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Board succession planning – essential to board effectiveness

May 2017  |  SPECIAL REPORT: OPERATING AN EFFECTIVE BOARD

Financier Worldwide Magazine

May 2017 Issue

May 2017 Issue


Back in the days when directors were hand-picked by chief executives (CEOs), the composition of boards was not of particular interest or relevance. But board independence has come a long way in the last couple of decades. Boards are now charged with a handful of enterprise-critical responsibilities which have raised the bar dramatically on who can and should serve as a director. Those responsibilities include such fundamental duties as CEO succession, strategy formulation and risk oversight. Execution excellence requires a carefully assembled board that possesses the skills and experience that align with the tasks at hand.

And investors are watching closely, holding boards to a high standard and making investment decisions accordingly, so boards are under increased pressure to perform at their peak. A major contributor to board performance and overall effectiveness is the individual and combined capabilities of the board team, that is, whether the board has the optimal composition to carry out its duties. To that end, leading boards are implementing board succession planning processes which are closely linked to CEO succession planning. Just as no high-performing board would now select a CEO without regard for whether he or she had the skills and experience to execute on the strategy, similarly, leading an effective board succession process starts with the strategy. Moreover, both CEO succession planning and board succession planning look ahead toward what will be needed to successfully guide the enterprise in the future.

Want to know how your board measures up? Below are the guiding principles leading boards adhere to in ensuring a rigorous board succession planning process that produces desired results.

Board succession planning is an ongoing process linked closely to company strategy. Much like CEO succession planning, board succession planning is an ‘evergreen’ process, not an isolated event. The idea is not to determine whether a candidate for the board would be a good director, but rather, good for what? And the strategy provides a yardstick, a frame of reference against which to measure a prospective director’s fitness for a particular board. Consider starting any director search with questions that link directly to the strategy and attempt to quantify future board needs. Those questions might include, where is the organisation going, what director competencies will be required and where are the gaps on our current board that need to be filled? What are some of the tough decisions and risks we expect to face, and do we have directors with the skills and experience required to tackle them? And do we have directors on our board who have successfully navigated anticipated challenges and who can guide us?

These sorts of questions will help to identify what the board currently has and what it will need in the future – the first step in any search for new directors.

A regular board assessment process will help to ensure you maintain the best board team as challenges shift. While many boards do not take stock of their team until a director leaves or they anticipate an opening on the board, companies would be advised to carry out this assessment on a regular basis. Strategy, and particularly the external business environment and larger economic context, are continually in flux, so yesterday’s capable board may now have gaps in critical competencies that will be required to advise and execute on a revised strategy. Having a ready slate of candidates, just in case, is a prudent position every proactive board should take. Public boards in the US are now required to implement a regular board evaluation process, but even if this is not mandatory for your board, you would be wise to have one anyway. And do not try to get away with the bare minimum. Invest the time in a rigorous, ongoing process that will help inform what director skills and experience the board needs and will help to promote the overall effectiveness of the board. Also, consider a rigorous individual director assessment process, although that is the tricky part that many boards avoid. Done properly, it assesses the strengths and weaknesses of individual directors. That is a tough task to take on in the collegial board environment, but given a professional, well-designed process with a feedback mechanism built in, it is an opportunity for not just individual directors but for the entire board to raise its game. Because a well-designed board evaluation process adds such value, we predict these evaluations will supplant age and term limits, the traditional, more passive approach to refreshing boards. In deciding which path to follow, boards should factor in the potential lost opportunity of waiting for directors who are no longer relevant to the strategy to age, retire or otherwise cycle off the board, when they might be replaced with someone more closely linked to the strategy.

Consider maintaining a slate of future directors based on future needs. It is best not to wait until you actually need a director before you begin to identify candidates. Many leading boards perform this research on a regular basis, maintaining a running list of directors they are keeping an eye on who would make valuable additions to their board. Since directors who also have corporate positions are able to serve on so few outside boards now, nurturing those director contacts helps to ensure that when a desirable director does have an opening, you may have an opportunity to recruit him or her. Some boards go so far as to temporarily enlarge their board if a stellar director prospect is available, especially if a veteran director may be planning on stepping down soon.

Design an onboarding process for new directors. Once you have identified and recruited a director who is a perfect complement to your strategy, do not stop there. Particularly if you are recruiting a first-time director, onboarding is a critical part of a successful board succession process. No one is born knowing how to be an effective director, and with the right guidance a new director can ramp up quickly as a contributor to the board, rather than relying on a protracted trial-and-error process. Do not make the assumption that experience as a CEO or C-suite member will automatically translate into being a high-performing director. In fact, serving as a CEO, even a great one, calls for very different competencies – some of which can be learned, others not – and many successful CEOs are not the best choices for a directorship. Onboarding may include an internal orientation process and mentoring by an experienced director. Also, consider using the onboarding process as an opportunity to engage the management team and encourage creative collaboration and cross-fertilisation with the board. That might include one-on-one meetings between the new director and each management team member – with the CEO’s knowledge and blessing – to gain a variety of views of the organisation. Exposure to the organisation might also include a tour of various facilities, as appropriate (actually this is a good practice, periodically for other directors, too). Building these experiences into the onboarding process helps the new director establish a personal connection with each member of the management team and assess the leadership bench, as well as to learn first-hand about the business.

Some boards are embracing board succession planning on their own, recognising that it is an integral part of performing effectively. Others are prompted by the external pressure from shareholders, particularly activists, where an element of their strategy may be securing seats on the boards of their companies. Whatever your board’s motivation, it is safe to say that those boards that are more proactive in evaluating current director resources and anticipating future needs will be in a much stronger position, regardless of the challenges ahead.

 

Christine A. Rivers is a senior client partner in the Board & CEO Services practice, and Joe Griesedieck is vice chairman and managing director of Global Board & CEO Services, at Korn Ferry. Ms Rivers can be contacted on +1 (617) 425 4545 or by email: christine.rivers@kornferry.com. Mr Griesedieck can be contacted on +1 (415) 288 5367 or by email: joe.griesedieck@kornferry.com.

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