The board’s role in executive talent oversight

Yes, it’s the CEO’s job to hire senior executives. But it is very much a board’s responsibility to ensure there is a continuity of talent in place to protect shareholder interests
By Beverly Behan

Executive succession and talent development are issues that frequently fall to the bottom of board priorities—that is, until the board starts CEO succession planning in earnest and discovers that the internal pool isn’t quite what they thought or, worse yet, the loss of a “mission-critical” executive reveals gaps in the company’s talent pipeline. PwC’s last survey of U.S. public company board members underscores this point: only 27% of the more than 700 directors surveyed felt “very confident” about the executive bench strength of the companies they govern.

Some boards are hesitant to address this issue because executive appointments are entirely within the purview of the CEO. However, that overlooks the board’s critical role in protecting shareholder interests by ensuring that there is a continuity of talent both to ensure orderly executive succession and mitigate the risks inherent in losing key people.

But how does a board really get a handle on bench strength?

Twenty years ago, the chief human resources officer would circulate a binder—typically containing two to three CVs as potential “back-ups” for each mission-critical position. Today, these presentations go much further and often comprise half a day on the board or HR committee agenda. The CHRO is now asked to opine on the readiness of each potential “back-up” to step into the next role, as assessed against the requirements of that role—not simply provide an update on how the individual is functioning in his/her current job. Some companies also identify and discuss possible external successors as part of this exercise.

Recently, two boards about to undertake CEO succession—who had significant concerns about their executive talent pipeline—went even further. As both included executive feedback in their board evaluations, they used this vehicle to explore executive talent issues by expanding the number of executives interviewed and including these questions:

  • If a bus hit the CEO tomorrow, what plan would you recommend to the board for emergency leadership of the company?
  • Would this be the same plan you’d recommend for long-term CEO succession? Are there two or three internal candidates you feel the board should consider as potential successors if/when the CEO retires? Why is each worth considering? What, if anything, might be your concerns about their stepping into the CEO role?
  • What two or three other executives would you really lose sleep over if they were hit by a bus? Is there is anyone currently within the organization that could step into their roles right now?
  • What about for your own role: if a bus hit you tomorrow, what could the CEO do to replace your position?

Remarkably, nearly the same outcomes resulted in both instances: a potential internal CEO candidate that had not previously been considered emerged—a candidate that was not a direct report to the CEO and who’d had very limited face time with the board. Both cases also revealed that the executive bench was stronger than the board had initially thought: most executives were readily able to outline an emergency succession plan for their own position. Moreover, hiring appeared to be well underway to address the most significant gaps in the current talent pipeline.

Having identified the company’s high-potential executive talent, how does the board then get to know them? Some suggestions:

  • At the conclusion of any talent review, ask that four or five of the high-potentials discussed be scheduled for board presentations on their areas of responsibility over the next 12 months. This enables board members not only to “put a face to a name” but also to engage with these individuals on business issues.
  • Upgrade the practice of inviting a group of executives to a board dinner by distributing CVs in advance, having assigned seating and even asking all executive attendees to answer a short business-related question to kick-start the dinner conversation
  • While board committees provide a good opportunity for directors to work with senior management below the C-suite level, recognize that executives who typically work with board committees are those in staff functions; be planful about exposure to those in operating roles.

Such interactions by themselves aren’t enough for board members to form a complete picture. Nonetheless, it generally serves directors well to be able to see and meet key executives who may become the corporate leaders of tomorrow.

Beverly Behan is a New York-based board consultant who has worked with more than 140 boards of directors in the U.S., Canada and internationally in the past 19 years. E-mail: beverly.behan@boardadvisor.net.

Print Friendly
Share
This entry was posted in The Boardroom and tagged , , , . Bookmark the permalink.

Comments are closed.