Investors are calling on senior management and boards of directors of companies to focus on succession planning, according to a report.
AMP Capital's Corporate Governance Report 2013 said shareholders are increasingly keen on knowing how succession planning steers the quality of leadership and enhances a company's ability to seize opportunities and tackle short- and long-term challenges.
AMP Capital corporate governance manager Karin Halliday said shareholders who take a keen interest in leadership and succession planning can make better informed investment decisions.
"Simply asking directors about governance issues such as succession planning elevates the importance of these topics and encourages directors to address them," Halliday said.
"The same thing happened with CEO pay when the ‘Two-Strike' rule was introduced. While companies know how they will remunerate and what management skills they need, the increased scrutiny has led to constructive dialogue with shareholders."
The report asks if corporate Australia has the ‘bench strength' required to develop and grow companies as they move forward.
"Is there someone the baton can be passed to or has cost cutting and short-sightedness sacrificed the development and nurturing of talent?" the report said.
This issue is gaining traction after specific guidelines were included into the latest draft Australian Stock Exchange Corporate Governance guidelines.
The report said that while it is not always possible to have a CEO replacement ready, it is better for companies to appoint an internal candidate.
"Not only are internal candidates able to hit the ground running, but the transition tends to be far less disruptive and far less costly — unless significant cultural change is required," the report said.
