This past month, I attended a Deloitte conference hosted by their Center for Corporate Governance, including 1,000 directors across 30 locations, live from New York City. One of the most important topics and issues discussed is the board’s approach to succession planning.
The departure of your CEO is the most important and challenging board responsibility. Most boards don’t provide sufficient time to this critical task. A Korn Ferry survey indicates that although 90% of board members think it’s important, only 30% are prepared for their CEO’s departure. This increases risk and costs to the organization and results in lost investor confidence.
Several best practice scenarios need to be in place for the immediate, as well as two to three years and longer. The ugly truth is that most CEOs would like to stay forever. So how do you go about planning for this transition? The process of succession planning is a direct reflection of the culture of the board and the decisions made around this often strenuous process can be challenging.
Ensuring that boards take enough time and care to understand the company’s strategy and to have a regular evaluation of more than two top candidates in the right setting is critical. With CEO tenure being down from ten years to below five, getting comfortable with the company’s bench strength is even more critical. I once heard this complex and emotional topic likened to” planning for your own funeral or a new spouse – it’s messy.”
Shockingly, most businesses spend less than two hours per year on this critical topic. Having a pipeline of at least one or two succession candidates takes work. The board must know these candidates, make trips to visit and see them in their environment, as well as get to know them outside of the boardroom, as human beings, and see their potential as a leader of the company.
This issue must be on the board agenda consistently. Some boards, such as Intel, have a “board buddy system” in which board members mentor CEO candidates. Many companies provide development goals for succession candidates and provide them with executive coaches. Current CEOs, who have built strong and loyal teams, need to have the most valuable input, as they are responsible for the talent acquisition in the company. Additionally, the management of this delicate process by the CEO and supported by HR is critical, as a company’s best people and talent are in the market every day, as potential recruitment candidates by other companies.
When an organization is functioning extremely well, succession planning is often put on the back burner. These “good times” can also be times when the board might extol its leader as bordering on being “indispensible” or “irreplaceable” with little thought given to contingency planning. They are “yellow flashing lights”, especially if senior management, the board chair, or worse yet, the leader themselves embraces that perception and mindset. Proactive succession planning is a key indicator and sign of institutional and leadership maturity, accountability and contingency planning.
Proactive succession planning requires a deep understanding of the company’s strategy. Knowing the company’s strategy inside and out requires a commitment of time and responsibility on the part of directors. This provides the gap analysis and ability to create a pipeline for a well-designed succession plan. The board and CEO should be aligned on this subject and it should be on the agenda of every board meeting. The board needs to own this responsibility and the CEO needs to find ways to engage the board in strategic planning and partnering with management.
In a recent webinar I moderated as part of the National Association for Corporate Directors (NACD) Boardroom Excellence Series, amongst 500 people registered for the program, over 50% of the director’s questions expressed their frustration in defining their role in the strategic planning process of the corporation. CEOs need to structure meeting agendas in advance around strategic questions to engage the board and utilize them as a think tank in which healthy and challenging discussions can surface around important strategic issues for the organization.
We should always remember that Management has a shared responsibility with the board to ensure the right outcomes for its credit union members. As a volunteer, consider asking for support from the CEO or his or her staff if you need it to understand or clarify strategy issues. Boards can always retain independent consultants who can work with them to assure appropriate outcomes that deliver member security.
Getting the right things on the agenda on a regular basis, and ensuring that the right discussions are held in the right settings on both strategy and succession planning leads to board engagement and board effectiveness. Achieving well-designed strategic planning and succession planning processes is a reflection of the culture of the board. I would suggest that boards review these processes to ensure that the culture has the courage to encourage challenging and often complex dialogues which reflect governance best practices.
Stuart R. Levine is Chairman and CEO of Stuart Levine & Associates LLC, a strategy, leadership and governance consulting firm. www.stuartlevine.com