The appointment of the CEO is probably the most critical decision that a board makes. Given the importance and impact of the role, most boards recognise that it’s essential to have a clear and credible CEO succession plan. They understand that if, for example, the CEO has to leave swiftly because they have a health issue, it can create a big hole in the leadership of the business and the decision-making capacity of their organisation, to the detriment of the business. Therefore, a succession plan must be in place for the CEO to cover all eventualities to protect the organisation and ensure minimal disruption in pursuit of its growth targets.
Succession plans for directors
But what about the other members of the board – the directors? They play vital roles on the board, add value to the decision-making process, and have a major impact on the overall success of the organisation. To source directors that will provide value, whilst also delivering business continuity, a succession plan must be in place for all board members, particularly the chair and committee chairs.
Succession planning on the board is not something to look at shortly before a director comes towards the planned end of their term or reaches retirement age. What happens if a board member leaves a board unexpectedly at short notice? It could take many months to source a replacement, which could have a significant impact on the effectiveness of the board. This is even more important where the director brings unique skills or experience, which is vital to the organisation’s growth, such as in mergers and acquisitions, or plays a critical role as the chair, either of the board or a committee.
How to deliver a succession plan
As the pandemic looks set to ease with the vaccine rollout moving forward, now is a good time for boards to take a step back and start to put in place succession plans for all members of the board. This requires them to identify and mentor internal talent or those external to the organisation, possibly over many years, to help support a seamless future transition. The board needs to revisit the succession plan for each director annually to ensure they continue to have the appropriate people in their sights.
Diversity on the board
A key point to remember when putting together the succession plan is the importance of diversity on boards. This must be more than simply demographic diversity, but of skills, experience, thinking styles, and circles of influence. For example, when it comes to skills, it’s critical you have someone on the board who understands digital, with digital disruption being a key driver of business success. Also, a good mix of thinking styles on the board, particularly across the four lines of sight – foresight, hindsight, insight, and oversight - is crucial for an effective board to ensure it delivers maximum value.
Boards that lack diversity are most likely male, pale, and stale - what I term “Jurassic boards” – that tend to focus on the past and not on the future. They risk leading their organisations into extinction.
Succession is also linked to other vital board processes. A regular review of the board and individual directors is one of the most important processes to assess board and individual director effectiveness, and identify opportunities to develop. These ensure directors are “fit for the future” and are more important than ever after the turbulence of the past 18 months. The reviews should involve four stages.
Firstly, review the documents from the previous evaluation, development plans, and key performance indicators of the director.
Secondly, send online surveys to all directors and other nominated parties that work with the director being reviewed.
The third stage is the critical process of interviews online or over the phone with directors to validate and clarify points raised in the survey which cannot be explored purely via that channel.
The final stage is the report process to the board highlighting any divergence between the views of the director and their colleagues, identifying strengths and opportunities for improvement, support, training, or mentoring to help the director add increased value.
If a review highlights issues with a director, it may prompt the board to consider if a new one is needed. This makes it even more vital that a succession plan is in place. It’s also worth bearing in mind that planning for the exit of a director and induction of the new one is part and parcel of the succession process.
In fact, the induction stage is the final part of the succession process. With many boards operating both virtually and in crisis mode due to the pandemic, it’s vital that new directors make a meaningful contribution to board deliberations from the start of their tenure. This can only be achieved via a formally structured “journey of learning” induction plan over 18-24 months. This must involve a programme of visits and experiences, a buddy system where the new starter is partnered with an experienced director, company specific governance training, and potential formal governance training depending on the new starters’ current skills and experience.
The outdated approach to inductions, which sees the unfortunate new director being given a forest’s worth of reading material – annual reports, codes of conduct, governance procedures, strategic plans etc. - and told to get on with the job in hand, is not conducive to them being able to quickly add value to the board.
Effective boards take succession planning for directors seriously, particularly in the current challenging business environment. They must prepare for all eventualities from unexpected departures, such as illness or not being up to the task in hand following an annual review of their performance, through to the dates they can plan for, such as reaching retirement age.
When it comes to planning for succession, boards must consider the diversity of directors currently on the board, particularly the skills and experience they need to help drive future growth. They should also put thought into delivering an in-depth induction process to ensure new starters add value as soon as possible.
John Harte is the Managing Partner at Integrity Governance