives in recent years: AmerisourceBergen Corporation, Marriott International Inc., MasterCard Worldwide, and Newell Rubbermaid Inc. Those interviewed were:

• Ajay Banga, president and CEO, MasterCard

• Michael Cowhig, non-executive chairman and chair of the search committee, Newell Rubbermaid

• Richard Haythornthwaite, non-executive chairman and chair of the nominating and governance/search committee, MasterCard

• Michael B. Polk, president and CEO, Newell Rubbermaid

• David A. Rodriguez, executive vice president and chief human re-sources officer, Marriott International

• R. David Yost, former CEO, AmerisourceBergen

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tHe Korn/Ferry MarKet CaP 100 5

They were asked about their specific succession experience, in particu-lar who on the board drove the process, how it varied depending on the scenario, and how they viewed the quality of the outcome—whether the company stayed inside, ultimately went outside, or, in one case, selected a director as the successor.

Ten guiding principles for boards emerged from the interviews:

• Discuss and plan for CEO succession on an ongoing basis so that the board is prepared not only for orderly transitions but also for the unexpected.

• Decide how involved the full board should be in the succession pro-cess and how the process should be led. Depending on the board’s composition, transition situation, and dynamics, some benefit from the involvement of all of the members and others from an effort primarily led by a committee.

• Be clear about the sitting CEO’s role in CEO succession. If a transi-tion is underway, should the CEO lead a specific segment of the pro-cess, be cast as a key advisor, or have no part?

Figure 1

Succession plan disclosure

Twenty five of the Korn/Ferry Market Cap 100 companies did not specify in their proxy statement or principles of governance that they had any succession plan in place. The other 75 percent explicitly state that they maintain or review a succession plan.

75% Company maintains or reviews a succession plan

25% Company does not disclose if it has a succession plan

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Dennis CareyVice Chairman

Stephen P . MaderVice Chairman

Jane StevensonVice Chairman

• Commit to continual, open communication. Keep the entire board in the loop on problems and progress at all critical points.

• Look for certain qualities in those directors leading the succession work. Are they strategically minded and highly disciplined? Do they possess a balance of judgment and intuition? Do they have CEO ex-perience themselves?

• Make sure that corporate strategy is the ultimate driver. Agreement is needed on where the company is going before someone can be chosen to take it there.

• Recognize that internal candidates typically need three or more years of targeted development to step into the CEO role.

• When the situation permits, lower the risks of choosing an outside candidate by bringing that person in early enough to be integrated into the company before being appointed as CEO, so that both the candidate and the board become comfortable with the fit.

• Don’t rule out sitting directors as CEO candidates, but do tread care-fully concerning the process and consequences of engagement. Make sure that a director isn’t an active candidate and a sitting director with accountability for the CEO decision process at the same time.

• Use a mix of incentives to robustly fill the succession pipeline. In addition to making talent development a factor in annual bonuses for a sitting CEO, consider providing future financial upside through equity or incentive payments, based on the successful transition of the new CEO.

Ultimately, each of the four companies wound up with a CEO transition that was tailored to its own needs and realities. A smooth and sure succes-sion shouldn’t be difficult to pull off. Companies that understand the right process, and apply it effectively, generally come out with a good choice.

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The inside lane: AmerisourceBergen

It was CEO R. David Yost who set the timetable for the search that re-placed him at AmerisourceBergen. “I was sixty-two when I stepped for-ward and said to the board, ‘Hey, guys, I just want you to know that I don’t see myself doing this for the rest of my life. I mean, sixty-four or sixty-five is probably going to be it for me.’ ”

It was 2009 and Yost had been chief executive for a dozen years, first at AmeriSource Health Corporation and then, after its merger with Bergen Brunswig Corporation in 2001, at AmerisourceBergen. As a result, he had been the new company’s only CEO—making the choice of a succes-sor that much more significant. Based in Valley Forge, Pennsylvania, AmerisourceBergen is a health care supply chain services company serv-ing the United States, Canada, and selected international markets. It has 10,000 employees and annual revenues of $79 billion.

In Yost’s view, the key to being ready for a CEO succession is for the whole board to see the process as a continual effort. His board spent time on succession planning at every meeting.

“When you have [succession responsibility] only in the governance com-mittee or the compensation committee, you run the risk of having too limited a focus,” Yost said. “You also want to be careful not to alienate the board—the succession process is best served by having the full board involved.”

The leader of the succession effort, Yost said, must be able to keep every-one focused on answering one central question: what do we need the next CEO to do? That task involves looking at strategic plans and asking where

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the company is going to be three to five years down the road and beyond. What are the skill sets that are needed to take the company there—skills that may be substantially different from those of the incumbent?

At the same time, the board should be considering internal candidates who might be ready in two or three years—and what is required to de-velop their skills to meet those anticipated needs. It’s also prudent to bring in independent consultants, Yost said, both to keep the board fo-cused and to offer objective insights.

At AmerisourceBergen, any abstract thinking became very concrete once Yost announced his retirement plans in 2009. As for the division of labor, the board worked primarily on defining the strategic needs. “I probably had the most influence in assessing the leadership skills,” Yost said, “because as CEO I was working with the internal candidates on a day-to-day basis.”

He and the board decided not to look at external candidates until the pool of internal ones could be thoroughly assessed. With the help of their outside consultant, they identified three or four areas for develop-ment in the leading contenders. Some board members participated di-rectly in that effort, meeting with the candidates to offer their views on how each was doing.

Figure 2

Succession oversight in the KFMC100

CEO succession planning responsibilities are often divided among individuals, committees, and the full board. Nearly half of the companies on this year’s Korn/Ferry Market Cap 100 list indicated in their proxy statements and principles of governance that the full board was involved with succession planning.

Charged with oversight of succession

Full board 49%

Governance committee 39%

CEO 30%

Compensation committee 22%

Development/human resources committee 22%

Chairman 3%

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At the same time, Yost kept an eye on external talent. AmerisourceBer-gen had made a number of key hires from the outside over the years, including its head of human resources and chief information officer. “I kept very wired to who was out there and who was looking around,” Yost said.

After about a year, Yost said, “it became apparent who the successor was going to be”—Steven H. Collis, who was then executive vice president and also president of AmerisourceBergen Drug Corporation, the com-pany’s largest subsidiary, with more than $60 billion in annual revenues. That halted any external search be-fore it really started. “Now that’s a little bit of a risky run by not testing the marketplace, because you don’t know who is going to stand up,” Yost confided. “But we decided that it was not too big of a risk—it was highly remote that we would find someone better.”

That vote of confidence in Collis was well earned. He had made a name for himself by founding and running one of the company’s four main operating units, the specialty group. When Collis first emerged as a CEO candidate, he was moved from that unit to run the drug subsidiary so that he would get more operational experience. The move was contro-versial, Yost recalled, because Collis had been doing such a great job at the specialty unit. He was then promoted to chief operating officer in November 2010 to run all of the company’s businesses—a shift that was understood by the board, but not outsiders, as a sign that he had been tapped as the heir apparent.

The grooming process touched other areas as well. Collis got more expo-sure to Wall Street—for instance, by attending investor conferences with the chief financial officer. And he got some mentoring from experienced CEOs about the complex relationship that he would have to forge with the board.

Yost felt confident about passing the baton on July 1, 2011, his sixty-fourth birthday just days away. Yost had thought the succession might

“ The CEO needs to be ready to go, and to understand that he will be judged by how well his successor does.” —r. David yost

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not come until he turned sixty-five, but he could see that Collis was ready and should step in at that point, fully engaged and fresh for the task—and that any delay could well be counterproductive.

Problems arise when the CEO “wants to be remembered as the greatest deal that ever was,” Yost said. “That’s not the proper role—which is to make sure that your company goes on in perpetuity without you.” To that end, Yost suggested that part of a CEO’s bonus—and that of other senior managers—should be tied to executive development. But to fur-ther incentivize the CEO, a post-succession bonus, say two years down the road, would also be a good idea, he added. “The CEO needs to be ready to go, and to understand that he will be judged by how well his successor does,” Yost said.

In other words, the CEO is just one in a never-ending line of company stewards, each responsible for putting the firm’s interests ahead of his or her own. That includes not only identifying the best successor, but also recognizing the time is right for the company. “You need to keep your ego in check and realize that you are not hiring your clone, but rather someone with leadership skills for the future,” Yost said last year, shortly before stepping down.

At AmerisourceBergen, the stars aligned perfectly. “My successor was ready,” Yost said, “the board was ready, I was ready.”

