Board Consulting

In the Sarbanes-Oxley era, we’ve seen sharply rising demand for skilled, independent-minded directors combined with a shrinking supply of interested and available director candidates. Supply and demand pressures now make succession planning essential to sustaining a strong, competitive board.

The irony is, most boards still focus exclusively on CEO succession. Few engage in serious succession planning for themselves.

Just as boards look two or three years into the future to identify and groom a CEO successor, nominating committees must now engage in systematic succession planning for the boardroom.

What makes succession planning for your board a new imperative?

Strategic role. Today’s shareholders want boards to provide more than passive oversight. They expect directors to proactively drive business growth. As such, many boards will be challenged to find and attract directors with differentiated forms of business insight and expertise. For example, as major corporations see their best growth opportunities overseas, outside directors with strong global experience and perspective will be in high demand.

Regulatory scrutiny. You need outside directors who are demonstrably independent, but the plethora of new rules, regulations and codes of behavior has heightened the sense of personal risk and accountability in boardrooms. Many outside director candidates who would have readily served on your board in years past may be less inclined to do so in the current regulatory environment.

Heavy workloads. Today’s boardroom is no social club. Full boards and many committees are expected to engage in hands-on work. Every director does heavy lifting. You will need to identify and attract director candidates who are willing to apply serious effort. Finding such candidates is more difficult in an insecure economy, in which outside CEOs and other qualified individuals may feel compelled to mind their own store.

Sensitive issues. Of late, many boards have faced sensitive issues few would relish - such as backdating of stock options, hostile takeovers, and the sub prime lending mess. The prevalence of such issues in the news generally lessens the appeal of serving on a board.

Compounding the supply and demand challenge, board chairs must balance directors’ functional expertise and generalist skill sets across an array of committees. From a shrinking pool of candidates, your board must find and attract directors with the specific skills and experience to match your current and anticipated committee vacancies. Filling board slots with such precision requires detailed advance planning.

Diversity is yet another variable to be managed. You must ensure your board is appropriately balanced in terms of race, gender and national origin.

In sum, expectations of board and director performance are substantially increasing while candidates qualified to meet those standards are becoming much harder to find.

Supply and demand pressures have reached a point where many boards find themselves scrambling to appropriately fill vacancies.

Rarely in the current environment can a director search be successfully concluded in just two or three months. A year or more is often required. Today’s environment demands a more creative search process. Where you may once have settled for considering only proven directors and known individuals, you may now be compelled to look at less immediately obvious candidates who, while unproven as directors, bring you strategically valuable experience and skills. Seeking out, evaluating and recruiting the more creative options takes time. Succession planning - thinking ahead - ensures you have the time to be more creative.

For all these reasons and more, finding and attracting directors to your board must now be pursued via a thoughtfully honed, proactive process, rather than through a series of reactive, one-off events.

Your future success starts with current accountability. Make succession planning the joint responsibility of the nominating committee and the full board. Work together to shape a succession plan that looks at least three years out, across multiple seats.

Shape a succession plan that looks at least three years out. Craft a detailed chart to make your plan tangible and visual.

Assess your board’s current competencies, skill sets, and functions. Chances are, your board already completes self-appraisals at least once each year. Now, go a step further. Link your board appraisals to succession planning. Compare your board’s current strengths to its evolving role. What specific strengths will your board require one, two or three years down the road? As you define your evolving requirements, you can create detailed profiles of the directors your board must attract to fulfill its upcoming responsibilities.

When Egon Zehnder International works with boards to develop succession plans, we make the plan tangible and visual via a detailed chart that captures:

• Specific gaps you must fill, per emerging needs and anticipated vacancies, to sustain the right blend of industry, functional, and experience skill sets
• Upcoming committee assignment rotations and committee chair nominations, with forecasts of the associated talent and experience requirements
• Diversity needs, including the optimal blend of domestic and international skills

Once you’ve detailed your anticipated requirements, take steps to meet requirements you did not anticipate. Widen your pipeline of director candidates to include a range of profiles that extend beyond your currently envisioned requirements. That way, when the unexpected happens, you will have already initiated relationships with suitable potential appointees. Planning for flexibility ensures your board can adapt quickly to inevitable surprises.

Last but far from least, the “personal fit” dimension is of course very important and is most reliably determined over time and in different settings, rather than in just a few structured meetings. Active succession planning gives you the chance to know your candidates well before you make final decisions.

Charting a course through supply and demand will make speed your decisive edge over less farsighted boards.

As your board crafts a detailed yet adaptable succession plan, you’ll build consensus. This in turn prepares your board to identify qualified candidates well in advance, and to move first when the directors you want become available, because your priorities and requirements have already been agreed upon. In what is becoming an ultra-competitive arena, charting a course through supply and demand will make speed your decisive edge over less farsighted boards.

Succession planning may be an unfamiliar undertaking for your board, but you can be effective from the outset by transferring practices that have been successfully applied to the executive ranks. In truth, you need just two things to move ahead: