One of the most important decisions that a board of directors must make is the selection of the CEO. What type of disclosure can provide shareholders with insight into succession planning?

1. Topics, Issues, and Controversies in Corporate Governance and Leadership
S T A N F O R D C L O S E R L O O K S E R I E S
stanford closer look series 1
CEO Succession Planning: Who’s Behind
Door Number One?
CEO Succession Planning
One of the most important decisions that a board
of directors must make is the selection of the chief
executive officer (CEO) of the company. To make
an informed decision, the board must have an un-
derstanding of not only the skills and experience
required to lead the company but also the neces-
sary behavioral attributes such as ethics, cultural
fit, work style, risk tolerance, competitiveness, and
leadership. The board then compares these against
the pool of available talent, both within and out-
side the company, to identify those who are best
qualified and willing to serve in the role. Internal
candidates are groomed for a succession, while ex-
ternal candidates are brought in to interview for the
position.1
Despite the importance, survey data indicates
that many boards are not prepared for the CEO
succession process. According to one recent sur-
vey, just over half of companies would be unable to
name a successor if required to do so immediately.
While 70 percent of companies have identified an
emergency candidate to fill in as CEO on an inter-
im basis, board members expect that it would take
90 days, on average, to name a permanent succes-
sor. This may be due in part to the fact that boards
do not spend extensive time discussing CEO suc-
cession. The average board dedicates only 2 hours
per year to the topic.2
The importance of CEO succession planning
was underscored in September 2009, when Ken
Lewis, chairman and CEO of Bank of America,
unexpectedly announced that he would retire from
the company by the end of the year.3
At the time,
the company was struggling to repay federal funds
received through the Troubled Asset Relief Program
By David F. Larcker and Brian Tayan
June 24, 2010
(TARP). It was also involved in an SEC lawsuit for
inadequate disclosure relating to its acquisition of
Merrill Lynch one year before. The company’s lack
of preparedness came to light as it reached out to
multiple external candidates, only to be rebuffed.
Some speculated that an interim CEO would have
to be named.4
On December 16, only two weeks
before Lewis’s retirement, Brian Moynihan, head of
consumer banking, was given the job.
Disclosure of CEO Succession
In recent years, shareholder groups have pressured
boards to increase transparency about their CEO
succession plans. In 2008, the Laborers’ Interna-
tional Union of North America (LiUNA) spon-
sored a proxy proposal at Whole Foods that would
require the board to adopt and disclose a detailed
succession planning policy. According to a union
official, “the rigor of the succession planning pro-
cess that a board puts in place provides an impor-
tant window into how effectively that board is gov-
erning.”5
Whole Foods excluded the proposal from
its proxy, citing SEC Rule 14a-8(i)7. Rule 14a-
8(i)7 allows for omission “if the proposal deals with
a matter relating to the company’s ordinary busi-
ness operations.”6
At the time, the SEC elaborated
that the ordinary business exclusion would apply
to a proposal that involves “the management of the
workforce, such as the hiring, promotion, and ter-
mination of employees.” It also would apply if “the
proposal seeks to ‘micro-manage’ the company by
probing too deeply into matters of a complex nature
upon which shareholders, as a group, would not
be in a position to make an informed judgment.”7
The SEC supported Whole Foods’ argument that

2. stanford closer look series 2
CEO Succession Planning: Who’s Behind Door Number One?
proposals relating to CEO succession fell under the
ordinary business exclusion.8
The following year, however, the SEC re-
versed its position. In a staff bulletin, the agency
wrote:
One of the board’s key functions is to provide for
succession planning so that the company is not
adversely affected due to a vacancy in leadership.
Recent events have underscored the importance
of this board function to the governance of the
corporation. We now recognize that CEO suc-
cession planning raises a significant policy issue
regarding the governance of the corporation that
transcends the day-to-day business matter of
managing the workforce. […] Going forward,
we will take the view that a company generally
may not rely on Rule 14a-8(i)(7) to exclude a
proposal that focuses on CEO succession plan-
ning.9
That is, the SEC no longer viewed CEO succes-
sion planning as an employment issue but as a risk
management issue that fell within the governance
obligations of the board of directors.