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The dark horse: Newell Rubbermaid

The decision by Newell Rubbermaid Inc. to pick Michael B. Polk—one of the company’s directors—last year as its new CEO is rich in ironies.

If Polk, then a No. 2 at consumer products giant Unilever, had expressed interest in joining the board with the CEO’s chair in mind, Newell Rub-bermaid would have been unlikely to nominate him to the board in the first place. And if the company had tried to recruit him as a director with the CEO succession in mind, Polk would have said no. He was ex-cited by the challenges where he was and didn’t know enough about Newell Rubbermaid to see why such a move would make sense. “I was not looking for anything other than a board role and I told the search committee that,” Polk recalled.

But eighteen months later, with CEO succession work fully underway for a transition the following year, Polk and Newell Rubbermaid began to fall for each other—even though neither party was acknowledging it. Newell’s directors saw the breadth of his global experience and were impressed by his impact as a strategist and operational manager. They became convinced Polk had what it would take to run Newell, a global marketer of diversified consumer and commercial products. With $6 billion a year in revenues, the company was full of complex challenges, selling multiple brands and products in multiple markets through mul-tiple B-to-B and B-to-C channels.

At the same time, Polk’s seat on the board afforded him a firsthand view of the steady progress the company had been making and the opportuni-ties that existed in its future. He also felt a strong connection to not only his fellow directors but also Newell’s senior management team.

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There were several major obstacles, however. The first: both Polk and the board valued his directorship, and neither party wanted to sacrifice that relationship in order to put him into the potential CEO pool. Sec-ond, there were a number of personal and professional hurdles to clear. Polk wasn’t able to relocate to Newell’s headquarters in Atlanta, and he had an attractive long-term financial package that he would forfeit upon his departure from Unilever.

Even if those could be surmounted, choosing a director to be a CEO is simply not the preferred course of action at most companies. And sud-denly focusing on a director in the middle of a search brings its own is-sues. AmerisourceBergen’s Yost is one skeptic. “If you are hiring a guy to be the CEO, he needs to learn about the business,” he said. “Let him be the COO or something else. Having some-body go from the board to being the CEO would make me feel uncomfort-able.”

And yet, several months into searching for their next CEO—reviewing both internal contenders and a slate of highly qualified external candi-dates—it became increasingly clear that the ideal candidate sat right be-side them. Polk had caught their eye, and the search committee mem-bers decided to seize the opportunity and deal with the dangers.

Newell’s search had begun normally enough in 2010, when President and CEO Mark D. Ketchum told the board that he wanted to retire some-time in 2011.

The company decided to use its executive committee as the search com-mittee. Besides Non-Executive Chairman Michael Cowhig, the small group included the chairs of the audit, compensation, and nominating/governance committees—and notably not Polk. The final selection, though, would be a full board decision.

Cowhig had a number of reasons for placing the search responsibility in the hands of a smaller group. For one thing, outside candidates tend to worry about confidentiality if too many people are aware of their job

Several months into searching for their next CEO ... it became increasingly clear that the ideal candidate sat right beside them.

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discussions. For another, a small group enabled expeditious decision making. (Accordingly, the committee alone interviewed outside candi-dates. Internal candidates were interviewed by Cowhig and the chair-man of the nominating/governance committee.) A third reason was the heavy demands of the search; not all directors would be able to dedicate so much extra time and effort.

Finally, Cowhig also wanted true consensus around the next CEO. If the full board, or even a larger group, was involved in the nitty-gritty of the search, directors who argued for a selection other than the winning candidate would feel compromised. Cowhig preferred the promise of crisp alignment.

Indeed, before embarking on the actual search, the board agreed to re-view the company’s key strategic assumptions about its future course since those assumptions would determine the criteria for choosing the new CEO. Cowhig wanted a dialogue liberated of “ownership” issues or sacred cows. The board utilized a search firm to facilitate private inter-views with each director followed by a full-board discussion that includ-ed input from Ketchum. Finally, an executive session was held, without Ketchum, during which the consensus on strategic assumptions was baked into the profile specification for the next CEO. In this way, the directors shook hands on the shape of the selection in a manner that would prevent a dispute later on.

Although Ketchum, as outgoing CEO, did not drive the process, neither was he isolated from it. He was not involved in the external interviews, for in-stance, but was consulted about assessing the internal candidates, whom he knew more deeply than the other directors did. The committee also sought his guidance on how its decisions might affect the company and key execu-tives. Ketchum was treated as a director with special knowledge, and he was updated more frequently by the committee than were other directors.

Again with the help of an outside search firm, Newell’s internal candi-dates were interviewed and external candidates were identified and also interviewed. It was near the finish line of that extensive process, how-ever, that the search committee began to suspect that Polk might make a superior candidate.

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As it happened, in another unlikely twist, Ketchum had himself been plucked from the board, albeit in the middle of an urgency. He was named the interim CEO in 2005 when Joseph Galli resigned. But even with that transition as precedent, the search committee realized that it was on new ground here. It was one thing to temporarily elevate a direc-tor as interim CEO and then determine to make that appointment per-manent; it was an entirely different matter to pick someone from the board during an orderly succession process.

So when Polk came into focus, Cow-hig and the other committee mem-bers came up with novel ways to han-dle the situation.

The key to managing Polk’s candida-cy without disrupting his ongoing di-rectorship was to treat him outside of the rest of the succession process. By the time he was engaged, Polk was not competing with alternative candi-dates nor did the committee mem-bers feel that Newell Rubbermaid was competing with Polk’s role at Unilever. They had rightly calculated that their discussion would be about whether a responsible set of terms could be established that set Polk up to succeed. If not, both parties could step away on that premise alone, and Polk could continue as an effective di-rector.

Because of the decision to use a small search committee, Polk also hadn’t been involved in any of the succession interviews. That enabled the com-mittee to keep him insulated and separate from the final CEO candi-dates. The members also kept preliminary negotiations with him to themselves; if the contours of a viable deal could be reached, only then would the committee bring Polk forward to the board as its first choice.

After eighteen months as a director, Polk had a grasp of Newell’s future possibilities and a sense of how well he could shape them. For their part, the members of the search committee had come to know and value Polk to an extent that would not have been possible had he simply popped up

It was one thing to temporarily elevate a director as interim CEO and then determine to make that appointment permanent; it was an entirely different matter to pick someone from the board during an orderly succession process.

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as a strong outside candidate. By virtue of their time with him, they were confident enough in his abilities to take not just the next step, but also to go the extra mile. They would see whether they could meet the requirements of his candidacy for CEO that they otherwise may have viewed as far too risky for a smooth and cost-effective transition.

When the committee was ready, it briefed the organizational develop-ment and compensation committee and Cowhig met individually with the remaining board members, covering the pre-negotiated conditions to gauge whether the board would approve them. When that was clear, the search committee pursued Polk as a finalist, but with the freedom to turn to any of the other candidates if it or Polk reconsidered.

He didn’t. Polk became president and CEO on July 18, 2011.

The board also took full advantage of Ketchum’s availability to overlap with Polk’s initiation for continuity’s sake. He remained as a director for three additional board meetings.

The successful outcome of Newell’s novel succession underscores the value of trusting in the search. For all the best-laid plans, in the end the search committee and the board were open to finding the right person no matter where that person happened to be: inside, outside … or even in the next chair.

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The head start: MasterCard

There are many times, of course, when there is no “right” internal candi-date—or director—and the search for a new CEO leads to someone from outside. This is a riskier proposition, in theory, if only because of the un-knowns: What is this candidate really like? How well does he or she un-derstand our needs? Can the new person mesh well with our culture?

One way to reduce those risks is to recruit a prospective successor before the baton is expected to pass. That way the individual can become a known quantity.

In the late summer of 2009, MasterCard brought in Ajay Banga, a senior executive at Citigroup, to be its president and chief operating officer. Less than a year later, he was named to succeed Robert W. Selander, MasterCard’s CEO since 1997.

“This was a succession that could be planned a long way in advance be-cause we knew Bob’s retirement date,” recalled Richard Haythornth-waite, MasterCard’s non-executive chairman, who led the search.

That retirement date was the end of 2010. The succession process started in mid-2008. Plenty of time, indeed.

There were only three problems. First, MasterCard had become a public company through a public stock offering in 2006 and the full board had been in place for only a couple of years; the directors felt as if they were parachuting into the succession situation. Second, the board was uncer-tain about the prospects for an internal finalist. And, third, the finan-cial crisis that was roaring in full force in 2008 put a cloud over the field of outside possibilities.

