The qualified pool of chief executive (CEO) talent to run the largest publicly traded companies in the US is incredibly small, according to the directors who sit on the boards of these companies according to recent research by Stanford Graduate School of Business and The Rock Center for Corporate Governance.

The 2017 CEO Talent Survey is based on interviews with 113 directors of Fortune 250 companies and 18 executive recruiters and compensation consultants undertaken during summer 2017 to understand their views on the labour market for top CEO talent in the US. The research found that the average director of a Fortune 250 company estimates that fewer than four people—including those both inside and outside their company—would be capable of stepping into the CEO role today and running it at least as well as their current CEO.

The directors estimated that only six executives could perform as well as the of their biggest competitor and only nine would have the skills required to turn around a company struggling in their industry. Almost all directors believed that the CEO role at their company is challenging, with 59% saying it is extremely challenging and 39% saying it is very challenging. Practically none (2%) said that it was moderately, slightly, or not at all challenging.

The survey found that the executive recruiters and compensation consultants gave larger estimates of the size of the CEO labour market. In general, they estimated that the number of executives that are capable of running a typical Fortune 250 company to be approximately four times larger than the estimates provided by directors. They were also less likely to agree that a company needs to have the top CEO in the industry in order to succeed.

SEC adopts interpretative guidance for companies adopting pay ratio disclosure rule

The Securities and Exchange Commission (SEC) has adopted interpretive guidance to assist companies in their efforts to comply with the pay ratio disclosure requirement of the Dodd-Frank Act.  Under the SEC’s rule implementing the pay ratio requirement, companies are required to begin making pay ratio disclosures in early 2018.

Jay Clayton, SEC chairman said: “It’s our priority to make sure that we implement disclosure rules mandated by Congress in a way that is true to the mandate and, to the extent practicable, allows companies to use operational data and otherwise readily available information to produce the disclosures.”

He said the guidance reflected the feedback the SEC had received and encouraged companies to use the flexibility incorporated in our prior rulemaking to reduce costs of compliance. The guidance provides the SEC’s views on the use of reasonable estimates, assumptions and methodologies, and statistical sampling permitted by the rule; clarifies that a company may use appropriate existing internal records, such as tax or payroll records, in determinations about the inclusion of non-U.S. employees and in identifying the median employee and provides guidance as to when a company may use widely recognised tests to determine whether its workers are employees for purposes of the rule.

Majority votes against directors does not mean they will step down from company boards

Although some US companies have moved to majority voting for directors that does not actually mean that directors will not get voted off boards research from Equilar has shown.

Equilar examined voting results for Russell 3000 companies that published votes for their recent annual meeting by July 19, 2017. Though very few failed their director approval ratings—just 32 out of 17,540 directors failed to receive majority support, or less than 0.5% of all directors up for election—all of these directors remained on the board after the votes were counted.

The research found that of the directors that did not receive majority support, 10 directors from six companies submitted their resignation to the board—all of which were rejected by the remainder of the board. Upon rejecting the resignations, the boards acknowledged concern of the shareholders but ultimately decided it was in the best interest of the company to have the director retain their seat. Therefore all 32 directors who did not receive majority support remained on their respective boards, even when those failing directors tried to resign.

Equilar said these findings were a cause for concern for shareholders and may be partial contributions to the rise of proxy access and the increasing scrutiny around board composition from both institutional shareholders and activists.

Last Updated: 20 October 2017