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Aligning Board Succession Planning with Strategy

Board succession planning is at the heart of board effectiveness. To be a high-performing board, you have to have the right people sitting around the boardroom table; yet, this process is far more complex than it appears at first glance.

The nominating and governance committee typically spearheads the board succession planning process. This entails assessing the company’s long-term strategy and identifying the skills the board needs in order to execute—a difficult process in today’s fast-paced business landscape. Indeed, today’s companies are under the gun to drive innovation, while at the same time manage a range of emerging risks—from protecting against cyber threats to mitigating globalization risks. This puts great pressure on today’s nominating and governance committees to think outside the box: What mix of skills, expertise and perspectives does our board need to push the company forward? How can we uncover candidates who break the mold?

Board Composition Trends

Board Succession Planning by the Numbers

According to the 2018 Spencer Stuart Board Index, the average age of today’s S&P 500 board members continues to hover around 63 years old, while board turnover remains chronically low. Yet, the latest Board Index also reveals several interesting statistics about the newest directors arriving in today’s boardrooms:

Percent of all new S&P 500 board members added in 2018:
  • 56% of all new board members were actively employed (not retired).
  • 40% of all new board members were female.
  • 33% were serving on their first public company board.
  • 17% of all new board members were 50 years old or younger.

These numbers certainly paint a picture of change in board recruitment. Not only are boards looking outside the “traditional director” profile, but they’re likely feeling pressure from their shareholders. Institutional investors like BlackRock and State Street Global Advisors have taken a strong stance on board diversity throughout the last several proxy seasons by withholding votes on boards with less than two female directors. While these investors have chosen gender diversity as a starting point, their message around board composition is much broader; they want to know how today’s boards are considering all kinds of diversity—race, age, industry, geography, career experience, even personalities—to mitigate ESG-related risks and move the company forward on a path of long-term growth.

Best Practices in Board Succession Planning

Subject-Matter vs. Broad Experience

As the risks and growth opportunities facing today’s companies become more specialized (e.g., digital transformation, cybersecurity), today’s boards must weigh whether it makes more sense to recruit subject-matter experts to the board or prioritize a more holistic set of experiences.

There’s a real trend right now [towards recruiting] subject-matter experts to the board—maybe someone that’s focused on cyber. But you have to make sure you don’t just have a board of these experts; [you have to make sure] they can all really work together and deliver the things that the board needs to deliver.

— Paula Loop, PwC’s Governance Insights Center

In a recent episode, Spencer Stuart’s Jason Baumgarten talks through the nuances of today’s digital environment and how that translates to board succession planning and director recruitment: “Somebody has to be a good board member first, and bring particular expertise, second,” said Baumgarten. “So the first thing [we decode] is: what does a ‘good board member’ mean at a particular organization?”

Committee-Level Succession Planning

In addition to succession planning at the board level, today’s nominating and governance committees must also be considering committee level succession in parallel. With more and more of today’s board work happening in the committees, boards must ensure that each committee has the skills and leadership it needs to operate effectively. Throughout various blogs, we discuss succession planning for the compensation committee and audit committee chairs.

Board Succession Planning Disclosure & Engagement

Given the high priority today’s investors are placing on board composition, boards must communicate how they’re approaching succession planning and how their composition supports the strategy. In the Guide to Effective Proxies, Donnelley Financial Solutions showcases various skill matrices and effective visualizations for communicating board composition. Board members must also be prepared to discuss their approach to board composition in any direct engagement with shareholders.

Key Challenges

board succession planningEffective board succession planning will continue to be an essential driver of board performance. Today’s high-performing companies have a diverse mix of skills, demographics and perspectives sitting around the boardroom table. Uncovering this new and diverse talent, however, will continue to be the greatest challenge nominating and governance committees face in the years ahead.

Does Your Committee Have Access to the Right Tools?

Board recruitment firms continue to play an important role in the succession planning process; yet, new tools can also put valuable data at the board’s fingertips. How large is the current talent pool for your desired skill sets? How are investors evaluating your board composition? What conflicts of interest might your shareholders have uncovered?

Quick access to information helps board members identify governance red flags and run director searches in a matter of seconds. Learn how Diligent’s Director Nomination & Governance module is driving these types of insights in the board room and beyond.