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What’s more, the succession effort needed clear leadership because of the highly diverse nature of MasterCard’s board. Its directors had richly varied governance experiences and, although very aligned on the long-term objectives of the company, held a robust range of views on shorter-term priorities.

Logically, the person at the helm of a CEO succession would be the non-executive chair/lead director or the chairman of the nominations com-mittee, according to Haythornthwaite. But he hastened to add that the board title doesn’t matter so long as the individual has the right quali-ties. The leader needs to be strategically minded and disciplined to run the process tightly. A good balance of judgment and intuition is also necessary. And CEO experience helps. The chief executive’s role is “enor-mous in terms of accountability, and people who have not been in that position can never quite understand that,” he said.

A close relationship with the incumbent CEO is also essential. “Things come out of the woodwork—for example, the CEO’s view of the role that he or she should be playing in the succession process,” Haythornthwaite said. Some CEOs, for instance, subconsciously enter the process thinking it’s their job to find the successor. “That’s quite difficult—sometimes some pretty tough conversations have to be held saying, ‘No, that’s not the way it is. It’s actually the board that makes the decision—and you’re just one member. And it’s the board that must live with the decision, not you.’ ”

In MasterCard’s board structure, a human resources/compensation com-mittee had been working on a continuing basis with Selander on leader-ship development and succession planning. In theory, it was the nomi-nating and corporate governance committee, which Haythornthwaite headed, that was responsible for the actual selection of the next CEO. In practice, the chairman of the HR/compensation committee, David Car-lucci, was co-opted in and a de facto search committee formed.

When the search committee members reviewed Selander’s list of top internal candidates, “we came at it with an open mind” but recommend-ed to the full board that it pursue an external search, Haythornthwaite said. That recommendation was accepted, and then the task became get-

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ting Selander to agree that the next CEO would come from outside the company. “That’s why it is important to have a good working relation-ship with the outgoing CEO,” the chairman said. “That’s not an easy conversation to have.”

Not only was Selander gracious and understanding of the board’s view, he remained fully involved in the process of finding that outsider. “We cannot imagine a world where we would move forward with someone that you didn’t think was an appropriate candidate,” Haythornthwaite recalled telling Selander, “not least because there is going to be a transi-tion here.” Although the final recommendation would come from the search committee, he added, “it had to be a consensual decision.”

So, even though Selander wasn’t an official member of the board’s search committee, as chairman, Haythorn-thwaite made sure that he was invit-ed to every key discussion and spent time with short-listed candidates be-fore they completed the interview process.

When the search got underway with the support of an external consul-tant, the search committee found that candidates fell into two catego-ries. One group had the strategic vision, ideas, and wherewithal to make big changes—and could ensure that the company could respond to the significant systemic challenges that it faced. The other group, the chair-man said, was less creative and more buttoned-down, but would have been better suited to lead the company through a short-term period of market weakness. Different directors favored different candidates de-pending on their expectations of the external world.

A number of candidates were considered, some seriously, but no one completely clicked—until a board member suggested Banga, then chair-man and CEO of Citibank’s international global consumer group.

“I looked into Ajay and met him at my home,” the chairman said. “And he was the first person who really straddled the two groups. From the mo-ment I met him, I just felt this is the individual we’d been looking for.”

“ You have to come in with a strategy before you come in with people. The people need to be a fit to the strategy.” — richard Haythornthwaite

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Banga not only had the nuts and bolts of the business down cold, he had big ideas. Indian-born and educated, he had worked at Nestlé and Pepsi before joining Citi and put in tours of duty in the United States, Europe, the Middle East, Africa, and, of course, India. He was almost as interna-tional as MasterCard itself. (Based in Purchase, New York, MasterCard operates in more than 210 countries and territories and has annual rev-enues of $6.7 billion.)

Meetings with the search committee were hastily arranged and all came to the same conclusion. As did the board. “It was unanimous,” the chair-man said. “We closed the deal pretty rapidly.”

Looking back, it was clear that the board, new as it was to the post-IPO MasterCard, was pulling its strategic vision into focus in real time, even as it was searching for a successor. Had the company chosen one of the earlier contenders, it might have misstepped. Though capable, those can-didates likely would have been the wrong fit for the strategy that finally fell into place. “You have to come in with a strategy before you come in with people. The people need to be a fit to the strategy,” Haythornth-waite said. Circumstances were such for MasterCard that these issues were being necessarily addressed concurrently rather than sequentially.

Banga joined MasterCard on Aug. 31, 2009, as president and COO. The following April he was named CEO, formally replacing Selander on July 1, 2010. Selander, who had been CEO for thirteen years, stayed on as ex-ecutive vice chairman and a director until he retired at the end of 2010.

“Coming from the outside to become the CEO is not an easy thing to do,” Banga said. “Having this little transition period gave me a chance to learn the company, get to know the people, and have someone to sound out ideas with. It was very helpful.” It also gave him time to get to know the analyst community, the media, regulators, and, of course, clients—all before facing the daily pressure of producing results as the CEO.

When determining the length of this sort of transition, the board has to be extremely careful, Haythornthwaite added. “It’s always better to make it quite short, with the option to lengthen it. It’s a lot tougher to have it long and try to shorten it.”

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In office now a little more than two years, Banga spends much of his time developing talent within the company and introducing up-and-coming leaders to the board in an ongoing effort to prepare for his own succession, whether the need arrives suddenly or far down the road.

“Developing a good pipeline—not just potential CEO candidates for the near term, but also for the second and third levels of leadership further out—is 50 percent of what a CEO should be doing,” he said.

When it comes to succession, Banga and others we interviewed made an important distinction between the development of a talent pipeline of fu-ture leaders and the actual search for and selection of a new CEO. The non-executive chairman or independent lead director should head the latter effort, including any external search. But the identification and develop-ment of future leaders should be driv-en by the chief executive and over-seen by a board committee.

Likewise, Banga sees different skills at work. The individual managing the event of a CEO change needs to be inclusive and draw in a wide group of board members. That leader needs some longevity to under-stand the company (the thought of a new chairman looking for a new CEO is “scary,” he says), have a grasp of the challenges it is facing, and

Figure 3

Leading succession on the board

Only 37 percent of the companies in the Korn/Ferry Market Cap 100 indicated in their proxy statement or principles of governance that the existing chairman of the committee overseeing succession planning either was or is a CEO of a public company.

Currently a CEO 14%

Former CEO 23%

“ Developing a good pipeline—not just potential CEO candidates for the near term, but also for the second and third levels of leadership further out—is 50 percent of what a CEO should be doing.” — ajay Banga

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appreciate the capabilities that the new CEO must possess to meet those challenges. The leader also needs to have had experience managing an organization to understand the politics and logistics of settling into a new company.

By contrast, those committee members with ongoing oversight of the talent pipeline are in it for the long haul. Though they don’t need to have had CEO experience themselves, they do need senior management expe-rience and longevity—and they must be very process-driven. How do you build a pipeline two or three levels down from the CEO? How do you identify and develop missing skills in those people? How do you pick jobs that they should move into? “The results may take years to play out and there is a lot of ambiguity involved,” Banga said. “But some people are only interested in the end conclusion—they want to see the last page first—and they shouldn’t be involved.”

Banga takes a hands-on approach to developing his executive team. He uses each board meeting to introduce to the directors some of the eighty or so rising talents in the company. And each year he leads a “people conversation” with the board, explaining how he’s developing layers of leaders who in future years will move up to the thirty-five-person oper-ating committee, and later the eight-person executive committee. When he saw gaps in key skill areas early this year, he took action. The solu-tion: “Let’s go hire four or five people, some relatively senior. We briefed a search company and by May 1 had them all in.”

Ideally, someone should be ready to take over tomorrow morning, at

Figure 4

Emergency succession

Only 17 percent of the Korn/Ferry Market Cap 100 companies specified in their proxy and governance statements that they had a plan or person at the ready in the event of a sudden CEO departure.

Stated plan for interim CEO 4%

Written procedures in place 6%

List of potential successors 7%

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least on an interim basis, with a permanent replacement ready in a year or two and other internal candidates being groomed for the five-year horizon. “You just hope that by the time we get to the point of succes-sion, we’ve got three or four good internal candidates,” Haythornthwaite said. “It’s always a challenging process because the end time is generally not as precise as it was with Bob. And so there’s a hedging process that goes on with the development.”

But when it comes time to make a change at the top of MasterCard, Banga said he will be ready to hand the final decision over to the board.

