Stuart R. Levine, Chairman and CEO, Stuart Levine & Associates LLC. Published in Forbes.
Whether a governing board oversees a public company, a privately owned firm, or a not-for-profit organization, sound governance and leadership are essential. Peak board performance requires directors to be engaged, focused and knowledgeable. A well-functioning board establishes the culture for the entire organization.
On our most recent Succession Planning Onboard Webinar, Sheila Hooda, Director, Enact Holdings, Inc. reiterated that the two most important roles of a board are oversight of the long-term strategy development and the leadership succession and governance of the company.
In this context, she referred to the 2023 Gartner Board of Directors Talent Survey which uncovered that only 51 percent of surveyed directors said their company had a written CEO succession plan. Of the remaining group with no plan in place, only 18 percent were confident as to how they would manage this process.
Russell Reynolds Global Leadership Monitor has complementary data regarding c-suite succession from the perspective of a Chief People Officer (CPO). Only 36% of CPO’s think their company’s succession practices are transparent and clearly understood.
Succession planning is extremely personal and forces people to evaluate their own performance based on independent data, which is challenging. This is certainly not a check the box exercise.
The serious responsibility of board governance starts with nominating and electing highly qualified directors, who express good independent judgement and diligently exercise their duties of care and loyalty. By bringing their expertise, perspective, and necessary skills to collaborate with other directors, they must listen, and commit to learning together. They share their judgments, especially when they differ from the consensus, and they are comfortable with challenging conversations that may result. The level of excellence of the individual directors and the way they interact as a team determines the quality of the oversight function that they exercise.
Having underperforming assets on a board is a signal for disaster. Disruptive directors who don’t do their homework, ask questions that were included in the pre-board meeting materials, don’t listen, have huge egos, or form cliques take away from board productivity and effectiveness. Succession planning takes character and needs to be managed in an intelligent way.
Many board members just don’t want to leave, even if they are not adding value. You can’t depend upon all board members to know when the time has come, says Jim Grogan,
Director U-Haul Holding Company and Director Drees Homes. And when you do onboard new directors, Jim stressed the importance of having a robust orientation program that potentially can assign a mentor from the board to share nuances of board service and encourage them to be thoughtful and independent. The curriculum will enable a new director to engage with the full board’s strategic discussions with greater speed.
Director succession planning begins with a robust board assessment process. A regular rhythm of assessment is one of the most effective tools for maintaining high board functionality and continuous improvement of its processes. Highly functioning boards use their time efficiently and avoid the unwise decisions and missed opportunities that come with board dysfunction. They tackle tough questions of strategy and risk management in conjunction with the leadership team, and they commit to a culture of trust, collaboration, learning, and improvement.
Analysis of board processes, committee operations, and board and committee composition establish a baseline for identifying the board’s strengths. Importantly, it also uncovers areas that must be addressed for board improvement. When board members share and receive candid feedback from each other, senior executives, and trusted external parties, it leads to superior board dynamics, clearer agendas, streamlined processes, enhanced meeting materials and resources, and more suitable board and committee composition.
Increasingly, companies are turning to trusted third parties to assist in these important assessment exercises. An experienced and independent expert brings a broad level of knowledge from work across industries and types of organizations. They design appropriate survey instruments to explore critical areas affecting director and board efficacy. They perform confidential one-on-one interviews drawing on broad and deep experience in interacting with seasoned professionals. They establish trust that allows directors to bring to light uncomfortable viewpoints in confidence and without attribution; viewpoints that would otherwise not come to light. They assemble the data in confidence, providing quantitative and qualitative support for action plans that are designed to boost board efficacy and director effectiveness.
Destigmatizing the transition from board service is something that should also occur. Board service is not a lifetime role. Michael Bloomberg’s recent move to ax the entire board of his $12 billion company is unprecedented. People claim this will enable Bloomberg to get rid of the longer 20+ year tenures held by existing board members and the chance to refocus the skills required for future strategies. This is certainly not recommended but speaks to the critical nature of succession planning to effectively lead companies into the future. The most recent upheavals with Sam Altman’s departure and return to OpenAI and the tumultuous changes that occurred on OpenAI’s board reflect the importance of alignment around vision, values, culture, expertise, and readiness.
Succession planning is a major challenge for most companies. Although most leaders believe succession planning is important, few believe they do it well. It requires independent data and having the courage to move forward to execute what needs to be done while ensuring the process is based on a foundation of trust and dignity.