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Board succession planning

Why are boards afraid to talk about the future?

By James Beck

It was not the strongest board in corporate Australia in the first place; now it is in dire need of experienced, battle-hardened directors and strong leadership … A stark difference at Telstra has been between the successful succession planning for the role of CEO and the non-evident plan for orderly board renewal.

Source: Wilson, 2009, “Telstra leaders now need to reconnect”, The Australian, 12 May

The quote above relates to the sudden departure in 2009 of the Telstra chair, Donald McGauchie and the appointment of Catherine Livingstone, who had the role of chair of a major ASX-listed company thrust on her at a critical time in terms of the global financial crisis and of the telco itself given the appointment of a new CEO and the evolution of the communications industry in Australia.

In general, boards are more familiar with succession planning for CEOs and key senior managers than for the board itself. However, to be effective boards should periodically consider the composition of the board, whether any change in size or membership is necessary. By planning and evaluating the next two to three director vacancies, boards can avoid having to meet their specific requirements at short notice (see Figure 1).

This will involve consideration of:

  • The present composition of the board, its strengths and weaknesses
  • The qualities and skills the organisation needs on its board
    • Experience of industries and professional disciplines
    • Personal qualities
  • The changing needs of the company
  • The expected pattern of retirements

Figure 1: Boardroom Succession Planning Process

Boardroom Succession Planning Process

Succession planning will be assisted by assessing the performance of individual directors to identify:

  • The most important gaps in the board’s current composition
  • The gaps arising from expected retirements or resignations
  • Weak or uncooperative performers

The responsibility for succession planning sometimes falls to a specific committee—often called the nomination or governance committee. This committee will be responsible for:

  • Developing a list of eligible candidates;
  • Interviewing potential candidates;
  • Recommending candidates to the full board; and
  • Ensuring each new director receives induction and ongoing director development.

However, boards may not know where the emerging talent is or what the future availability of certain potential board members may be. In this case, it may be useful to use an executive or non-executive director recruitment agency to assist either the board or a committee charged with finding new directors.

Chair Succession

Selecting the right chair is arguably as important as selecting the right CEO. Chair succession should be viewed as part of the overall board development plan. Effective chair succession planning involves:

  • Clearly defined roles for the chair and directors;
  • An effective performance evaluation process that enables:
    • Identification of directors who are potential successors to the chair; and
    • Recognition of the gaps between the directors’ current sets of competencies and the competencies required to credibly step up to the chair position; and
  • Creation of a development plan for directors in order to prepare an appropriate succession structure within the board.

Developing the Board

Good chairs recognise the need to develop themselves and their fellow directors, individually and collectively, in order to forge an effective board:

  • It is the chair’s responsibility to guide new board members through the depths of their learning curve.
  • It is the chair’s responsibility to consider appropriate avenues for his or her own development, which can include receiving feedback from the board, calling upon external facilitation and advice, or joining certain clubs or meetings.
  • It is also the chair’s responsibility to grow the talent pool of future board directors.

If you need assistance with board succession, skills assessment or director recruitment, feel free to contact us.