Following the pronouncement, LiUNA
filed proposals on CEO succession at more than
70 companies, including Whole Foods and Bank
of America. The proposals would require that com-
panies “develop criteria for the CEO position,”
“identify and develop internal candidates,” “begin
non-emergency CEO succession planning at least 3
years before an expected transition,” and “annually
produce a report on its succession plan to share-
holders.”10
The proposals would not require compa-
nies to disclose the names of potential candidates.11
Whole Foods urged shareholders to vote
against the proposal. According to the company, its
CEO succession plan was “confidential and propri-
etary information that should not be publicly avail-
able.” Disclosure of this information would result
in “competitive harm” (see Exhibit 1).
Bank of America similarly urged share-
holders to vote against the proposal. It argued that
the company already maintained succession plans
and the proposal was therefore duplicative with ex-
isting policy (see Exhibit 2). In addition, the com-
pany disclosed its succession planning policy in the
proxy and would maintain that disclosure in future
years (see Exhibit 3).
When they came to a vote, the proposals were
rejected by shareholders of both companies (at
Whole Foods, 34 million in favor and 82 million
against; at Bank of America, 2.6 billion in favor and
4.0 billion against).12
Why This Matters
1. CEO succession is a key part of corporate risk
management. As boards revise their risk man-
agement policies, shareholders need to be con-
vinced that companies have real succession plans
in place and understand the quality of internal
candidates.
2. The release of proprietary information on suc-
cession planning can cause economic harm to
the firm and shareholders. What type of disclo-
sure can provide shareholders with insight into
succession planning without revealing propri-
etary information?
3. Moody’s and Standard and Poor’s include suc-
cession planning factors in their credit rat-
ings. Moody’s determination of bank financial
strength ratings include what it labels “Key Man
Risk.” It defines this risk as the degree to which
key business decisions are dependent upon a
single executive or group of executives.13
Would
public disclosure of this type of information al-
low shareholders to gain better insights into
succession planning and corporate risk manage-
ment? 
1
For more on this topic, see also: David F. Larcker and Brian Tayan,
“Multimillionaire Matchmaker: An Inside Look at CEO Succes-
sion Planning,” GSB Case No. CG-21, Apr. 15, 2010. Available at:
https://gsbapps.stanford.edu/cases/.
2
Heidrick & Struggles and the Rock Center for Corporate Gover-
nance at Stanford University, “2010 Survey on CEO Succession
Planning, June 2010. Available at: http://www.gsb.stanford.edu/
cldr/.
3
Greg Farrell, “Struggle to find successor for Lewis at BofA,” Finan-
cial Times, Nov. 12, 2009.
4
Bradley Keoun, David Mildenberg and Ian Katz, “BofA May Name
Stopgap Chief If Board Needs More Time,” Bloomberg, Nov. 23,
2009.
5
Beverly Behan, “Shareholder Activists Target Succession Planning,”
Bloomberg Businessweek, Jan. 15, 2010.
6
Securities Lawyer’s Deskbook, “Rule 14-8: Proposals of Security
Holders.” Available at: http://www.law.uc.edu/CCL/34ActRls/
rule14a-8.html.
7
SEC Release No. 40018, “Amendments to Rules on Shareholder

3. stanford closer look series 3
CEO Succession Planning: Who’s Behind Door Number One?
Proposals.” May 26, 1998. Available at: http://www.sec.gov/
rules/final/34-40018.htm.
8
Erik Krusch, “Proxy Disclosure: Will Succession Planning Succeed?”
Westlaw Business Currents, Mar. 18, 2010.
9
SEC Staff Legal Bulletin 14E (CF), “Shareholder Proposals.” Oct.
27, 2009. Available at: http://www.sec.gov/interps/legal/cf-
slb14e.htm.
10
Whole Foods, Form DEF-14A, Filed Jan. 25, 2010 with the SEC.
