Passing the torch: Our take on effective Board succession planning.
There is always a form of succession on the horizon.
In today's ever-evolving business landscape, organisations must proactively prepare for leadership transitions to ensure seamless continuity and sustained success. Board succession planning plays a pivotal role in identifying and nurturing talented individuals who will guide the organization forward, safeguarding its values, vision, and strategic direction. We recently hosted a panel for the Institute of Directors discussing both governance succession and CEO succession planning. This article is the second article in a series of two blogs on succession (read the first article here) discussing the importance of succession, giving experience insights from the panel, and provides guidance on successful Board succession.
What is Board Succession?
The Four Pillars of Governance notes that “Succession planning is inexorably linked to board composition. Boards should regularly consider succession planning to ensure they preserve or attain a balanced mix of skills and experience to maximise board effectiveness. This planning should focus on the board’s composition as a whole and not be limited to reactively addressing individual director vacancies as they arise.” However, it was noted by the panel that often succession is an after-thought, and that often an existing Board of Directors doesn't have a tenure as part of their appointment, and therefore Directors might stay on for too long and no longer add value to navigate business issues as external Directors. Bruce Matheson added that “the simple implementation of fixed terms for Independent Director appointments enabled the juncture to have the conversation, to determine if another term was beneficial for the business”.
How to have the right people
Abby Foote highlighted that a clear vision for the business is key in corporate governance and also for Directors, as "getting clear on what the business needs to take it into the future will determine the capabilities required around the table". The Board can then complete the skills and capabilities matrix to determine current capabilities and any gaps to then consider bringing new capability onto the Board. It was recognised that if there is a gap in capability it may not require an additional Director, but the opportunity to utilise the input of a specialist advisor for a period or solve the certain issue.
It was noted that at times some not-for-profits fall into the trap of having long-tenured, well-intentioned, but less effective people on their Boards – and how do you manage this? It was clear in the discussion that the Chair renewing expectations of Directors, ensuring clarity around performance requirements, and clear policies such as a Board Charter are key to shifting expectations. On any Board, Board and individual director evaluations are important to hold the board accountable and as part of continuous improvement.
Chair succession
The board needs to agree on criteria for the role of the chair based on the needs of the company and the board. However, it was noted that Board Chair succession is also not considered often enough, and can result in a process of a popularity contest or people vying for the opportunity to push personal agendas, rather than understanding the key driver of who is the best person to lead the Board and the organisation forward on behalf of the shareholders. There should also be a Chair succession plan with clear expectations around what the Chairs role is.
Have a plan.
A well-executed board succession plan empowers organisations to navigate leadership transitions smoothly, maintain strategic direction, and capitalise on emerging opportunities. It may seem simple. but sometimes the best solutions are.
This article was contributed by Greg Allnut MNZM, Partner