The benefits of board succession planning are revealed over time. To be a high-performing board, you have to have the right people sitting around the boardroom table, and that requires planning ahead.
The nominating and governance committee typically spearheads the board succession planning process. This entails assessing the company’s long-term strategy and identifying the skill sets the board needs in order to execute—a difficult process in today’s fast-paced business landscape.
The benefits of board succession planning are increasingly tied to diversity. When boards have a diverse range of perspectives, backgrounds, and experiences, they create an environment for richer discussions. Diverse boards are more likely to catch red flags and predict what’s coming around the corner. When boards can anticipate the range of skill sets they’ll need, they’re better equipped for the business challenges ahead.
Board refreshment is among the chief obstacles to board succession planning. Last year, S&P 500 boards only added 0.88 directors on average, while 45% of board members indicated that someone on their board should be replaced (PwC’s Annual Corporate Directors Survey). The average age of an S&P 500 board member continues to hover around 63 years old (Spencer Stuart Board Index).
How can boards begin to move the needle on board refreshment? Is starts with setting expectations up front. When new members join the board, it’s the responsibility of board leadership to set the tone: “Here’s why you’ve been recruited. Here’s how long we expect you to serve. Here’s how frequently we assess board composition…”
Boards must also ensure they’re devoting ample time to succession planning on the board agenda. Effective succession planning is an ongoing process, as the factors acting on the organization are in constant flux. In the end, the responsibility falls to the board chair or lead independent director to prioritize board succession planning accordingly—and to have the tough conversations with board members when necessary.
Subject-Matter Expertise 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. This will vary from one board to the next; each board must use its judgement around what level of functional expertise it needs depending on its risk profile.
Committee-Level Succession: 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.
Improving Visibility with the Right Tools: Uncovering new and diverse talent will be among the greatest challenges boards and nominating and governance committees face in the years ahead. 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 more about Diligent Nominations, a tool for board succession planning.