A sitting CEO “should not have an equal say in succession decisions,” Banga added. “Once the board and its committee are comfortable and they’ve got it down to the one or two people they really like, they can ask me for my opinion, but finally they should be making every call. My opinion as CEO should, at best, just be interesting to have.”

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The standout final lap: Marriott

At first blush, the most striking thing about the new CEO of Marriott International, Inc. is that his last name is not Marriott.

In late March, Arne Sorenson became the first person from outside the family to run the global hotel company. He succeeded Bill Marriott Jr., who had served as CEO for forty years after taking over from his father, the company’s founder, who had led it for the previous forty-five years.

Sorenson had been with the Bethesda, Maryland-headquartered compa-ny for twenty years before being named CEO, starting out as a promising outsider who over time turned into a highly trusted insider. But Soren-son was still rigorously tested before being handed the CEO’s mantle.

To be sure, Sorenson’s route to the top was shaped in part by the com-pany’s family history and dynamics. A public company, Marriott is still more than 20 percent owned by Marriott family members. But those circumstances aside, the succession was guided by the same broad prin-ciples that were employed by AmerisourceBergen, MasterCard, and New-ell Rubbermaid.

“Succession should be a process, not an event,” said David A. Rodriguez, Marriott’s executive vice president and chief human resources officer. “It has to be continuous, comprehensive, and rooted in both today’s and tomorrow’s business.”

Succession planning is not a job for “casual board members,” he noted. Those involved in a CEO search need to have a firm grasp on the strate-gy. They have to “immerse themselves in today’s pressures and issues while also gaining insight into how the industry is changing. You don’t

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want to choose a CEO for a model that is tied to yesterday’s business—you need to choose someone with the right attributes and characteris-tics to push the company to where it needs to be five and ten years down the road,” he noted.

In Marriott’s case, Rodriguez said, one of the key drivers of change is a looming generational shift in customers from baby boomers to their children, the millennials. Marriott has 3,700 lodging properties in sev-enty-four countries and territories and annual revenues of more than $12 billion, and baby boomers are still the company’s bread and butter. But soon profitability will be tied much more to the younger generation. That inevitable shift—what Rodriguez called a “liminal” moment—was just one of the themes that was shaping the future of the business and therefore succession.

Another was the recognition that a successful transition isn’t about choosing just a CEO, but rather making sure that the right leadership team is in place or being developed. “You need to be looking at all the roles surrounding the CEO,” Rodriguez said. “Is this the right person to help that team keep growing with the business?”

And then there was the family theme. Given the central role that Bill Marriott had played over six decades at the company—he turned what had been a restaurant business in his father’s day into a hotel giant—any change at the top was bound to be a “bit of a shock to the system,” Rodri-guez said. It was essential that the search, which was conducted by the compensation committee, “be extremely thoughtful in assessing the

Figure 5

Depth of succession plans

Only 57 percent of the companies in the Korn/Ferry Market Cap 100 reported that their boards oversaw succession plans that extended below the CEO level.

Succession plan encompasses

All key corporate officers 11%

All senior managers 46%

Not specified 43%

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candidates for their ability to deal with the subtleties and special ele-ments of the situation.”

Sorenson wasn’t the only candidate in the running to succeed Marriott. But the two had developed a special rapport over the years. And Soren-son had been tested and tested again as a senior manager.

He caught the attention of Marriott while representing the company as its lead outside lawyer in what was arguably the most important trans-action in Marriott’s history, the separation of its real estate assets from the hotel management business. Impressed with Sorenson’s work, Mar-riott brought him inside, starting him out in mergers and acquisitions. A few years later, when the CFO left, Sorenson was tapped for that job, even though his background wasn’t in finance.

“Mr. Marriott saw his talent,” Rodri-guez said, adding that Sorenson also won the CEO’s trust. “A very impor-tant piece to the succession puzzle was Bill’s level of trust with the candi-dates. I don’t think any family leadership thinks that it can’t wait to hand over the reins to a non-family member. But very early on, we had a sense Arne would be a good candidate.”

As the succession process picked up speed, a winnowing of the candi-dates began. “You can’t have a lot of horses running neck and neck close to the finish line,” Rodriguez said, “and the best way to narrow the field is to put their feet to the fire.”

In Sorenson’s case, that meant becoming president of the company’s Eu-ropean operations in addition to being CFO. “It was important to see him accountable for a full business, with all the different roles that are im-plied,” Rodriguez said. “We had a long look at him in that venue.”

Others were put through the same rigorous paces. “They were stars too, and no one failed,” Rodriguez said. “It was just that every time Arne got a new assignment, he got better. By the last couple of years, the choice

“ You can’t have a lot of horses running neck and neck close to the finish line, and the best way to narrow the field is to put their feet to the fire.”— David a. rodriguez

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wasn’t cloudy at all—it was very clear that he was the top candidate and he had the tools to be CEO.”

On March 31, just days after he turned eighty, Marriott passed the reins to Sorenson and took up a new role as the company’s very active execu-tive chairman.

For Rodriguez, who was “charged with thinking about succession from Day 1” when he joined the company fifteen years ago, it was the end of a long process. But he didn’t get much downtime before starting up again.

“Three days before the transfer, Arne and I shared a great laugh,” Rodri-guez recalled. “He looked at me and said, ‘Oh, by the way, we need to figure out what we are going to say to the board at the next meeting about picking my successor.’ ”

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Conclusion: Winning a race with no finish line

CEO succession may not be rocket science, but it is not a cookie-cutter process, either. The guiding principles for getting it right not only have to be understood, but also adapted to a company’s particular situation.

“It never ceases to amaze me how simultaneously simple and complex succession stories are,” said Korn/Ferry’s Stevenson. “There are under-pinning guidelines that point the way to the right process, yet the ap-plication of that process is so widely diverse, depending as it does on the board, the CEO, the business strategy, and the type of challenges that are unique to each company.”

Indeed, the successions described above differed in many ways. Yost played a central role in picking his successor at AmerisourceBergen, for instance, while Ketchum, his counterpart at Newell, was a crucial advi-sor without driving the project. Nor did every company get everything right—as with MasterCard having to play catch-up in aligning its strate-gy with its CEO profile.

The common denominator, though, was a commitment to continuing the succession process until the company hit pay dirt. In one telling similarity, those in charge of the succession process at each company knew with real conviction when the winner had been found.

“In the end, you’ve got to wait for the right candidate to come along,” MasterCard’s Haythornthwaite said. “You have to make expedient deci-sions as you go—and you have to have a bit of luck thrown in.”

As the four case studies in this report reflect, details always vary. But ten guiding principles stood out as a bold outline of an effective succes-

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sion. We hope these are helpful as boards continue to exercise their suc-cession responsibilities with more efficiency, effectiveness, and confi-dence.

Never stop planning. CEO succession is an ongoing process that begins anew the day after a CEO is chosen. “It is important that you not only have a long-term plan in place but also a ‘train wreck’ scenario, should the CEO become incapacitated,” said Yost. Yet the majority of companies may not be prepared to name a new CEO should the need suddenly arise, according to proxy and governance statements filed by firms that are on this year’s list of the Korn/Ferry Market Cap 100. Only 17 percent indi-cated that they had identified an interim replacement, annually re-viewed a list of candidates, or had written procedures in place. What’s more, 25 percent did not indicate that they had any succession plan, short or long term.

Pick your succession leader with care. Whether it’s the lead director, board chairman, or a committee chair, whoever leads a CEO selection process must have a solid sense of the company’s strategy and future outlook. He or she needs to be: highly disciplined, able to devote signifi-cant extra time to the task, intuitive about people, and trustworthy in the eyes of the board. CEO experience is also highly recommended so that the search leader knows firsthand what the role will demand of a candidate.

Define the board’s role. The search for a new CEO can be run board-wide or delegated to a committee. Pick the structure that plays to your board’s strengths and dynamics, recognizing that there are tradeoffs in each approach. Involving every director may require more time to make decisions and pose confidentiality issues. A narrow approach may limit the process’ focus and make final consensus harder.

Define the sitting CEO’s role. The CEOs in some circumstances lead and manage the succession process. In others, the CEO is cast as an im-portant advisor. The key is to make a conscious decision and reach a clear agreement with the CEO on his or her participation.

Keep talking. Recognize the central importance of communication to the full board, particularly if the search process has been delegated to a

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committee. This is essential both to keep the directors informed and to detect and address issues as they surface. Also, directors often give ac-cess to useful information out in the market.

