Succession is critical to the life of any organization, and as such, one of a boards’ most important responsibilities is succession of both management and the board. A good succession plan helps prepare the board to act swiftly and confidently in filling seats that unexpectedly become available on the board as well as helps to prevent staleness on the board. Preventing staleness or “institutionalization” of thought on the board is in the best interests of the organization. However, adding directors with fresh or non-institutional thoughts comes with a price, whether accomplished through traditional approaches such as term limits or age restrictions todayor by involving the board in making itself an “expertise” board. Getting your board to buy into a succession plan helps create a multi-generational board that is future oriented and prepared for emergency absences.
With the demand for skilled, independent directors with expertise in specific areas higher than ever and the supply shrinking due to increase exposure to liability and the time involved in board service, boards need to engage in the kind of forward looking approach to board succession that historically was reserved to only CEO succession.
Historically, boards have failed in succession planning for several reasons ranging from perceived excess time to lack of a defined process. Primarily, for most organizations, board succession planning seems like a task that can always be started tomorrow or only needs to be considered when a seat becomes available. However, with the ever increasing responsibilities boards are faced with today it is even more important to have a defined process in place to allow for a seamless transition with the addition of any new member to the board. A board’s succession plan needs to be a structured, proactive process, not an activity that the board only thinks about when a seat becomes open. By beginning the process early, the board can develop lists of different directors with different expertise to fill a number of different seats on the board when a seat becomes vacant.
Boards, in the past, may have been able to successfully find good candidates at the specific times they needed to fill a vacancy. However, the economic climate in which businesses are operating today requires a more proactive approach and starting early to help identify not only the potential directors but also the skill set the board believes it will need in the future. Thus, it is important to plan early for board succession to allow adequate time to both find and properly vet all available candidatess.
All organizations are different, so what may be a good succession plan for one may not necessarily be the best plan for another. Still, the considerations that go into any board succession plan are the same.
First, any plan must start with evaluating the current long-term strategy of the organization and competitive landscape:
- What are the organization’s growth plans?
- Will it expand into new markets?
- Will the organization develop new programs and/or services?
- Will it be an acquirer or is it a target?
- Will pending/proposed changes in the law/regulatory environment affect the organization?
- Will the competitive landscape force the organization to act?
As we discussed in last month’s Acredula, the first step in any succession plan should include a board evaluation plan which includes a self assessment and skills analysis to create an inventory of the skills present on the current board - but more importantly to determine which skills and expertise will be necessary for the organization to meet it goals and strategies over the next three to five years. The structure of the board should follow the organization’s strategy, and a board evaluation will assist the organization in creating job descriptions for vacancies on the board.
Second, any plan must allow the board to always be looking for a good person for the board: do not wait until a board member steps down or announces retirement. By developing a plan that is continuously looking for good members, the board will have a larger pool of candidates to select from and time to find the right person - not just any person.
Third, any plan must not tie the board to its current size. There is nothing sacred about the size of the board. If the ideal candidate is located early, an expansion of the board within certain limits, even if only temporary, can help ease the transition and provide continuity to the board. Additionally, this will ensure the candidate does not join the board of another organization while you are waiting for a vacancy to open up. It is more important to add a good person when he or she is available then wait for the right time.
By developing a plan and considering future directors today, boards can “evaluate” potential directors. The success of any board is not only determined by both the specific expertise and general business acumen of each director but also the ability of the directors to interact with each, respect the opinions of others and effectively work together in the best interests of the organization. Early identification of potential directors can help the board observe and interact with potential candidates to see if there is a fit. Beginning today to develop a plan for board succession will prepare your board to react to any vacancy, planned or unplanned.