By Dennis Carey and Robert Hallagan, Vice Chairmen, Co-Leaders, Board Services Practice, Korn Ferry
The need is clearly there. Faced with everything from geopolitical changes to disruptive technology to growing pressure from investors, boards have needed to get a handle on smart succession planning to insure a strong organization. The best ones are realizing it.
Indeed, elite boards have raised the bar and established a vision and objective to be a strategic asset and a source of long-term competitive advantage. It is a high bar, which requires an engaged and relentless culture of continuous improvement and a clear view of the characteristics of high-performing boards.
Except in cases such as carve-outs, IPOs, or companies emerging from bankruptcies, it would not be good practice to be constantly resetting the board every time there is a major change in the industry. Longer-term board succession planning, however, is a best practice Korn Ferry is managing for many of its clients and is much like CEO succession planning.
In Korn Ferry's CEO Succession practice, our best advice is to start early to secure a seamless transition of high-performance CEO leadership. The same advice applies to boards if companies want the right talent around the table on a continuous basis. In the past, we would respond to clients on a one-off transactional basis, but potentially disappoint them when the “ideal” candidates—including diversity candidates—were not available at that exact time. With the bar set at the highest level, we cannot compromise on the qualifications of new board members because of timing issues. Long-term board succession planning is a clear best practice.
Board Succession Process Framework
The process to develop a board succession framework starts with a detailed analysis of the company’s long-term strategic plan and what the company must do to drive long-term shareholder value. In that analysis, we try to simulate board interaction and board agendas to identify what precise competencies and successful experiences would add the greatest value around the table.
Factored into the framework is the objective to have a seamless transition of board leadership, whether it takes the form of non-executive chairman or lead director, as well as committee leadership.
Not all directors have the unique qualities required to assume these leadership positions. In fact, the individual who aggressively lobbies for these positions in many cases is the wrong person, and in other cases the person identified as the right choice may not have the time or interest. The current board leader along with chair of the governance committee must plan the process carefully.
Once the framework is developed and agreed on by the board, it must be kept fresh and current on an annual basis to be sure new and emerging transformational issues are discussed—and if there are any, to create a new competency requirement for the board.
Benefits of Framework
Although the initial process of developing the framework creates sensitivities, it does stimulate the right conversation around the table, and, frankly, it’s one that major shareholders expect boards to have on a continual basis. Election by the shareholders is a privilege and honor, and all directors should periodically be asking themselves questions about their ongoing value to the board. The framework helps generate self-assessment and reflection, which should include the following questions:
- Given the future direction and challenges of the company, are my skills still relevant and adding high value?
- If the board were to search for a new director, could they find someone with skills more relevant than mine for future challenges?
In addition to prompting the right discussions around the board table, this framework allows the company to project its needs over multiple years. This extended time horizon allows for extensive research in all high-priority areas and in-depth discussions far in advance to determine interest, conflicts, and future timing amid a relaxed timeframe to get to know the candidate and assess cultural fit.
The extensive research and outreach builds a pipeline of candidates to both socialize—get to know them—and be opportunistic if suddenly their calendar opens up to a board opportunity. This could happen if the candidate is on the board of a company that is acquired, if their company changes its policy regarding outside board limits, or for other reasons. If you have already built a rapport with a candidate you can make a preemptive move, and be opportunistic even if it is a little ahead of schedule.
We all know the multiple benefits of “diversity of thought” on the board, as well as the heightened pressure to have diverse boards. The multi-year horizon allows targeted research of best-in-class companies to identify diversity executives who are up-and-coming and several years away from being exposed to board opportunities. Once these executives reach the ideal level, it may be too late to recruit them, as the competition for their service heats up. And once they have one outside board, they are no longer available. Attracting them early and providing thoughtful board mentoring will help to ensure that the board attracts these future directors.
Boards should begin to embrace a board succession process—geared to long-term board needs—as a best practice, much as they have embraced CEO succession planning. By doing so, they will be working to align their boards more closely with company strategy and building a board team that will help to ensure its success.