Shareholders want senior management and boards of directors to focus on succession planning and are keen to know where a company is heading, AMP Capital's Corporate Governance Report 2013 said.
The report said shareholders want to know how succession planning drives the quality of leadership and arms companies with the ability to seize opportunities and tackle short- and long-term challenges.
The report said the issue was gaining traction after specific guidelines were included in the latest draft Australian Stock Exchange Corporate Governance guidelines.
AMP Capital corporate governance manager Karin Halliday said shareholders who took a keen interest in leadership and succession planning could 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 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.