Board Effectiveness

Skating to Where the Puck is Heading: Succession Planning

Foresight BoardOps Augmented Owl Icon
I’m not done just yet

COVID-19 has reinforced the importance of ongoing executive succession planning as well as board succession planning. What follows are some suggestions for making that ongoing planning happen – starting with agenda planning. These suggestions apply to public and private companies.

Planning the Board’s Role in Executive Succession Planning

Putting executive succession planning on boards’ annual agenda calendars ensures that boards addresses this topic. An opportune time to take up this topic is following the board’s strategic plan review, so the succession planning process considers the company’s strategic evolution.

But succession planning is only one element of boards’ larger Human Capital Management processes. The board can also play a significant role in ensuring rigorous performance assessments (especially C-Suite assessments), coaching and mentoring, and career planning processes. Also, directors can serve as coaches and mentors for high potential executives or rising stars. Career planning is especially critical to advancement of women and minorities – as a lack of rotations with significant P/L responsibility often impedes progress toward C-Suite and the CEO role. 

Planning the Board’s Role in Board Succession and Refreshment

Getting the time on the agenda is a critical first step to board succession planning – which involves planning for both individual directors and the board as a whole.

Just as executives’ annual performance assessments are important to executive succession planning, annual director assessments are important to board succession processes. Annual assessments can reveal directors’ untapped strengths or aspirations as well as weaknesses that need addressing. Once recognized, untapped strengths and aspirations can be factored into committee assignment planning and committee chair rotation planning (it’s good practice to rotate committee members and chairs roughly every five years to maintain a sense of director equality and shared responsibility).

For identified weaknesses, an astute Lead Director or Governance Committee Chair can work with the director to develop a training plan (then share that plan with the governance committee or board). It can be as simple as spending more time with relevant company executives or on location to learn more about the company, attending a director education session at focused on a substantive area in which the director is weak. Behavioral issues can require one-on-one discussions. If another year passes and those weaknesses remain, the governance committee or board will face a tough decision as to whether to renominate the still weak director.

Increasingly, investors are interested in how boards conduct these annual assessments and what action boards take to address identified shortfalls. The desired information is easy to include in the proxy statement.

Committee assignments and rotations should appear as an agenda topic on the governance committee’s annual agenda calendar. Identifying and developing committee members and chairs to facilitate timely rotations is another pillar of board succession planning. Assume that all directors are capable of contributing to any committee; a doctor who leads a health care facility has experience in process management and controls that can benefit an audit committee.

Director recruitment planning is another element of board succession planning. As the company evolves, the board should too. In hockey, one skates to where the puck is going; the board should be building its future self for the future company. Increasingly, investors want boards to be diverse and include a mix of relevant experience (not to be confused with expertise), competencies, and perspectives. Investors want to understand the rationale for why the current director mix is appropriate and how they factor diversity into recruitment.

Some investors are also pressing for term limits or other means for boards to foster refreshment. Investors are interested in learning about how boards are planning to ensure that the future director mix will be appropriate for the future company. And boards are recognizing that board refreshment is the new normal. Effective recruitment planning does not just happen – it needs to be on governance committees’ annual agenda calendars.

In sum, directors and boards should be lacing up their skates and taking on the sometimes difficult topic of succession planning.

For additional insights into director succession planning, see Board Development and Director Succession Planning in the Age of Shareholder Activism, Engagement and Stewardship by Sabastian V. Niles, Wachtell, Lipton, Rosen & Katz, on Friday, June 7, 2019 at  https://bit.ly/3cxKV1Q

Foresight - BoardOps Owl divider

A better way to manage your board

With Foresight you can manage all of your board’s agenda items, improve board performance, and save time and money.

Foresight augmented eyes in random positions like thought gears powering an agile corporate board.