Planning for Board Succession? Early Engagement Pays Off
Leading boards increasingly take an approach to board succession that goes beyond traditional placement and even planning. They don’t want to be caught flatfooted in the event of unexpected departures of directors, multiple retirements, strategic evolution that calls for new skills on the board, or the sudden appearance of an activist investor demanding seats at the table.
At its most advanced, this approach includes establishing relationships with potential candidates even when foreseeable board vacancies lie far in the future. At a minimum, it involves identifying robust candidates across the various sets of competencies the board might need down the road, and then keeping tabs on them, looking for opportunities to get to know these individuals, and learning how they might one day fit into the company’s future. Boards that employ this approach:
Manage foreseeable vacancies and skill-sets as a portfolio. Through detailed assessment, boards can identify critical gaps in their committees or expertise, and zero in on the skills they will need. They can then develop a competency index that enables them to manage succession planning holistically, not as a series of one-offs.
- Continually identify a broader range of potential candidates to address expected (and unexpected) vacancies. The board of a leading consumer company, for example, maintains what they call an “evergreen book” of 40–50 potential candidates they keep their eye on from year to year. Similarly, the board of a leading financial services company, facing four vacancies in the next five years, conducts periodic “lit searches” and at any one time is aware of a dozen or so potential candidates.
- Engage potential candidates before they’re needed.Activist investors, for example, are well aware of annual meeting cycles, and they use this time pressure to push through their proposed director candidates. Boards must, therefore, either be able to conduct rapid searches for world-class alternative candidates or face the prospect of a proxy fight. Boards that have already engaged with candidates and gotten to know them will not only understand who would best fit the bill but also who has the stomach to enter the fray. Moreover, these candidates will better know the company. We find that this not only gives the company an edge in convincing widely sought executives to join the board, but also helps ensure a faster, more productive start when they do.
- Anticipate cultural fit. Through proactive engagement, board members can get a sense of how potential candidates might improve upon (or poison) the atmosphere of candor and collegiality that effective boards require.
Boards differ in how they engage with potential candidates, but the process is usually jointly owned by the CEO and an independent director. In some cases, the CEO takes the initial meeting with potential candidates. In others, the lead director or a member of the nominating committee makes initial contact. In all cases, the encounters should be informal, get-acquainted sessions, not formal interviews. The subject of board membership should be brought up only as a casual point of conversation with no commitment to timing and with no certainty that things will move forward.
Why, then, should potential candidates agree to meet? Because the worst that can happen is that they have made contact with the CEO and board of a prominent company and established relationships that could lead in any number of directions.
By identifying and engaging with potential colleagues, boards can reap big dividends, enabling themselves to:
- Respond faster, more flexibly, and more effectively to unforeseen events
- Refuse to settle for less-than-ideal candidates
- Evolve the board in step with the company’s long-term strategy
- Strengthen the board’s culture, both through thoughtful appointments and the board’s better understanding of that culture
As we have found, once the process begins to pay off—in a faster search in an emergency, the successful recruitment of an accomplished leader, a rapid and smooth onboarding of a new director, or the fine-tuning of the board’s culture or mix of skills—board members get firmly behind it. Most importantly, they give themselves a perpetual head start on one of their most important responsibilities.
Bonnie W. Gwin is vice chair and managing partner of Heidrick & Struggle’s board practice in North America. Theodore L. Dysert is a vice chair in Heidrick & Struggles’ Chicago office, where he is a leader in the global board practice and an active member of the CEO practice.