11
“Shareholder Activists Target Succession Planning,” Bloomberg
Businessweek, loc. cit.
12
Whole Foods, Form 8-K, Filed Mar. 9, 2010; Bank of America,
Form 8-K, Filed May 3, 2010 with the SEC.
13
http://tcbblogs.org/governance/2010/02/18/investors-sec-
concerned-about-ceo-succession-planning/.
David Larcker is the Morgan Stanley Director of the Center
for Leadership Development and Research at the Stanford
Graduate School of Business and senior faculty member
at the Rock Center for Corporate Governance at Stanford
University. Brian Tayan is a researcher with Stanford’s Cen-
ter for Leadership Development and Research. They are
coauthors of the books A Real Look at Real World Cor-
porate Governance and Corporate Governance Matters.
The authors would like to thank Michelle E. Gutman for
research assistance in the preparation of these materials.
The Stanford Closer Look Series is a collection of short case
studies that explore topics, issues, and controversies in cor-
porate governance and leadership. The Closer Look Series
is published by the Center for Leadership Development
and Research at the Stanford Graduate School of Business
and the Rock Center for Corporate Governance at Stan-
ford University. For more information, visit:
http://www.gsb.stanford.edu/cldr.
Copyright © 2012 by the Board of Trustees of the Leland
Stanford Junior University. All rights reserved.

4. stanford closer look series 4
CEO Succession Planning: Who’s Behind Door Number One?
Exhibit 1 — Whole Foods: Shareholder Proposal (2010)
Shareholder Proposal
We recently received a formal shareholder proposal from The Central Laborers’ Pension Fund
[which…] has beneficially owned approximately 2,543 shares of Whole Foods Market, Inc. com-
mon stock for at least one year prior to September 28, 2009.* The Proponent’s Proposal and Sup-
porting Statement are quoted verbatim below. […]
Resolved: That the shareholders of Whole Foods Market, Inc. (“Company”) hereby request that
the Board of Directors […] adopt and disclose a written and detailed succession planning policy,
including the following specific features:
• The Board of Directors will review the plan annually;
• The Board will develop criteria for the CEO position which will reflect the Company’s business
strategy and will use a formal assessment process to evaluate candidates;
• The Board will identify and develop internal candidates;
• The Board will begin non-emergency CEO succession planning at least 3 years before an ex-
pected transition and will maintain an emergency succession plan that is reviewed annually;
• The Board will annually produce a report on its succession plan to shareholders.
Supporting Statement
CEO succession is one of the primary responsibilities of the board of directors. A recent study pub-
lished by the NACD quoted a director of a large technology firm: “A board’s biggest responsibility
is succession planning. It’s the one area where the board is completely accountable, and the choice
has significant consequences, good and bad, for the corporation’s future.” (The Role of the Board
in CEO Succession: A Best Practices Study, 2006). The study also cited research by Challenger, Gray &
Christmas that “CEO departures doubled in 2005, with 1228 departures recorded from the begin-
ning of 2005 through November, up 102 percent from the same period in 2004.”
In its 2007 study What Makes the Most Admired Companies Great: Board Governance and Effec-
tive Human Capital Management, Hay Group found that 85% of the Most Admired Company
boards have a well-defined CEO succession plan to prepare for replacement of the CEO on a long-
term basis and that 91% have a well defined plan to cover the emergency loss of the CEO that is
discussed at least annually by the board.
The NACD report identified several best practices and innovations in CEO succession planning. The
report found that boards of companies with successful CEO transitions are more likely to have
well-developed succession plans that are put in place well before a transition, are focused on de-
veloping internal candidates and include clear candidate criteria and a formal assessment process.
Our proposal is intended to have the board adopt a written policy containing several specific best
practices in order to ensure a smooth transition in the event of the CEO’s departure. We urge
shareholders to vote FOR our proposal.
* The Central Laborers’ Pension Fund manages pension assets on behalf of the Laborers’ International Union of North
America (LiUNA).

5. stanford closer look series 5
CEO Succession Planning: Who’s Behind Door Number One?
