Retaining Former CEOs on the Board

What are the costs and benefits of retaining the former CEO on the board? Corporate boards frequently debate this question as part of the CEO succession process. Like many governance issues, empirical evidence indicates that a number of factors are involved in and may drive this on-going boardroom debate.

This Director Notes discusses findings from an analysis of the determinants of the company’s decision to offer board membership to the departing CEO. The analysis extended to numerous details surrounding 358 CEO turnovers (for reasons other than mergers, reorganizations, spin-offs, or chief executive deaths) regarding S&P 1500 firms. Information collected as part of the study included whether or not the departing CEO remained on the board, the length of his or her continued board service, the characteristics of the incoming CEO, and the firm’s subsequent stock price performance.