According to the AICD head of board advisory Gabrielle Schroder GAICD, boards need to be constantly vigilant, whether a CEO departure is planned or unexpected.
“There should be an element of succession planning in every board meeting,” she says, noting that ongoing issues such as strategy execution and changes to the business environment require an assessment of senior management. “Do they need to upskill — or a different approach?”
When replacing the CEO, being confident that the board is aligned on the organisation’s strategic direction for the next three to five years “needs to be the first conversation and requires a good understanding of industry and business drivers”, she says.
A 2016 survey by the MIT Sloan Management Review found that boards botched CEO succession because they failed to align hiring criteria with future strategic needs.
Next, says Schroder, the board must have a short-term or emergency plan (someone from within the ranks, ideally) and a long-term succession plan. (The MIT Sloan study found 58 per cent of organisations had no emergency succession plan, while 54 per cent had no long-term plan.)
“To do this, the board must ensure a good line of sight to the executive team and even the level below that,” says Schroder. Presentations at board meetings, on-site visits and observing executives at networking events are opportunities to assess executives. “Committees can be a good vehicle... for board members to assess capabilities.”
The MIT Sloan study recommended that boards pay attention to developing executives below top level, perhaps by creating a board-level CEO succession and talent-development committee, appointing a human resources specialist to the board and holding an annual retreat focused on succession planning.
Another challenge for boards is to be clear about the skills and capabilities required. “There can be misunderstandings,” says Schroder.
Typically, the board’s nominations and remuneration committee will take a working document to the board to be tested as a collective group to form a final view on what’s required — “the more structured, the better”.