Beyond strategic planning and oversight, succession planning and board succession planning should be top priorities for board directors. Overall, board directors understand the importance of succession planning. Despite this acknowledgement, board succession planning often gets put on the back burner. Certain issues make the process of succession planning in today’s climate more challenging than ever.
Boards need to align the board composition with their company strategies. That incorporates making sure they have the right composition on the board for three to five years out. Longtime board directors are also having to get used to the new trend toward rotating off the board in the interest of board refreshment.
To overcome these challenges, boards need to take a serious look at the issues that are preventing succession planning.
There is an even easier way to tackle the challenges that prevent boards from doing succession planning. Board succession planning technology can be a great help for boards in assessing the right talent for the present and the future, as well as helping them locate, identify and recruit top talent.
What Do the Statistics Tell Us About Boards and Succession Planning?
A KPMG study of 2,300 board directors from 46 countries showed that a mere 14% of boards had a detailed board succession plan. The results didn’t show any palpable differences between the countries.
A KPMG webinar poll provides us with additional results about board succession planning. According to the survey, only 12% of board directors were satisfied with the succession plan they had already implemented. When webinar participants were asked why they felt their succession planning efforts weren’t sufficient, about 40% said that the board hadn’t placed enough focus on planning for the coming three to five years. Another 30% of the respondents stated that they weren’t dedicating enough time on their board agendas to succession planning. In addition, 28% of the participants said that they believed their board directors were too soft on their fellow board directors in rating their performance. Even more concerning was that 54% of board directors said that they had never even addressed the issue of underperforming board directors and that they were aware that they weren’t serving their shareholders as well as they should be. Almost 40% of the webinar participants admitted that they had no succession plan for their CEO at all.
A Spencer Stuart study called “Board Refreshment: Investors Respond to Trends in Mandatory Retirement Age and Tenure with More Stringent Voting Policies” reports that the age of board directors continues to rise. About 27% of the responding board directors said that their boards didn’t discuss mandatory retirement, or they didn’t have mandatory retirement ages. Among the boards that have mandatory retirement ages, half of them set the age at 72, but the age is currently trending closer to 75. Two-thirds of boards don’t set term limits at all. The percentage of boards that have board directors who have served for 11 or more years continues to increase.
Issues That Compound Succession Planning
As companies are competing in a time of vast change on many levels, they’re having to shift their strategies more often to stay ahead of the competition. That means their board competition must also change. Technological advances, business disruptors, shareholder activists, globalization, CEO turnover, and political and economic instability are many of the issues that complicate boards’ approach to succession planning.
The many changes that are occurring in the marketplace have also influenced recruiting strategies. Boards are more in need of board directors who bring particular areas of expertise to the board and who also have general business experience. Boards are often hesitant to add board directors who don’t have board experience when those may be exactly the people they need.
Another issue that boards aren’t giving enough time to is evaluating and addressing underperforming board directors. Boards need to be aware of longtime board directors who fail to add value to the board in light of changing strategies because they’re not updating their skills.
Boards need to allow the proper time to effectively plan for the right people and ensure that they’re also bringing the right culture. Boards could spend more time in understanding the company strategies and skill sets that they need for the CEO and the board. Boards need to review their strategies more often and continually ask where the company is going and what skills they need now, and in the future, to best serve the shareholders. Boards need to make decisions like whether to hire someone with IT experience and business experience or just put an IT expert on their advisory board.
Board Succession Planning Technology Takes the Complexity Out of Board Composition
Time is a precious commodity for nominating and governance committees. What they need more than ever before is access to data and analytics so they can spot opportunities to improve the board in spite of continually changing strategies. That’s exactly what Diligent’s Nom Gov tool was designed to do.
Nom Gov is board succession planning technology that empowers board directors with a database of the profiles of CEOs and board directors for over 125,000 potential candidates from over 5,500 companies worldwide. This is the same information to which proxy advisors, shareholders and potential activist investors have access. Drawing from 24 global markets and 40 indexes, Diligent Nom Gov provides the largest global governance data set for boards to find top talent so they can identify opportunities and reduce governance risks. It’s the perfect opportunity for committees to gain insight into the board’s composition, benchmark against competitors, and support board and executive searches.
Nom Gov makes easy work of searching through thousands of profiles because it allows committees to filter their options by experience, demographics, region, sector and discipline.
In addition to helping identify the best candidates, Nom Gov gives committees a quick way to perform a health check of the current board and to identify board directors who are underperforming in comparison with potential external candidates. For added convenience, Nom Gov fully integrates directly into Diligent’s highly secure platform. It’s the modern way to identify board opportunities and reduce governance risks, with unique insights, real-time data and benchmarking tools at your fingertips.