Agree on the strategy first. The board must reach consensus on the future business environment and the strategy to address it. Then, and only then, is it ready to define the attributes that the new CEO must have to pursue that strategy. The process used to win alignment on strat-egy can vary. The one employed by Newell Rubbermaid stands out for its thoroughness: use an outside party to interview each director and the outgoing CEO, then have a full group discussion, and reach final align-ment at the executive committee level.

Develop and test internal candidates. Preparing viable internal candi-dates for future succession is a long-term process that typically requires at least three years of focused effort with high board participation. The identification and development of fu-ture leaders encompass filling seats in the second and third tiers of man-agement as well as at the top of the house. Banga, MasterCard’s CEO, is a great example. He showcases seventy-five to eighty rising stars to his board on an ongoing basis.

Give a prospective CEO a head start. When possible, lower the risks of choosing an outsider by strategically bringing the person into the company with enough time to learn its culture and how its current lead-ership operates. This way, by the time the succession is finalized, the new CEO and the board should be deeply familiar with each other and comfortable with the fit. “The idea is to go outside in advance with a runway to make sure that the flight path to the CEO’s office is going to work,” said Korn/Ferry’s Mader.

Don’t rule out directors ... but never appoint one with the anticipation of CEO succession. If a strong candidate happens to be on the board when a successor is needed, the director’s title needn’t be an insur-mountable barrier. There are two choices when considering a sitting di-rector: bring the candidate into the process with the understanding that

“ The idea is to go outside in advance with a runway to make sure that the flight path to the CEO’s office is going to work.”—Stephen P. Mader

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his or her director status will terminate regardless of the outcome, or keep the candidate out of the main search process and proceed along a separate discreet path so that the candidacy is “reversible” and the direc-torship viable should either party not want to go further.

Use a mix of incentives to prime the pipeline. Part of a CEO’s annual bonus should be tied to executive development. Some companies go one step further: providing for a bonus after the CEO has left if the successor he or she helped to select was, in fact, a winner.

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About the 2012 Korn/Ferry Market Cap 100

The Korn/Ferry Market Cap 100 (KFMC100) are the U.S. companies that had the largest market capitalization as of the close of markets on May 1, 2012, after the end of most firms’ 2011 fiscal year. Companies were removed from the list if they were not traded primarily on the NYSE or Nasdaq, or were public investment firms.

Appendix A: The KFMC100 companies

There were eight companies that joined the ranks of the KFMC100 in FY 2011:

Biogen Idec Inc.Celgene Corp.Exelon Corp.Kimberly-Clark Corp.

priceline.com Inc.Starbucks Corp.The TJX Companies, Inc.Yum! Brands, Inc.

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Figure 6

KFMC100 by market capitalization

The KFMC100 companies had a median market capitalization of $57.2 billion on May 1, 2012, after the close of most companies’ fiscal year. Exactly 24 percent of companies were valued at $100 billion or more.

Market Cap Number

$30 billion – $39.99 billion 31






$200 billion and over 7

Figure 7

Industry sectors represented

Services was the most represented sector among the KFMC100 with twenty-two companies. The KFMC100 included fifteen basic materials companies, but that was a significant drop from 2011, when that sector comprised twenty companies. Consumer goods, on the other hand, added three companies to the list, for thirteen.

Sector Count

Basic materials 15

Conglomerates 3

Consumer goods 13

Financial 11

Health care 14

Industrial goods 6

Services 22

Technology 14

Utilities 2

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Figure 8

The Korn/Ferry Market Cap 100

The KFMC100 ranked in order of market capitalization as of the close of markets on May 1, 2012.

Rank Co.

Market cap in billions on May 1, 2012 Industry

1 Apple Inc. (NasdaqGS: AAPL) $546.1 Computer hardware

2 Exxon Mobil Corp. (NYSE: XOM) $406.0 Integrated oil and gas

3 Microsoft Corp. (NasdaqGS: MSFT) $267.0 Systems software

4 International Business Machines Corp. (NYSE: IBM) $238.9 IT consulting and other services

5 Chevron Corp. (NYSE: CVX) $210.2 Integrated oil and gas

6 General Electric Co. (NYSE: GE) $207.1 Industrial conglomerates

7 Wal-Mart Stores Inc. (NYSE: WMT) $200.3 Hypermarkets and super centers

8 Google Inc. (NasdaqGS: GOOG) $197.2 Internet software and services

9 AT&T, Inc. (NYSE: T) $193.3 Integrated telecommunication services

10 Johnson & Johnson (NYSE: JNJ) $178.7 Pharmaceuticals

11 Wells Fargo & Co. (NYSE: WFC) $177.1 Diversified banks

12 Procter & Gamble Co. (NYSE: PG) $174.4 Household products

13 Pfizer Inc. (NYSE: PFE) $172.6 Pharmaceuticals

14 The Coca-Cola Co. (NYSE: KO) $172.3 Soft drinks

15 JPMorgan Chase & Co. (NYSE: JPM) $162.1 Other diversified financial services

16 Philip Morris International, Inc. (NYSE: PM) $153.5 Tobacco

17 Oracle Corp. (NasdaqGS: ORCL) $146.3 Systems software

18 Intel Corp. (NasdaqGS: INTC) $142.2 Semiconductors

19 Merck & Co. Inc. (NYSE: MRK) $119.4 Pharmaceuticals

20 Verizon Communications Inc. (NYSE: VZ) $114.7 Integrated telecommunication services

21 QUALCOMM Inc. (NasdaqGS: QCOM) $109.4 Communications equipment

22 Cisco Systems, Inc. (NasdaqGS: CSCO) $108.6 Communications equipment

23 Amazon.com Inc. (NasdaqGS: AMZN) $104.5 Insternet retail

24 Pepsico, Inc. (NYSE: PEP) $103.2 Soft drinks

25 McDonald’s Corp. (NYSE: MCD) $99.0 Restaurants

26 Schlumberger Limited (NYSE: SLB) $98.9 Oil and gas equipment and services

27 Abbott Laboratories (NYSE: ABT) $97.6 Pharmaceuticals

28 Citigroup, Inc. (NYSE: C) $96.8 Other diversified financial services

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Rank Co.


29 ConocoPhillips (NYSE: COP) $91.7 Integrated oil and gas

30 Bank of America Corp. (NYSE: BAC) $87.4 Other diversified financial services

31 Visa, Inc. (NYSE: V) $82.7 Data processing and outsourced services

32 Comcast Corp. (NasdaqGS: CMCSA) $81.5 Cable and satellite

33 The Home Depot, Inc. (NYSE: HD) $79.0 Home improvement retail

34 Walt Disney Co. (NYSE: DIS) $77.3 Movies and entertainment

35 United Parcel Service, Inc. (NYSE: UPS) $74.9 Air freight and logistics

36 United Technologies Corp. (NYSE: UTX) $74.3 Aerospace and defense

37 Occidental Petroleum Corp. (NYSE: OXY) $74.0 Integrated oil and gas

38 Kraft Foods Inc. (NYSE: KFT) $70.7 Packaged foods and meats

39 American Express Co. (NYSE: AXP) $70.3 Consumer finance

40 Caterpillar Inc. (NYSE: CAT) $67.1 Construction and farm machinery and heavy trucks

41 Altria Group Inc. (NYSE: MO) $65.6 Tobacco

42 3M Co. (NYSE: MMM) $62.0 Industrial conglomerates

43 U.S. Bancorp (NYSE: USB) $61.5 Diversified banks

44 American International Group, Inc. (NYSE: AIG) $61.0 Multi-line insurance

45 EMC Corp. (NYSE: EMC) $59.2 Computer storage and peripherals

46 The Goldman Sachs Group, Inc. (NYSE: GS) $58.7 Investment banking and brokerage

47 UnitedHealth Group, Inc. (NYSE: UNH) $58.5 Managed health care

48 CVS Caremark Corp. (NYSE: CVS) $58.1 Drug retail

49 The Boeing Co. (NYSE: BA) $57.5 Aerospace and defense

50 MasterCard Incorporated (NYSE: MA) $57.2 Data processing and outsourced services

51 Bristol-Myers Squibb Co. (NYSE: BMY) $56.4 Pharmaceuticals

52 Amgen Inc. (NasdaqGS: AMGN) $55.5 Biotechnology

53 Union Pacific Corp. (NYSE: UNP) $53.5 Railroads

54 eBay Inc. (NasdaqGS: EBAY) $53.0 Internet software and services

55 Nike Inc. (NYSE: NKE) $51.3 Footwear

56 E.I. du Pont de Nemours & Co. (NYSE: DD) $50.1 Diversified chemicals

57 Hewlett-Packard Co. (NYSE: HPQ) $49.0 Computer hardware

58 News Corp. (NasdaqGS: NWSA) $47.8 Movies and entertainment

59 VMware, Inc. (NYSE: VMW) $47.7 Systems software

60 Honeywell International Inc. (NYSE: HON) $47.3 Aerospace and defense

61 Colgate-Palmolive Co. (NYSE: CL) $47.2 Household products

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Rank Co.


