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Let’s talk: governance

Succession planning for the boardroom and C-suite

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Stakes are high when it comes to succession planning. Effective planning for the boardroom and C-suite creates opportunities to address a company’s strategic goals and challenges, identify the qualifications and expertise needed to meet leadership needs, and actively develop the teams needed to build long-term shareholder value.

To find the right mix, planning is key

Thoughtful planning for CEO transitions can avoid downward pressure on a company’s stock price. By avoiding prolonged and expensive executive searches, a company can reduce uncertainty, strengthen investor confidence in the board and improve employee morale.

In addition, a CEO successor who is in step with a company’s culture and operational history can prevent significant business interruptions.

In the boardroom, attention to succession planning can help ensure the board includes directors with a balanced level of institutional knowledge and fresh perspectives. The right mix of directors will be better able to oversee ongoing and emerging risks and provide appropriate strategic insights and direction.

The key to getting succession planning right is maintaining an ongoing and dynamic process.

Seizing succession opportunities on the board

Market challenges and strategic goals drive the need for distinct skill sets and expertise at the board level. Some companies maintain term limits or retirement age policies to provide a forced mechanism for board turnover. However, such rules can result in the loss of high-performing, quality directors at times when their service may still be vital.

The C-suite succession landscape

EY infographic showing the C-suite succession landscape

A more comprehensive approach involves discussions around the skill sets that support corporate growth priorities and address chief areas of stakeholder concern. These discussions are then supplemented with rigorous director performance evaluations.

Seven leading practices for board succession planning:

  • Using a skills matrix to proactively shape board composition that incorporates strategic direction and opportunities, regulatory and industry developments, challenges, and transformation
  • Conducting robust annual performance evaluations, including facilitation by an independent third party
  • Establishing and enhancing written director qualification standards that align with the company’s business and corporate strategy, and including these standards in corporate governance policies and bylaws as appropriate
  • Reviewing evolving committee and board leadership needs, including the time commitments required
  • Considering director election results and engagement by investors regarding board composition, independence, leadership and diversity
  • Prioritizing an independent mindset on boards, including through board diversity, to foster debate, challenge norms and invigorate board oversight processes and strategy development
  • Making sure mentoring and development opportunities are available for incoming directors

C-suite planning for the future, building for the present

Developing long-term and emergency executive succession plans is a fundamental board responsibility. It should be addressed regularly, in advance of when it is actually needed and regardless of CEO health or tenure. An up-to-date plan lessens the risk of a company being harmed by an unplanned vacancy in leadership.

Five leading practices for CEO and C-suite succession planning:

  • Reassess the succession plan as long-term corporate strategy shifts
  • Identify upcoming leaders and engage them to directly assess the talent
  • Develop internal candidates at least two ranks down
  • Create custom leadership development goals that link to the long-term strategic plan
  • Integrate succession planning with the compensation program by including pay incentives tied to leadership and development goals

Succession planning is about more than leadership transition. It’s about having the processes in place to ensure the best mix of directors and executive officers are lined up to meet a company’s changing goals and challenges.