Succeeding at Succession

One of the greatest responsibilities shared by boards— indeed, some argue it is the single most important job of the corporate director—is to manage CEO succession. Oftentimes, whether planning for a change in the makeup of the board or identifying a replacement for a sitting CEO, the impetus for change drives the process—and often, that isn’t until it’s too late. Finding candidates with the right credentials—who are good fits culturally and have the right chemistry to deliberate on critical issues effectively—takes time and requires a thorough planning process. It’s not something boards want to be doing under duress.

To ensure the process runs smoothly, boards know from experience that chemistry is as important as the skills a candidate can bring to the table. “There’s nothing more damaging to a board’s deliberative process than bringing in a disruptive personality,” said Bonnie W. Gwin, partner at executive recruitment firm Heidrick & Struggles. Gwin and Tim O’Shea, H&S practice leader, led a Directorship Roundtable on the role of the nominating committee in succession planning.

Its primary roles are to create the “spec” for the nominees, to work with specialists to develop the candidate list, to review and interview the finalists, and then to share its recommendations with the full board. An important part of the development process is also to evaluate sitting directors. These evaluations can be used to measure the skill sets and contributions of sitting board members. Used routinely and in a more generic fashion, board evaluations can, in effect, provide for a degree of transparency with regard to inputs, while desensitizing the personal nature of performance appraisals, advised O’Shea. Often the lead director or the nominating committee chair will shepherd the board through the evaluation process. In this and other regards, the emergence of the independent lead director is one of the most important developments in corporate governance in recent years, said Robert C. Dinerstein, recently retired global co-chair of Greenberg Traurig and a director at Medarex.

 

“Quality. Quality. Quality,” said Dinerstein. “The idea that you should recruit only with the goal of finding a woman or a minority—if that’s the principal quality—is not serving the needs of the complex and multifaceted board of today. What boards should seek is true diversity of intellect and experience, in addition to background and heritage, or some combination of those.”

A big part of the equation is analyzing the mix of directors and assessing what talents and skill sets are wanting—a process that should be aligned with the company’s strategy, markets, and environment. A board also wants to make sure it contains a diversity of backgrounds and mind-sets. Other well-tested approaches that the recruitment experts recommended are appointing a lead director to oversee evaluations and troubleshooting hot spots.

They also say that it is wise to enforce a mandatory retirement age. Dealing with a director who has declined in his or her effectiveness is a very sensitive topic, one that board directors would prefer to avoid if possible. For instance, as a high percentage of directors devote some of their retirement to board service, in some cases individuals will overstay their capability. “On other boards, I have seen directors who have not kept abreast of the current marketplace and competitive demands; they should be retiring, yet they continue to hang on,” said Edwin J. McGuinn, Jr. The panel agreed. These are not easy conversations, but eventually the complexity of business will compel even the most reluctant to consider his or her fitness for continued board service. “I think it’s easier today to remove board members than it has been in the past because of the changing dynamics of the business,” said O’Shea.

The Disgruntled Director

Another particularly delicate situation is how to handle the disgruntled board member. Gwin says it depends on the nature of the concern. “It’s one thing if they’re disruptive and work can’t be accomplished or if they come in and take all of the air out of the room,” says Gwin. “But there are times when being ‘disgruntled’ is actually an indication that a courageous board director is willing to take an unpopular position to clarify something the board may not have addressed, and the result is that tough questions get answered.”

Do sitting CEOs make good directors? The consensus was that having CEOs on a board is a good thing, but the panelists also agreed that a board full of ex- CEOs would not be desirable. Diversity pertains to experience, too. “I’m a big believer that diversity in every dimension is what makes a great board,” said Gwin.