62 Eli Lilly & Co. (NYSE: LLY) $46.2 Pharmaceuticals

63 Enterprise Products Partners LP (NYSE: EPD) $45.4 Oil and gas storage and transportation

64 Express Scripts Inc. (NasdaqGS: ESRX) $44.9 Health care services

65 Starbucks Corp. (NasdaqGS: SBUX) $43.2 Restaurants

66 Ford Motor Co. (NYSE: F) $42.9 Automobile manufacturers

67 Las Vegas Sands Corp. (NYSE: LVS) $42.2 Casinos and gaming

68 Monsanto Co. (NYSE: MON) $40.6 Fertilizers and agricultural chemicals

69 The Dow Chemical Co. (NYSE: DOW) $40.4 Diversified chemicals

70 Southern Co. (NYSE: SO) $39.9 Electric utilities

71 Medtronic, Inc. (NYSE: MDT) $39.8 Health care equipment

72 Gilead Sciences Inc. (NasdaqGS: GILD) $39.4 Biotechnology

73 Target Corp. (NYSE: TGT) $38.7 General merchandise stores

74 Emerson Electric Co. (NYSE: EMR) $38.6 Electrical components and equipment

75 Costco Wholesale Corp. (NasdaqGS: COST) $38.3 Hypermarkets and super centers

76 MetLife, Inc. (NYSE: MET) $38.2 Life and health insurance

77 priceline.com Inc. (NasdaqGS: PCLN) $37.9 Internet retail

78 Lowe’s Companies Inc. (NYSE: LOW) $37.7 Home improvement retail

79 Danaher Corp. (NYSE: DHR) $37.7 Industrial machinery

80 Apache Corp. (NYSE: APA) $36.9 Oil and gas exploration and production

81 Anadarko Petroleum Corp. (NYSE: APC) $36.6 Oil and gas exploration and production

82 Texas Instruments Inc. (NYSE: TXN) $36.5 Semiconductors

83 Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) $36.4 Diversified metals and mining

84 Time Warner Inc. (NYSE: TWX) $36.2 Movies and entertainment

85 General Motors Co. (NYSE: GM) $36.0 Automobile manufacturers

86 PNC Financial Services Group Inc. (NYSE: PNC) $35.0 Regional banks

87 Praxair Inc. (NYSE: PX) $34.6 Industrial gases

88 Morgan Stanley (NYSE: MS) $34.2 Investment banking and brokerage

89 Yum! Brands, Inc. (NYSE: YUM) $33.5 Restaurants

90 DIRECTV (NasdaqGS: DTV) $33.3 Cable and satellite

91 Exelon Corp. (NYSE: EXC) $33.2 Electric utilities

92 Deere & Co. (NYSE: DE) $33.1 Construction and farm machinery and heavy trucks

93 National Oilwell Varco, Inc. (NYSE: NOV) $32.3 Oil and gas equipment and services

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Rank Co.


94 Biogen Idec Inc. (NasdaqGS: BIIB) $32.1 Biotechnology

95 Celgene Corp. (NasdaqGS: CELG) $32.0 Biotechnology

96 Halliburton Co. (NYSE: HAL) $31.6 Oil and gas equipment and services

97 The TJX Companies, Inc. (NYSE: TJX) $30.9 Apparel retail

98 Baxter International Inc. (NYSE: BAX) $30.8 Health care equipment

99 Kimberly-Clark Corp. (NYSE: KMB) $30.7 Household products

100 Walgreen Co. (NYSE: WAG) $30.2 Drug retail

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Appendix B: The KFMC100 directors

Turnover on KFMC100 boards remained remarkably low in fiscal year 2011. There were only ninety total appointments—including seven new CEOs—to this group of 1,190 directors, a turnover rate of only 7.6 per-cent.

The following list includes all directors who joined a KFMC100 board in fiscal year 2011. Those new directors who are also CEO of that company are marked with an asterisk (*).

Mukesh D. AmbaniNew boardBank of America Corp.ProfileChairman and Managing Director, Reliance Industries LimitedOther boardReliance Industries Limited

Kate BaickerNew boardEli Lilly & Co.ProfileProfessor of Health Economics at the Harvard University School of Public Health

Shumeet BanerjiNew boardHewlett-Packard Co.ProfileChief Executive Officer, Booz & Co.

James BellNew boardJPMorgan Chase & Co.ProfileRetired Executive Vice President, The Boeing Co.Other boardThe Dow Chemical Co.

Sally E. BlountNew boardAbbott LaboratoriesProfileDean of the J.L. Kellogg Graduate School of Management at Northwestern University

Robert BradwayNew boardAmgen Inc.ProfilePresident and COO, Amgen Inc.Other boardNorfolk Southern Corp.

James W. BreyerNew boardNews Corp.ProfileManaging Partner, Accel PartnersOther boardsWal-Mart Stores Inc.; Dell Inc.

J. Frank BrownNew boardThe Home Depot, Inc.ProfileFormer Dean, INSEAD

M. Michele BurnsNew boardThe Goldman Sachs Group, Inc.ProfileExecutive Director and CEO, Retirement Policy Center sponsored by Marsh & McLennan Companies Inc.Other boardsCisco Systems, Inc.; Wal-Mart Stores Inc.

David L. CalhounNew boardCaterpillar Inc.ProfileCEO, Nielsen; Former Vice Chairman, General Electric Co.Other boardsNielsen Holdings NV; The Boeing Co.; Medtronic, Inc.

Larry CaseyNew boardEnterprise Products Partners LPProfilePrivate Investor; Senior Director, Duncan Energy Partners LP

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Elaine ChaoNew boardWells Fargo & Co.ProfileFormer U.S. Secretary of LaborOther boardsProtective Life Corporation; Dole Food Co. Inc.

Kevin P. ChiltonNew boardAnadarko Petroleum Corp.ProfileRetired Commander, United States Strategic Command, Offutt Air Force BaseOther boardsOrbital Sciences Corporation; Level 3 Communications Inc.

Elizabeth J. ComstockNew boardNike Inc.ProfileSenior Vice President and Chief Marketing Officer, General Electric Co.

Timothy Cook*New boardApple Inc.ProfileChief Executive Officer, Apple Inc.Other boardNike Inc.

W. Don CornwellNew boardAmerican International Group, Inc.ProfileFormer CEO and Chairman, Granite Broadcasting CorporationOther boardsPfizer Inc.; Avon Products Inc.

Richard DaleyNew boardThe Coca-Cola Co.ProfileFormer Mayor of Chicago; Managing Principal, Tur Partners LLC

Bill DeLaneyNew boardExpress Scripts Inc.ProfilePresident, CEO, and Principal Executive Officer, Sysco Corp.Other boardSysco Corp.

David B. DillonNew boardDIRECTVProfileChairman and CEO, The Kroger Co.Other boardThe Kroger Co.

Dixon DollNew boardDIRECTVProfileCo-Founder and General Partner, DCMOther boardNetwork Equipment Technologies, Inc.

Anne M. FinucaneNew boardCVS Caremark Corp.ProfileGlobal Strategy and Marketing Officer, Bank of America Corp.

John H. FitzpatrickNew boardAmerican International Group, Inc.ProfileChairman, Oak Street Management Co.

Kenneth C. Frazier*New boardMerck & Co. Inc.ProfilePresident and CEO, Merck & Co. Inc.Other boardExxon Mobil Corp.

Michael A. FriedmanNew boardCelgene Corp.ProfilePresident and CEO, City of HopeOther boardMannKind Corp.

Fabian Tito GarciaNew boardKimberly-Clark Corp.ProfileChief Operating Officer of Global Innovation and Growth, Colgate-Palmolive Co.

Evan G. GreenbergNew boardThe Coca-Cola Co.ProfileChairman, President, and CEO, ACE LimitedOther boardACE Limited

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Jesse J. Greene Jr.New boardCaterpillar Inc.ProfileFormer Vice President of Financial Management, Chief Financial Risk Officer, Vice President, and Treasurer, International Business Machines Corp.

