Understanding the Importance of the Board’s Role in Succession Planning

ceo successionAlthough the circumstances may vary, every organization goes through a transition period when an executive steps down. When it’s the CEO, the impact is often felt across the organization and at times by customers. In some cases, a company can lose this individual to retirement or a leader is abruptly gone from the helm due to health reasons or nefarious activities (e.g., Martin Sorrell, Steve Wynn). Regardless of the cause, the effect is the same: the organization slows down, new rules and expectations take time to establish and the new leader endures significant growing pains.

Susan Gallagher, president and CEO of BPI group U.S., sat down with Diane Frisch, HR consultant and former senior vice president of human resources at Ingredion, to talk about the importance of board involvement in leadership and executive development to combat the ripple left in the wake of a departing leader.

Susan: An easy solution to the abrupt loss of an executive can be a strong succession plan. But as we know and have seen recently, many organizations don’t have strong or complete succession plans. How much emphasis should a board place on succession planning?

Diane: It’s becoming more and more critical. Boards need to be more involved, and many are. The board has a responsibility to really know the talent of the organization, not just at the top, but further down in the organization. To truly appreciate the talent you have is an art, not a science.

At the same time, companies must become more rigorous about grooming their talent for advancement, and people have to be held more accountable for who their realistic successors can be. Boards must tune into this process so they can make sound decisions when balancing whether to promote from within or go with outside talent.

Many companies meet annually with their boards to talk about their talent. They share the metrics; they share what they’re doing to bring people along. It’s critical for companies to show hard data on talent development because it is the future of the organization, and data is the only way to get the board’s support.

“You don’t want your board to be running your company every day. The board has to delegate to the CEO the [responsibility for] the organizational culture the company is trying to build.”

The idea of the board being distant from the organization is an old-fashioned concept. The board has a responsibility to understand the culture of the organization. In today’s climate, boards must take a vested interest in talent and culture to ensure the organization’s future success.

How does the board maintain familiarity with leaders who are a few steps down from the CEO to readily assess succession planning opportunities? What are some of the ways boards can engage the talent?

You can do this in a very organized way. Arrange a dinner with the board and the people you want your board to meet. Ask attendees not to talk about themselves (you can provide bios ahead of time for that), but rather talk about their biggest challenge or what they are most proud of. This gives the board a flavor of the talent you have within the organization. It gives directors a familiarity and a reference point for when they might need it.

Also, get your board involved in talent development in a hands-on way. We have had board members speak to different groups in the organization, which helps facilitate familiarity and a two-way exchange of information.

How do you determine whether a designated successor should be an inside or an outside hire? Do you ever “settle” for the talent you have inside, even if that person isn’t ready?  

It’s a balancing act, but if you want to be a high-performing organization, you never want to settle. If you have a sudden departure, it’s definitely better to have someone inside who is clearly ready. The most effective approach I’ve seen is to look within and outside, including both [types of candidates] in your slate. You’re always going to have internal people saying, “I want that job,” and you should always have those people well developed and in the pipeline.