“Great companies have great Board of Directors behind them, guiding and supporting the Founder and Chief Executive, minimizing risks and guiding the company forward towards achieving its long-term goals. A Company’s Board needs to think deeply, thoroughly and on a continuing basis about their overall tasks.” ~ Igor Sill
Proper Corporate oversight and governance consists of insuring that guidelines and plans are in place for a company’s uninterrupted operational management. One of its most critical elements is that of leadership succession.
So, responsible Boards need to ask: Do we have a formal process and approach to leadership succession planning? Have we agreed on the required Leadership and Board Skills, Talents, Experience and Attributes? Do we have agreed strategies for identifying potential Board Directors? What role should our Chairman and our Chief Executive have in succession planning? How do we attract high quality, experienced directors to our Board who are capable, and willing of, undertaking an interim Chairman, Vice Chairman or Chief Executive capacity?
A key role for Board of Directors is to continually ensure that it has the right set of skills, talents and attributes represented in its executive leadership to insure uninterrupted operation.
At some point, every Company reaches a time when its existing Chairman, and/or its Chief Executive leaves the business, either through a planned departure, such as a full or partial retirement, or because of a sudden and unexpected occurrence, such as illness, injury or sadly, death.
Most Corporate By-Laws state that “upon the disability or incapacity of the Chair or in any other emergent circumstances reasonably preventing the Chair of the Board from performing his or her administrative duties as Chair, a Board approved, and appointed Vice Chair shall perform all such administrative duties in connection with such actions shall have all of the powers of, and be subject to all of the restrictions upon the Chair of the Board.”
Of course, the best course of action depends on a number of circumstances, the most important of which is how well we have planned in advance for the succession of leadership. Questions requiring answers include:
The best way to ensure that you’re properly prepared is to develop an action plan for a successful succession transition. You need to put your plans into place early, so that it exists as a contingency in case an emergency arises that requires a sudden transition.
In that way, your Board Members will need to agree on a process with which to carry out with a minimum of confusion, an effective transition which minimizes a Company’s operation. And, of course, since circumstances will change over time, an annual review of the succession plan should be part of the Board’s scheduled events.
Action steps for a successful succession include:
- Develop an action plan
- Develop a timeline
- Clearly define the skills required of the future leader to enable the business to continue operations and succeed
- Identify potential successors
- Perform an objective analysis of the strengths and weaknesses of each potential successor
- Strengthen any areas of weakness which could be an impediment to a Company’s future
- Integrate the best succession candidate over time – do not wait until the last minute
- Have a valuation performed
- Draft the required legal documents and By Laws
- Develop a contingency plan
There are essentially four best practices that can be implemented to ensure that directors have an effective succession planning process in place. These practices serve to protect the interests of all Board members, employees, shareholders and other constituents, and also give everyone confidence in the Company’s long-term prospects.
The first practice involves developing a solid understanding of your Company’s mid and long term strategy and goals, and the skills and experiences the Chief Executive and the Chairman will need to lead a Company past the challenges and hurdles. Directors must fight the tendency to think the answer is to find a younger version of the incumbent. Only in the rarest cases will future challenges require the same skills that worked in the past.
The best practices in development are different for internal and external candidates. For internal candidates, development begins with the identification of a small number of people who could be mentored and made ready in two to four years. Though there is a strong bias for “ready now” candidates, directors must recognize that such individuals exist only in theory. The odds that the “perfect” person finds his or her way to a leadership opportunity at just the “right” time are so improbable that hoping for it is naive. However, a great deal can be accomplished in a reasonable timeframe to develop an executive, whether it involves rotations in different functional areas, i.e., International, Operational, Development assignments or Board Committee rotation, or something else. A caution regarding internal candidates: When succession planning is cavalier about timing, candidates are either too quick or too slow to develop; those ready too soon become susceptible for career advancement departing for competing opportunities, while those not yet ready are of little use.
External candidates are usually identified with the help of an executive search firm specializing in your specific industry sector. Normally, these executives lie beyond the company’s reach in terms of development, but in a best-practices approach to succession planning, companies actually bring potential leadership successors in through other positions. This allows the Board to make a strategic investment in the new leadership’s development, as the board not only increases its bench strength, but also has a chance to explore the executive’s likely effectiveness as a leader. The opportunity for the executive and the board to develop their relationship greatly reduces transition risk.
As the transition approaches, the internal candidates should be ready. The scanning for external candidates should be updated annually. The best selection practice involves inviting all internal candidates to give presentations to the board in which they describe their vision for the company’s next five years. After a presentation and discussion, the likelihood is–if the development of internal talent has been successful–that a clear winner will emerge. If none emerges, then it is time for the board to consider external candidates. The risk with external candidates is high–not only do they present an incomplete picture to directors, but the company is an incomplete picture to them.
The uncertainty runs both ways. Whenever risks are high, however, returns are also expected to be high. This means the board must see tremendous upside potential in an external successor, and it also means there is tremendous pressure on the individual selected for the job.
Best-practices transition focuses on both the on-boarding process and first 12 months of a new Chief Executive and/or Chairman’s tenure. Internal and external successors experience on-boarding differently, but a critical presumption is that before the successor’s first day, the board has made certain that he or she has begun to develop relationships with board members, had sufficient time with the outgoing leadership to complete appropriate hand-offs and has a sense of the areas that represent burning fires requiring immediate action. On-boarding itself refers to the process of getting fully up to speed on the job.
Again, internal and external successors will experience this differently, but the two most critical practices here are for the board and the successor to agree on a plan for the first year that includes measurable metrics and milestones and the active engagement of the entire leadership so as to be sure everyone is working from the same playbook. Finally, a coaching plan for the entire first year should be in place. Providing a Mentor/Coach offers a supportive, trusted resource that, in the end, helps the successor continue to do the personal work begun when the company initiated the succession development process.
The author, Igor Sill, worked directly with Chairman Larry Ellison, Marc Benioff, Jeff Walker, Tom Siebel, Bernard Liautaud, Umang Gupta, Evan Goldberg, Marten Mickos (MySQL), Steve Jobs (NeXT/Apple) Samir Arora (NetObjects/IBM). Igor completed Stanford University’s Law School Directors College program, served as Los Angeles-based IMF’s Chair, Governance Committee and consults at Geneva Venture Partners, a Silicon Valley Board recruitment, investment and M&A venture advisory firm. (genevavp.com)