Judd GreggNew boardHoneywell International Inc.ProfileFormer U.S. Senator from New Hampshire; Former Governor of New HampshireOther boardIntercontinentalExchange Inc.

William W. Helman IVNew boardFord Motor Co.ProfileGeneral Partner, Greylock PartnersOther boardZipcar, Inc.

Peter B. HenryNew boardKraft Foods Inc.ProfileDean, Leonard N. Stern School of Business, New York University

Helen HobbsNew boardPfizer Inc. ProfileInvestigator, Howard Hughes Medical Institute; Professor of Internal Medicine and Molecular Genetics and Director of the McDermott Center for Human Growth and Development, University of Texas Southwestern Medical Center

Robert IgerNew boardApple Inc.ProfilePresident and CEO, Walt Disney Co.Other boardWalt Disney Co.

Omar Ishrak*New boardMedtronic, Inc.ProfileChairman and CEO, Medtronic, Inc.

Scott D. JoseyNew boardApache Corp.ProfileFormer CEO and Chairman, Mariner Energy, Inc.; CEO, Sequitur Energy Management LLC

Chansoo JoungNew boardApache Corp.ProfileSenior Advisor, Warburg Pincus LLC

Steven A. Kandarian*New boardMetLife, Inc.ProfileCEO, MetLife, Inc.

Lawrence W. KellnerNew boardThe Boeing Co.ProfilePresident, Emerald Creek Group; Former Chairman and CEO, Continental AirlinesOther boardsChubb Corp.; Marriott International, Inc.

Candace KendleNew boardUnited Parcel Service, Inc.ProfileCo-Founder and Former Chairman and CEO, Kendle International Inc.Other boardHJ Heinz Co.

Paal Kibsgaard*New boardSchlumberger LimitedProfileCEO, Schlumberger Limited

Joel KleinNew boardNews Corp.ProfileExecutive Vice President, Education Division, News Corp.; Former Chancellor of the New York City Department of Education

Charles A. KoppelmanNew boardLas Vegas Sands Corp.ProfileChairman and CEO, CAK Entertainment, Inc.Other boardSix Flags Entertainment Corp.

321095_KF_MC100_Text.indd 39 9/21/12 7:41 PM


Blake G. KrikorianNew boardAmazon.com Inc.ProfileFounder, id8 Group Productions Inc.

Ellen J. KullmanNew boardUnited Technologies Corp.ProfileChairwoman and CEO, E.l. DuPont de Nemours & Co. Other boardE.l. DuPont de Nemours & Co.

Rodger A. LawsonNew boardUnitedHealth Group, Inc.ProfileRetired President and CEO, Fidelity Investments Financial Services

Mike O. LeavittNew boardMedtronic, Inc.ProfileFormer Governor of Utah; Former U.S. Secretary of Health and Human Services; Chairman, Leavitt Partners Inc.

Teri List-StollNew boardDanaher Corp.ProfileFormer Vice President of Finance, Procter & Gamble Co.

Ann M. LivermoreNew boardHewlett-Packard Co.ProfileExecutive Vice President, Technology Solutions Group, Hewlett-Packard Co.Other boardUnited Parcel Service, Inc.

Mohd H. MaricanNew boardConocoPhillipsProfileFormer President and CEO, PETRONASOther boardsSembcorp Marine LTD; SembCorp Industries

Lowell C. McAdam*New boardVerizon Communications Inc.ProfileChairman, President, and CEO, Verizon Communications Inc.

Nancy McKinstryNew boardAbbott LaboratoriesProfileChairman and CEO, Wolters Kluwer N.V.Other boardsSanoma Oyj; Ericsson; Wolters Kluwer N.V.

Kathryn McQuadeNew boardAltria Group Inc.ProfileExecutive Vice President and Chief Financial Officer, Canadian Pacific Railway Limited

Eduardo G. MestreNew boardComcast Corp.ProfileVice Chairman, Evercore Partners Inc.Other boardAvis Budget Group Inc.

Katie MiticNew boardeBay Inc.ProfileFormer Director of Marketing, Facebook Inc.

Jon MoellerNew boardMonsanto Co.ProfileChief Financial Officer, Procter & Gamble Co.

William C. MontgomeryNew boardApache Corp.ProfileManaging Director, Quantum Energy Partners

Kalpana MorpariaNew boardPhilip Morris International, Inc.ProfileCEO, J.P. Morgan India Private LimitedOther boardDr. Reddy’s Laboratories Limited

Dennis A. MuilenburgNew boardCaterpillar Inc.ProfileExecutive Vice President, The Boeing Co.; President and CEO, Boeing Defense

321095_KF_MC100_Text.indd 40 9/21/12 7:41 PM


Lorrie NorringtonNew boardDIRECTVProfileFormer President, eBay Marketplaces at eBayOther boardAutodesk Inc.

Lubna S. OlayanNew boardSchlumberger LimitedProfileDeputy Chairwoman and CEO, Olayan Financing Co.Other boardsWPP PLC; Chelsfield Partners LLP; Saudi Hollandi Bank

James W. OwensNew boardMorgan StanleyProfileRetired Chairman and CEO, Caterpillar Inc.Other boardsInternational Business Machines Corp.; Alcoa Inc.

Federico PenaNew boardWells Fargo & Co.ProfileSenior Advisor, Vestar Capital Partners; Former U.S. Secretary of Energy; Former U.S. Secretary of TransportationOther boardSonic Corp.

Robert B. PoletNew boardPhilip Morris International, Inc.ProfileChairman, Safilo Group S.p.A.; Former CEO and President, Gucci Group NVOther boardsSafilo Group S.p.A.; Reed Elsevier NV

Rima QureshiNew boardMasterCard, Inc.ProfileSenior Vice President and Business Unit Head, CDMA Mobile Systems, Ericsson

Joshua RamoNew boardStarbucks Corp.ProfileVice Chairman, Kissinger AssociatesOther boardFedEx Corp.

Gary M. ReinerNew boardHewlett-Packard Co.ProfileSpecial Advisor, General AtlanticOther boardGenpact Limited

Johnathan A. RodgersNew boardComcast Corp.ProfilePresident and CEO, TV One, LLCOther boardsNike Inc.; Procter & Gamble Co.

Patricia F. RussoNew boardHewlett-Packard Co.ProfileFormer CEO and Director, Alcatel-Lucent; Former Vice Chair of the National Security Telecommunications Advisory CommitteeOther boardsMerck & Co. Inc; KKR & Co. L.P.; General Motors Co.; Alcoa Inc.

Robert E. SanchezNew boardTexas Instruments Inc.ProfilePresident of Global Fleet Management Solutions, Ryder System, Inc.

Ronald L. SargentNew boardThe Home Depot, Inc.ProfileChief Executive Officer, Staples, Inc.Other boardsThe Kroger Co.; Staples, Inc.

Tom SchoeweNew boardGeneral Motors Co.ProfileFormer Executive Vice President and Chief Financial Officer, Wal-Mart Stores Inc.Other boardsNorthrop Grumman Corp.; KKR & Co. L.P.; PulteGroup, Inc.; Centex Corp.

Dominique SenequierNew boardHewlett-Packard Co.ProfileChairman and CEO, AXA Private EquityOther boardsCir-Compagnie Industriali Riunite S.p.A.; Schneider Electric SA

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Clara ShihNew boardStarbucks Corp.ProfileCEO and Director, Hearsay Labs Inc.

Elliott SigalNew boardBristol-Myers Squibb Co.ProfileExecutive Vice President, Chief Scientific Officer, and President, R&D, Bristol-Myers Squibb Co.Other boardMead Johnson Nutrition Co.

Sherry SmithNew boardDeere & Co.ProfileExecutive Vice President and Chief Financial Officer, Supervalu Inc.

Richard SnellNew boardEnterprise Products Partners LPProfileSenior Counsel, Thompson & Knight LLP

Deborah L. SparNew boardThe Goldman Sachs Group, Inc.ProfilePresident, Barnard College

Roy TamakoshiNew boardMorgan StanleyProfileSenior Advisor, The Bank of Tokyo-Mitsubishi UFJ, LimitedOther boardThe Kansai Electric Power Co. Inc.

Masaaki TanakaNew boardMorgan StanleyProfileResident Managing Officer for the United States, Mitsubishi UFJ Financial Group Inc.

Marc Tessier-LavigneNew boardPfizer Inc. ProfilePresident, The Rockefeller UniversityOther boardRegeneron Pharmaceuticals Inc.