Exhibit 1 — continued
Our Statement in Opposition
Although we strongly oppose the Proponent’s proposal, we actively support the concept of succes-
sion planning. As noted in our Corporate Governance Principles that are publicly available on our
corporate website, succession planning (including CEO succession policy in particular) is an integral
part of the Whole Foods Market Board of Directors’ mission statement. Our Board of Directors
maintains a succession plan for the members of our executive team and periodically updates this
plan. However, the Board of Directors believes that this plan is confidential and proprietary infor-
mation that should not be publicly available.
The proposal will result in competitive harm. If we were to publicly designate a potential successor
or group of successor candidates to our CEO, this would by definition publicly exclude other ex-
ecutives. Our competitors might attempt to recruit these executives away from us based on such
public disclosures. Executives not publicly designated as potential successors might choose to vol-
untarily leave our employ. Recruitment of new executives might also be impaired. Further, the
proposal requires that the policy identify and reflect the Company’s business strategy. This factor
would potentially injure Whole Foods Market by requiring disclosure of certain long-term strate-
gic objectives and plans that are not otherwise disclosable to the public, and which could then be
used by current and future competitors.
The proposal interferes with ordinary business operations. Succession policy and planning inherently
involve the management of our workforce and decisions regarding the hiring, promotion and
termination decisions by our Board of Directors. The corporate laws of Texas, which govern our
Company, contemplate that the resolution of these ordinary business problems are best left to
management and the Board of Directors, since it is impracticable for shareholders to decide how
to solve such problems at an annual shareholders meeting.
The proposal attempts to micro-manage the Board of Directors. The Proponent’s proposal requires that
the succession policy identify and develop internal candidates. Although we have had a strong
history of developing internal candidates for our executive officer positions, our Board of Direc-
tors has a fiduciary duty to shareholders that cannot be micro-managed or constrained by share-
holders in this manner. It is certainly conceivable that an outstanding external candidate might be
presented on short notice to the Board of Directors and that the Board of Directors would choose
to consider such an approach. The proposal also requires that non-emergency CEO succession be
outlined at least three years prior to an anticipated transition date. While long range planning
is certainly commendable, the Board of Directors should not be tied to any specific timetable.
Economic conditions change quickly, and the Board of Directors requires the flexibility to change
direction on short notice.
Source: Whole Foods, Form DEF-14A, Filed Jan. 25, 2010 with the SEC.

6. stanford closer look series 6
CEO Succession Planning: Who’s Behind Door Number One?
Exhibit 2 — Bank of America: Shareholder Proposal (2010)
Stockholder Proposal Regarding Succession Planning
The Corporation has received the following stockholder proposal from the Laborers National Pen-
sion Fund [which…] owned approximately 58,500 shares of our Common Stock as of the date the
proposal was submitted to the Corporation […]
[Resolution and Supporting Statement are the same as in Exhibit 1 above]
The Board recommends a vote “AGAINST” Item 10 for the following reasons:
The Board has considered this proposal and believes that its adoption is unnecessary as our com-
pany has fully effected the proposal in all respects.
The Board of Directors, along with the Corporate Governance Committee, are responsible for
overseeing our company’s CEO and senior management succession plan and policies. The Board
recognizes the importance of CEO succession planning and has adopted a Corporate Governance
Committee Charter and Corporate Governance Guidelines, both available on our website, that ad-
dress succession planning. In addition, our company is subject to NYSE listing rules that require us
to have a succession policy in place. Our company’s succession plan complies with these NYSE rules.
The proposal requests that our company “adopt and disclose a written and detailed succession
planning policy.” Our company already has a well developed, “written and detailed” succession
plan. Discussion of our succession plan and planning process is included in this proxy statement
under the caption “Chief Executive Officer and Senior Management Succession Planning” on page
7 and is expected to be included annually in our proxy materials [see Exhibit 3]. outlined at least
three years prior to an anticipated transition date. While long range planning is certainly com-
mendable, the Board of Directors should not be tied to any specific timetable. Economic condi-
tions change quickly, and the Board of Directors requires the flexibility to change direction on
short notice.
