Succession Planning Is No Longer Just For CEOs

By George L. Davis, Egon Zehnder International, Boston

Overview

Over the past five years, board recruitment has evolved in many ways in the United States. Driven by he collision of an increasing demand for highly qualified, dedicated, and independent directors with a diminishing supply of interested and available candidates, new board recruitment trends are emerging. Succession practices that have been regularly applied for years among executive ranks have begun to transfer to the boardroom. Most notably, succession planning is no longer exclusively reserved for the position of the CEO.

Challenges In Shifting Practices

Today many boards are adopting the best practices of executive and CEO succession planning for their own nominating committee to assist with future director recruitment. In order to understand this subtle yet substantive shift, it helps to know the external factors that are influencing and pressuring director behavior today.

These are:

• High pressure to comply with rules and regulations

• Increasing workloads for full boards and individual committees

• Great demand for specific function skill sets

• Globalization and emerging market expertise are new valued competencies

• Director recruitment and retention are both getting more difficult.

As a result, many boards are finding it hard to identify, attract, and retain directors with the right blend of industry, functional, and experience skill sets, and thereby create a balanced board over the long term. In the past, board recruitment was a short-term singular event with a “point and shoot” philosophy of finding a person with a pre-defined set of skills. However, this incremental addition approach is becoming outdated due to the myriad of needs and pressures confronting non-executive directors.

One area in which the conflicting supply and demand scenario is most evident is when it comes to planning board committee rotations. With a view to the future, chairmen have the tricky responsibility of balancing functional expertise and generalist skill sets across an array of committees.

Compounding this balancing act is the need to maintain diversity on the board in all its forms: race, gender, and national origin. Thus search committees are under pressure not only to find the best qualified individuals, but also to ensure that their boards are well balanced and diverse. Among a shrinking pool of candidates, individuals must be found who offer the skill and diversity profiles that not only fill the gaps around the board table but also correspond to committee vacancies. Frequently this leads to the “impossible director search” – a lengthy and frustrating process for all concerned.

Longer Term Strategies To Board Renewal

As a natural consequence, many boards are thinking and acting on a longer-term basis. Just as CEOs look 2-3 years into the future as they identify and groom their successors, planning job rotations and developmental goals, so nominating committees are beginning to map out future board retirements, evaluate the incumbent directors’ skill sets, and design a more systematic approach to board searches. This involves drawing up an inventory of current skills, competencies and diversity on the board, and it enables the gaps created by future vacancies to be more readily and clearly defined. Furthermore, this assessment can then be expanded to involve committee assignment rotations, as well as future committee chair nominations. At the same time, diversity needs can be taken into account and chairmen can ensure that their boards have the right blend of domestic and international skills.

In short, what is evolving is a growing trend to succession planning at board level. This strategic longer-term approach equips the board to better manage the shrinking candidate pool. By planning and evaluating the next two to three vacancies, boards can trade off certain competencies with a view towards a second near-term recruitment, and avoid being suddenly confronted with a list of “must-have” requirements to be met at short notice.

To prevent being trapped in this type of predicament, nominating committees are turning to executive recruiters like Egon Zehnder International for help. Boards are increasingly aware that they may not know where the merging talent is, or what the future availability of certain key executives may look like. By actively working with boards and CEOs at the highest level, Egon Zehnder International consultants have daily interactions with executives eeking board roles on a broad basis. Furthermore, having worked with companies on CEO succession planning and executive assessment as a core part of its business, Egon Zehnder International is now stepping up its involvement in this new era of board succession planning.

Backed by this kind of professional support and armed with a strategic map for board succession, many companies have begun to initiate the recruiting process much earlier. Finding a truly outstanding director in a 2-3 month time frame is a rare if not impossible achievement. Nominating and search committees often look 12 - 24 months into the future and begin seeking candidates for multiple seats to give them the flexibility to manage the trade-offs mentioned earlier. With a strategic long-term map, boards and their professional advisors can move fast to secure a candidate when executive talent makes itself available, because they know what they are looking for and the chairman, CEO, and nominating committee have already agreed on a plan. It also gives the board a competitive edge over other companies who may not have been as farsighted and move more slowly in this ultra-competitive marketplace.

Conclusion

In sum, boards are now coming to benefit from the succession planning methods that CEOs have been using in their own executive recruitment and development activities for some time now. The “point and shoot” director search is evolving into a process where the longer-term planning of skills and competencies proves an invaluable aid and basis for recruitment, committee rotations, and incumbent director training. Moreover, board succession planning is helping companies to win through in a competitive marketplace with a shrinking talent pool. The consequence is that boards are becoming more disciplined in their director searches, engaging professional help, taking a longer-term view, and being systematic in their planning – thereby boosting the chances that the individual members and overall composition of their board will reflect only top caliber talent.