The 7 Most Common Mistakes of Board Succession Planning

Board refreshment and board succession planning are at the forefront of all stakeholders’ minds. The push for board diversity, controversies over retirement age, board tenure, and executives’ emergent exits are all pressing reasons for board succession planning to take the spotlight. Transitional periods for executives and board directors are often rocky at best, and boards need to have a stringent plan in place when expected and unexpected exits take place.

This article highlights some of the most common missteps boards make in succession planning. By avoiding these mistakes, boards can handle succession planning more sensitively and sure-handedly to create a process that allows all parties involved — from the board directors to the incumbent executive, internal candidates, and the company as a whole — to benefit from the experience.

1. Failing to Align on Strategy

Before deciding on a future leader, board members need to agree on the company’s strategic direction. Most board members assume their company has a reasonably well-articulated strategy. Still, wise boards reach universal agreement on these strategic issues upfront since these decisions will influence current leaders or future leaders the company will need. Aligning the overall board strategy is a critical step that helps make the process go smoothly and helps boards select the candidate with the qualifications best suited to its strategy for the future.

2. Over-Involving the Entire Board

Succession planning is arguably one of the more interesting responsibilities of the board — and a task that many board members are eager to be a part of. It is also one of the most time-consuming board responsibilities, requiring significant work between meetings. While the entire board should be involved at critical milestones throughout the succession planning process, a smaller succession planning, nominating, or personnel committee that includes only directors who are the most qualified and who have the necessary time is best. This committee will direct the process and handle the granular work associated with the assessment and benchmarking of the candidates.

The ideal size of this group is three or four directors for a single-tier board. It is prudent to keep the time commitment top of mind when deciding who will make up the committee. For example, board members who are active CEOs for another organization may not have the time available to participate in the process adequately. 

The board members not on the committee should be kept apprised of the succession process at specific milestones. These check-ins will allow the board to have a sufficient understanding of the process without bogging them down in detail. The milestones to be cognizant of for this process will be the development of the key selection criteria for the position, at the review of the assessment summary of internal candidates, and upon review of the benchmarking information on external executives.

3. Conducting Internal Assignments Too Late

Once the board has approved the list of key qualifications for the role, it is generally best to assess internal candidates as quickly as possible. The more time internal candidates have to focus on their developmental areas, the better the chance that one or two of them can become a serious candidate. For example, if an executive is told three months before the transition that they need an international assignment to get ready for the role, obtaining that experience is not a realistic option. But if that information is shared a few years in advance, the executive can gain the expertise needed to contend for the role.

By conducting internal assessments early, boards also can create the proper developmental plans for those internal candidates who are not ready to assume the role during the next transition. Medium- and long-term planning keeps executives engaged and builds the company’s bench strength for future succession opportunities.

4. Forgetting the Importance of Professional Development

Whenever possible, companies should conduct their formal assessment of internal candidates two or three years in advance of an expected transition. However, avoid organizing a process that fosters excessive early competition between candidates or that intimates in any way that the process is an interview for the job. By focusing on professional development or training, your board grows and becomes stronger regardless of the succession planning decision or transitions made. 

Make ongoing education opportunities for the board of directors a priority. As your organization grows, the needed skills on the board may also change. Focusing on ongoing education opportunities will create new skills and foster more knowledge within your current board of directors.

5. Neglecting External Benchmarking

Internal candidates’ benchmarking versus external ones is a sensitive issue, but it is also an essential component of effective succession planning. Just as companies benchmark their products, manufacturing operations, and financial management processes against the best in class, they can also benefit from seeing how their executive leadership stacks up against that of other companies in their industry.

Ideally, benchmarking should happen in tandem with internal assessment, so that the results of the internal assessments and external benchmarking can be compared simultaneously. This process is critical to giving the board a good sense of the internal candidates’ relative strength, as measured against the outside talent pool that would likely be considered for the role, based on the position’s priorities.

6. Overvaluing External Candidates

When boards look at internal candidates, particularly those who have undergone rigorous assessment, they understand the strengths they could bring to the role — and are just as aware of their weaknesses. But because outsiders do not typically undergo the deep assessment that existing internal candidates do, it can be easy to forget that they have downsides and development needs.

This disparity can cause genuine uncertainty about an internal candidate being a favorite for the position. In situations of that nature, organizations may consider performing a gap analysis to compare the internal and external candidates’ skills. The results of a gap analysis of this nature may not be entirely conclusive, and a small disparity between the two candidates may lead the organization to weigh the risk and benefits of bringing in the external candidate. 

7. Failing to Update the Plan

When many of the points in this article discuss suggested steps leading up to a planned transition, succession planning is an equally important fiduciary responsibility of board members when no obvious transition is on the horizon. Moreover, being prepared for unexpected transitions is a major factor separating well-governed companies from poorly governed ones.

Succession plans and the key specifications for the role that underpin them should be adapted regularly to reflect the dynamic nature of organizations and the corporate environment. At a minimum of once a year, and preferably more often, the succession planning committee should evaluate and, if necessary, revise the specifications for the board position roles to ensure they are current. They should also review internal candidates’ progress against their development objectives and revise the objectives, if needed, to reflect the changing qualifications that will be needed for the evolving role.

Changing Boards for a Better Future

The statistics show that boards are slow to adopt change and board turnover is quite a slow process, but board succession planning should always have a place on the agenda. However, the changes that are being made regarding diversity in age, gender, and race are ground-breaking. According to Spencer Stuart’s 2018 Board Index, 40% of new directors were female, up from 36% in 2017. Minority women are also represented more heavily in 2018. Women now chair 20% of audit committees, 19% of compensation committees, and 24% of nominating/governance committees.

But because board turnover is modest overall, these changes are occurring slowly. “The aim is to appoint directors who provide diverse perspectives while replacing directors who may no longer have the requisite skills aligned with the company’s evolving strategic direction,” says the International Corporate Governance Network. “Diverse boards are less prone to ‘group think’ and more likely to embrace new ways of thinking to meet future company threats and opportunities.” Board succession planning starts with Creating, implementing, and backing strong and sound procedures that help these statistics rise for the future.

There is no one-size-fits-all approach to board succession planning. Boards should take into consideration the unique characteristics of their company including strategy,  risk management, and stakeholders’ needs. Implementing solid board succession planning processes ensure that the board will generate long-term value for new directors and ultimate success for the organization.

By taking these actions — while avoiding the pitfalls we have described — boards can more effectively prepare their companies for succession over the short term and help build the bench strength that the company needs for stability and success well into the future.

Start a conversation today to discuss how Govenda can streamline and formalize your succession planning with their robust board management software.