Succession Planning is a Role Boards Overlook
It’s up to boards, usually led by nominating or governance committees, to plan for board members who join or leave the board. This includes everything from identifying the right skill sets to onboarding and replacement. But sources say barely half of boards have a well-documented succession and transition plan.
Boards Shouldn't Be Rigid in Their Approach
Boards should be uncompromising in their standards for boards of directors to join and stay on the board. But they should be flexible and shy away from term or age limits, panelists say. Some board members will handle longevity better than others, and everyone ages differently. If they’re adding value, they should stay if they wish.
Use Advisory Boards to Groom Future Directors
Advisory boards can be an effective, low-risk way to develop and vet prospective board members. After one or two years, they’re typically either rolled off or asked to stay, depending on their skills and how they mesh with the organization. It can serve as a de facto orientation program for potential future board members.
Webinar Recap: Panel of experienced NACD-certified directors explore the importance of strategic succession planning and how boards can overcome common barriers.
Succession planning is a key responsibility of every board of directors. But in today’s complex, ever-evolving business world, it can be a challenging and complicated process.
Recently, OnBoard hosted a panel discussion on the topic of strategic succession planning. The panel featured Stuart R. Levine, CEO of Stuart Levine and Associates and an independent director; Sheila Hooda, CEO of Alpha Advisory Partners and an independent director; and Jim Grogan, a board director for Drees Homes and U-Haul Holding Company.
The discussion explored areas including:
Here, we recap some of the key takeaways from the session.
Succession Planning is a Key Responsibility of Boards
Succession planning is an important responsibility of any board. The nominating and governance committees often lead the charge.
“The nom gov committee has three to four major responsibilities,” said Hooda. “One, very importantly, is succession. That includes board succession as well as succession for the CEO.”
According to Hooda, succession includes identifying the necessary skill sets, the recruitment and selection process, onboarding, evaluation, and replacement. “It’s a bunch of things that come under the word ‘succession.’”
Succession has always been important. However, in today’s current business environment, it’s increased in importance.
“We’ve seen massive disruption. The speed of change. The stakes are higher. Uncertainty is higher. Societal demands on businesses and boards are higher,” explained Hooda. “A board, as the steward of the company, has a fiduciary responsibility to ensure that the leadership and governance of the company is in place for the long-term.”
Succession Planning Often Falls by the Wayside
Succession planning should be a priority for any board. But often, that’s not the case.
Hooda shared a statistic that “51% of boards today do not have a written, well-documented succession and transition plan. “That number is horrendous,” she said.
There are Myriad Tools to Aid Succession Planning
There are many tools available to boards to aid in succession planning. Hooda mentioned several, including:
Succession Plans Must Be Flexible
It’s important to have the right people sitting around the boardroom table. Term limits and mandatory retirement ages can help ensure ineffective board members step off the board, allowing new board members to step up with the skills and backgrounds necessary to bring the organization into the future.
However, Grogan stressed that succession plans must be flexible.
“I think it’s very dangerous to create hard and fast rules that a board member has to leave at a certain time. I think you have to be nimble enough to know who’s still adding value. That would be my biggest criteria. Ask yourself, ‘is this board member still adding value?”
“Whatever your succession plan is, it needs to be flexible,” he added.
That said, there must be standards. Levine recounted a story of being on a board with two octogenarians. One was very sharp. One fell asleep during meetings. “At some point, that guy’s gotta go,” said Levine. “You have to assert some type of standard if you’re not going to have mandatory retirement.”
“Many board members don’t want to leave the board, even if they’re not adding value,” said Grogan. “That’s where it gets tricky. You can’t depend on all board members to know when the time has come. You need a strong chair and a strong CEO to manage that.”
Advisory Boards Can Be a Great Way to Develop Board Candidates
A key part of succession planning is ensuring you have the right people in place to step onto the board. This can be challenging.
Grogan has found that advisory boards can be an effective, low-risk way to develop and vet prospective board members.
Advisory members have no fiduciary responsibility and do not vote. Typically, advisory folks serve a one- or two-year term. After the term, it’s understood they will be rolled off or asked to stay, depending on where the company is, where it’s going, and what skills the advisory member brings.
“The great advantage of advisory boards is they act as a built-in orientation program on steroids. Advisory members are treated as board members. They get to see how board members interact with the executive management team. They get to see the issues that are important to the company at the time,” explained Grogan. “That’s great orientation. You have a built-in succession plan. You’re ‘building your bench’ year after year as new people get oriented to the company.”
Serving on an advisory board also gives members an opportunity to determine if board service is a good fit for them. “I have found this is a very practical approach people can benefit from,” said Grogan.
Boards Should be Wary of ‘One-Trick Ponies’
The business world is quickly evolving. Topics like cybersecurity and climate are now top of mind.
While it’s important to look for board members with experience in these areas, boards should be wary of candidates who are ultra-specialized in a single area.
“When you have these specialist board members, especially for cybersecurity, they quickly become outdated,” explained Hooda. “No one wants a ‘one-trick pony.’ You have to look at the broader skills the potential board member brings in addition to their speciality.”
Trust is Foundational
Trust is the foundation of everything the board does. That includes succession planning.
“We build trust through the way we communicate,” said Levine. “There’s nothing wrong with common sense collegiality. Sometimes in the rush to understand the new standards of governance, we lose common sense collegiality.”
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