Regulatory: Now is the right time to adopt an emergency succession plan

Planning ahead ensures that decisions about successor appointments are made in advance of unplanned occurrences

The board of directors plays a key role in establishing and overseeing the management succession planning process. It continuously evaluates executive talent within the organization and searches for talent outside the organization when necessary. Institutional investors and activist shareholders have continued to focus considerable attention on the board’s proper role in the management succession process, and as a result, public companies have increasingly established great rigor around their management succession plans. The key objective of any management succession planning efforts is to create a process that seeks to ensure continuity of management over the long term, while promoting smooth transitions when changes in management become necessary.

The need for an emergency succession plan

Given the types of circumstances in which the emergency succession plan is to be implemented, it is recommended that the interim appointments by the board of directors occur within a specified period of time after the committee receives notice of the unexpected occurrence. The length of the period may depend on a company’s circumstances, however, a two-day period may often be the most appropriate period when the emergency succession plan identifies the specific individuals and their lines of succession.

When establishing the process for making interim appointments, the emergency succession plan should also preserve the flexibility for the board of directors to make permanent appointments, in the possible event that the established lines of succession are consistent with the board’s and the CEO’s plans for long-term succession.

Contributing Author

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David Lynn

David M. Lynn is a co-chair of Morrison & Foerster LLP's Public Companies and Securities Practice. Mr. Lynn's practice is focused on advising a wide...

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