Each of the measures sought by the proposal is currently part of our succession policies. Under our
succession plan and planning process, the Board:
• reviews the plan at least annually pursuant to our Corporate Governance Guidelines;
• reviews the criteria developed for the Chief Executive Officer position, which reflects, among
other things, our business strategy and which uses a formal assessment process to evaluate
potential internal and external candidates;
• reviews internal candidates identified and developed in partnership with the Chief Executive
Officer and executive management and considers potential external candidates; and
• reviews a non-emergency Chief Executive Officer succession plan, which will be developed as
reasonably as practicable in advance of an expected transition and an emergency plan that
addresses succession in the event of extraordinary circumstances.
The Board does not believe that any meaningful difference exists between the proposal and our
company’s current succession planning policies. For the foregoing reasons, the Board recommends
a vote against the proposal.
Source: Bank of America, Form DEF-14A, Filed Mar. 17, 2010 with the SEC.

7. stanford closer look series 7
CEO Succession Planning: Who’s Behind Door Number One?
Exhibit 3 — Bank of America: CEO Succession Planning (2010)
Chief Executive Officer and Senior Management Succession Planning
The Board, with and through the Corporate Governance Committee, oversees Chief Executive Of-
ficer and senior management succession planning. The process targets the building of enhanced
management depth, considers continuity and stability within the company, and responds to the
company’s evolving needs and changing circumstances.
The Corporate Governance Committee sees to the maintenance of an appropriate succession
planning process. The Chief Executive Officer meets periodically with the Corporate Governance
Committee to discuss succession planning. The company’s senior officer responsible for human
resources and executive talent development (the “HR Officer”) reports regularly to the Corporate
Governance Committee and periodically to the full Board on the review of high potential associ-
ates who are candidates for development; strategies to utilize the talents of these high potential
associates; and plans to develop their management and leadership potential. The Corporate Gov-
ernance Committee reports on its regular meetings to the full Board.
The full Board reviews succession planning at least annually at a regularly scheduled Board meet-
ing. The Board reviews senior executive performance with the Chief Executive Officer and the HR
Officer. In addition, the Board establishes criteria for the Chief Executive Officer position, reflect-
ing, among other considerations, the company’s scope of business, the business environment and
the company’s long term strategy. With these criteria, the Board reviews potential internal candi-
dates with the Chief Executive Officer and HR Officer, including development needs, creation of
development programs and developmental progress with respect to specific individuals. Directors
engage with potential candidates at Board and committee meetings and periodically in less formal
settings to allow personal assessment of candidates by the directors. Further, the Board reviews
the overall composition of the qualifications, tenure and experience of senior management and
seeks opportunities to integrate highly qualified external candidates into senior management.
The Board approves emergency contingency and continuity plans for Chief Executive Officer suc-
cession planning to enable the company to respond to an unexpected vacancy in the Chief Execu-
tive Officer position. In this regard, the Chief Executive Officer discusses and evaluates the plans
with the Corporate Governance Committee, which approves the plans annually. The Corporate
Governance Committee considers maximizing the continuing safe and sound operation of the
company and minimizing any potential disruption or loss of continuity to the company’s business
and operations, including in the case of a major catastrophe, among other factors in its evaluation
and approval of the plan.
In 2009, the Board significantly reconstituted its membership and assessed and reconfigured its
committee structure, committee charters, and committee assignments. During this assessment and
transition period, the Board created a special CEO Transition Committee to recommend a suc-
cessor to Kenneth D. Lewis, the former Chief Executive Officer, in accordance with the Board’s
criteria and process described above. The special committee included the Chairman of the Board,
Dr. Massey, and the Chair of the Corporate Governance Committee, Mr. May, as well as four other
directors, Mr. Gifford, Mr. Holliday, Mr. Powell and Mr. Ryan. The special committee was disbanded
upon the election of Mr. Moynihan as Chief Executive Officer.
Source: Bank of America, Form DEF-14A, Filed Mar. 17, 2010 with the SEC.