The days of relying on traditional approaches to board succession planning are over. Boards, and their composition, are under scrutiny of shareholders, media, regulators and even the government. As a result, boards need to move past reliance on term limits and mandatory retirement ages as the foundation of succession plans and structure succession plans that focus on the strategic goals of the organization.
To adapt to the ever-changing environment in which they must operate today, corporations, both for profit and nonprofit, need to remain flexible –this includes flexibility in an organization’s strategy, its market, its workforce and even its board. This ability to be flexible is one key indicator of a high performing board and makes succession planning more important than ever.
One of a board’s more important duties is to plan for its own succession. However, most boards fail to take the time to appropriately structure a plan that will allow it to easily adapt as the corporation changes.
Boards need to remember one theme while developing a board succession plan: structure follows strategy.
The composition of an organization’s board must be built to meet the organization’s strategic goals. The first element of board succession planning is evaluating every seat on the board and recognizing that each represents an opportunity to increase an organization’s expertise. The final element is evaluating the skills and expertise of every individual chosen to fill one of those seats and providing each with the information, resources, training and support needed to succeed as individual board members and as a collective board. In between these two steps is the strategic planning process of the organizations where the board considers the following:
- What are the organization’s growth plans?
- Will it expand into new markets?
- Will the organization develop new products, 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?
Boards should strive to move from a random collection of individuals to a board of “experts.” Composed of persons each having particular skills or expertise, the board should collectively have to achieve its future objectives.
An “expertise” board requires the organization to assess the core competencies present among its current management team and board, prioritize the additional competencies necessary for future operations, and recruit only those persons having the needed competencies for the board. Further, an “expertise” board allows the organization to create job descriptions of requisite expertise or skills for future directors.
Before a board can create a job description based on the expertise needed to help the organization reach its goals, the board must know what skills and expertise are present amongst the current board members.
There is a tool to effectuate this process — a Board Evaluation. Board evaluations can take many shapes and forms each with a specific purpose or goal to help the board improve efficiency, effectiveness and fulfill its legal obligations to provide direction and oversight to the organization. The three most common evaluations are the full board evaluation, the self-evaluation and the peer-to-peer evaluation.
Prior to beginning the process of developing a board evaluation, it is important that all directors understand the need to conduct and participate in the evaluation and that the directors buy-in to the process. Without buy-in from the entire board, the evaluation will not succeed. Therefore, it is important the initial steps are taken carefully.
For the purposes of succession planning, the key evaluation is the self evaluation. Self evaluations will allow the organization to take an inventory of skills and expertise present amongst the current board members. This skills inventory will provide a guide in assessing what expertise is lacking amongst the current board that is needed to ensure the board has the breadth and depth of competencies it needs to support corporate strategy in the upcoming years.
With this knowledge in hand, the board can memorialize in writing the expertise the board needs going forward and allow the board the opportunity to begin recruiting potential directors to fill that need. Such a plan also will provide the board with time and a larger pool of candidates to find the right director, not just any director, to fill an immediate unplanned opening on the board.
It cannot be overlooked that a board evaluation process without buy-in from the entire board is doomed to fail. Thus, before undertaking the process to develop a plan, boards should seek guidance on the appropriate steps to take that will provide the best chance of success.