The importance of planning: Why Board Succession planning is crucial
March 17, 2023
Succession planning is a critical function of boards. It ensures that they have the right people in place to lead the company strategy and objectives into the future. It is an essential function of good corporate governance, ensuring that the boards have the right mix of skills, experience, and diversity to effectively direct the company over the long term.
Board succession planning is the process of identifying and developing potential candidates for board positions. In the absence of effective planning, the process of managing important transitions, e.g., when board members leave or retire, is likely to be more disruptive than it needs to be. There are challenges as well as best practices involved in succession planning (for identifying and preparing board members for future leadership roles).
Here are some key aspects:
- Succession planning starts with an understanding of what the business needs of its board. Assessing and understanding business strategy, management culture and the current composition and skill-sets of the board is the first step, followed by identifying any gaps in skills or experience, in light of the company’s strategic priorities and long-term goals.
- The next step is to develop a pipeline of potential candidates. This may involve identifying internal candidates, such as executives within the company, as well as external candidates. These candidates need to be assessed to determine their suitability by reviewing their skills, experience, qualifications, as well as conducting interviews and reference checks, if required.
- Succession planning is also about developing current board members to ensure that they have the skills and experience needed for the future. This may involve providing training and development opportunities, as well as mentoring and coaching.
Succession planning is important for all companies, including private companies. The Wates Corporate Governance Principles for Large Private Companies, which were published in 2018, provide guidance on good governance practices including a specific focus on the role of the board and the importance of effective board succession planning.
The Wates Principle number 5 states that companies should have a formal, rigorous, and transparent process for board appointments, including board succession planning. It emphasises the importance of having a plan in place for orderly succession for appointments to the board and to senior management positions. This involves identifying the skills and experience that the board is looking for in new appointments, and regularly reviewing the board’s structure, size, and composition to ensure that it is appropriate for the company’s needs and strategy at that time.
In MM&K’s 2021-2022 Life in the Boardroom Chair and Non-Executive Director Survey, only 40% of the participants representing private companies said they had an adequate succession plan in place.
It is our view and recommendation that all companies should operate within a proportionate and effective corporate governance framework. Succession planning is a critical function for effective corporate governance and ensures that any potential disruptions to the board’s effectiveness is managed. Should you wish to discuss any aspect of this article, please contact Yolanda Roach.