Lee ThomasNew boardE.I. DuPont de Nemours & Co.ProfileFormer Chairman and CEO, Rayonier Inc.Other boardsRayonier Inc.; Georgia-Pacific Group; Hercules Inc.

Donald ThompsonNew boardMcDonald’s Corp.ProfilePresident and Chief Operating Officer, McDonald’s Corp.Other boardExelon Corp.

Robert D. WalterNew boardAmerican Express Co.ProfileFounder and Former Chairman and CEO, Cardinal Health, Inc.Other boardsNordstrom Inc.; Yum! Brands, Inc.

Alberto WeisserNew boardPepsico, Inc.ProfileChairman and CEO, Bunge LimitedOther boardBunge Limited

Miles D. WhiteNew boardCaterpillar Inc.ProfileChairman and CEO, Abbott LaboratoriesOther boardsAbbott Laboratories; McDonald’s Corp.

Tony L. WhiteNew boardCVS Caremark Corp.ProfileFormer Chairman, President, and CEO, Applied Biosystems, Inc.Other boardsIngersoll-Rand plc; Bard Inc.

Margaret C. Whitman*New boards Procter & Gamble Co., Hewlett-Packard Co.ProfilePresident and CEO, Hewlett-Packard Co.; Former President and CEO, eBay Inc.Other boardZipcar, Inc.

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Ralph WhitworthNew boardHewlett-Packard Co.ProfilePrincipal, Relational Investors LLC

Ronald A. WilliamsNew boardJohnson & JohnsonProfileFormer Chairman and CEO, Aetna Inc.Other boardsThe Boeing Co.; American Express Co.

Eric WisemanNew boardLowe’s Companies Inc.ProfileChairman, President, and CEO, VF Corp.Other boardsVF Corp.; Cigna Corp.

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1

2

3

4

5 2

2

19

30

37Number of boards served

0 50Number of directors

Figure 9

Number of boards served among new KFMC100 directors

Among the KFMC100 class of 2011, a large majority of the directors (in this case including CEOs) were on only one or two boards. In FY 2010, about 13 percent of directors served on four or more boards; in FY 2011, that rate dropped to less than 5 percent.

Figure 10

CEOs on KFMC100 boards

CEOs past and present remain highly desirable as directors, but that experience appears to be harder to come by as companies limit CEO availability for outside board service.

Past or present CEO experience with a public company

Seats newly filled in FY 2011 35%

Incumbents’ seats 43%

Figure 11

Governance experience

KFMC100 boards primarily, but not exclusively, added directors with previous board experience with a public company.

New directorships by governance experience (n= 83)

First time directors 35

Experienced directors 48

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Figure 12

Age of directors

Excluding CEOs, there are 1,130 individual directors in the KFMC100, the bulk of whom are in their fifties and sixties. Only 5 percent are under age fifty or over seventy-five. The average age of directors, again excluding CEOs, is 62.9.

5% 49 or younger

10% 50 to 54

16% 55 to 59

22% 60 to 64

28% 65 to 69

14% 70 to 74

5% 75 and over

Figure 13

Gender balance of KFMC100 directors

Although nearly all—96 percent—of boards have at least one female director, women make up only 20 percent of all KFMC100 directors. However, of the eighty-three directors added to these boards in FY 2011, 28 percent were women. The average number of women on a board, excluding CEOs, is 2.25.

19% Female

81% Male

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Figure 14

Demographics of new KFMC100 directors

Boards in the KFMC100 made incremental progress on diversity among directors: American minorities were appointed to 16 percent of new directorships vs. 11 percent of the incumbent directorships. Note that ethnicity information was unavailable for 114 of the incumbent directors.

Seats newly filled in FY 2011 Incumbents’ seats (n=83) (n=1,100)

African-American 6.0% 10.0%

Asian-American 4.8% 1.8%

Hispanic-American 2.4% 2.6%

Figure 15

Nationality of KFMC100 directors

After a jump to 21.4 percent in FY 2010, the percentage of foreign director appointments to KFMC100 boards fell back to 13 percent in FY 2011. Nationality data was unavailable for sixty-six of the 1,190 incumbents.

American Non-American

Seats newly filled in FY 2011 87% 13%

Incumbents’ seats 86% 14%

Figure 16

Global experience of KFMC100 directors

In addition to nationality, other indicators of global experience stayed steady in FY 2011, with little variation between the incoming class of ninety directors (including CEOs) and the 1,100 incumbents.

International work experience



Born and or educated abroad



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Appendix C: The KFMC100 boards

Figure 17

Board size

The median size for a board was 11.9 directors and 85 percent of boards had between ten and fifteen directors.

4% 16 to 17 directors




Figure 18

Board independence

In the KFMC100, 81 percent of boards had one or two executive directors. The rest were independent directors.

7% 4 to 7 executive directors

55% 1 executive director

26% 2 executive directors

12% 3 executive directors

321095_KF_MC100_Text.indd 47 9/21/12 7:41 PM


Figure 20

Cash retainers for directors

The median cash retainer for directors in the KFMC100, excluding meeting attendance bonuses, is $100,000, an increase of $20,000 from 2011. At 81 percent of boards, the cash retainer is between $50,001 and $125,000. Only two companies, Amazon.com Inc. and Yum! Brands, Inc., offer no cash retainers.

>$150,001

$125,001 – $150,000

$100,001 – $125,000

$75,001 – $100,000

$50,001 – $75,000

$25,001 – $50,000

$0 – $25,000

0% 50%

3%

1%

10%

40%

31%

11%

4%

Figure 19

Who is the chairman?

At two-thirds of companies, the CEO is also the chairman of the board. Thirty-four companies have a non-CEO chairman.

66% CEO is also chairman of the board

23% Chairman or executive chairmen

11% Non-executive chairmen

321095_KF_MC100_Text.indd 48 9/21/12 7:41 PM


Figure 22

BRIC experience on KFMC100 boards

Although 88 percent of KFMC100 boards include directors who held a significant work assignment outside the United States, only a third of those had members with experience in the fast growing BRIC nations—Brazil, Russia, India, or China.

One or more directors with work experience anywhere outside the U.S. 88%

One or more directors with work experience specifically in BRIC countries 28%

Figure 23

KFMC100 retirement age policies

Seventy-nine of the KFMC100 companies have an established retirement age for directors, though twenty of those have granted exceptions. Additionally, companies with no retirement age actually have a lower average age among directors, suggesting that such policies are having little if any effect.

Exceptions Average Retirement policies Number granted director age

Have a mandatory retirement age policy 52 12 62.8

Have retirement policy that explicitly allows exceptions 27 8 62.8

No retirement policy 21 -- 62.6

Figure 21

Board meetings

Just over half of the KFMC100 boards met seven or fewer times in FY 2011. The average number of board meetings was 8.4, down slightly from an average of 8.7 in FY 2010.

34% 6 to 7 meetings

21% 10 to 12 meetings

17% 4 to 5 meetings

15% 8 to 9 meetings

13% 13 to 22 meetings

321095_KF_MC100_Text.indd 49 9/21/12 7:41 PM


Figure 24

Duration of directorships in the KFMC100

Directors in the KFMC100 tend to serve a long time on boards. Though the average tenure overall is 7.8 years, among the eighty-seven directors who left in FY 2011, the average tenure was 11.1 years. The average age of a departing director was 67.

31% Directorships held for 10 years or more

69% Directorships held for 9 or fewer years

Figure 25

Individual director review policy in the KFMC100

Board renewal and improvement are sometimes approached by a vigorous annual review of each individual director. In the KFMC100, fewer than half of boards currently have that as a stated policy in their annual proxy statement.

53 Boards with no stated individual review policy

47 Boards that perform individual reviews of directors

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About Korn/Ferry’s Board & CEO Services Practice

Korn/Ferry International has recruited CEOs and board directors for more than 40 years. Our dedicated Board & CEO Services practice is com-mitted to improving governance practices worldwide. Our approach in-cludes Board Director and CEO Search and Selection, CEO Succession Planning and Assessment, Board Effectiveness, and Director/Executive Compensation Consulting.

Visit www.kornferry.com/BoardCEOServices for more information.

Key contacts

Dennis Carey Vice ChairmanKorn/Ferry International+1 215 656 5348

Stephen P. Mader Vice ChairmanKorn/Ferry International +1 617 790 5700

Jane StevensonVice ChairmanKorn/Ferry International +1 404 222 4022

© 2012 Korn/Ferry International

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2012KFMC

About Korn/Ferry International

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