The last phase of CEO succession? A new board

CEO succession and board renewal are typically seen as separate concerns. In fact, a comprehensive review of board composition—creating “Board 2.0”—is the last, best act directors can do for a new CEO
By Beverly Behan

Good work! Your board has completed a robust CEO succession process and everyone’s confident about your choice of a new corporate leader. He/she has now spent about a year assembling an outstanding executive team and either confirming or changing the company’s strategic plan. At this stage, savvy directors begin to ask question like these: “What changes do we need to make in the board of directors given this company’s trajectory over the next three to five years?” “What does an optimal board that can both challenge and support our new CEO look like—taking into account the direction this organization will be going?” And, “How can we put it together within a reasonable timeframe, given our current board composition and anticipated director retirements?”

Raising these questions is one thing. But acting on them entails a radically different approach to board composition. Enter Board 2.0. Unlike a skills matrix, which typically drives incremental change by addressing one or two key compositional “gaps,” Board 2.0 starts with a blank sheet of paper and says: “Forget who’s sitting at our board table today, let’s assume we have 10 board seats around our table three to five years from now. Given what our business is and what we have tasked our new CEO to do strategically, how would you put together the skill sets and expertise of people to sit in those board seats to most effectively oversee this company in the future?”

It takes a courageous chairman and a gutsy governance committee to embark upon a Board 2.0 exercise. But frankly, it’s the best thing any board can do to support the company’s new CEO. It’s also in the best interests of shareholders to look at board composition in a comprehensive fashion. So how do you go about it?

You want to avoid ivory tower syndrome. Sure, the board chair, governance committee or even the CEO could draw up a schematic of what Board 2.0 might look like. But doing so disenfranchises the rest of the board. Every board member should have input into the design of Board 2.0—not only because it’s respectful to engage people in planning for their ultimate succession, but because different directors will offer different ideas and perspectives. Typically, this involves a confidential hour-long conversation with every director that asks:

• How they foresee the company changing in the next three to five years in view of its growth strategy, industry trends and other economic factors? What are the implications of these changes in terms of expertise that should be at the board table?

• What do they see as the corporate culture today and how do they want the new CEO to change it, if at all? What changes, if any, might be desirable in board culture to set a parallel “tone at the top?”

• How would they factor diversity—gender, ethnicity, geography, active vs. retired executives—into the compositional mix?

• And finally, how would they populate the 10 board seats of Board 2.0 so as to optimize the board’s composition in view of everything they mentioned earlier?

It can be enlightening to elicit the views of top corporate executives who regularly work with the board as well. It can also be interesting to supplement these conversations with a board benchmarking exercise that summarizes the credentials of directors sitting on your competitors’ boards; this may give you some useful ideas. Using all of these inputs, the governance committee can then develop a “straw man” version of Board 2.0 and run that by the entire board for discussion and hopefully some degree of consensus, which is always easier when directors have had some meaningful input into its design.

Then comes the most difficult part: an honest gap analysis of the skills now resident at the board table and those required to create Board 2.0. Typically, the gaps are numerous, requiring three or four new director recruits to fill them. The committee must then determine how and when to start making the changes in board composition necessary to create Board 2.0. Upcoming retirements may provide opportunities, or a decision could be made to expand the board size temporarily to fill the gaps even sooner, while providing some continuity in board succession. More difficult choices may involve replacing certain directors whose backgrounds don’t fit with Board 2.0 prior to their scheduled retirement dates.

Regardless of the approach taken, the exercise represents a fundamental shift in director recruitment that involves a holistic rather than a piecemeal approach to board composition—and ultimately a well-considered plan for achieving it.

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 Handbook, The Boardroom, Top Stories and tagged , , , . Bookmark the permalink.

Comments are closed.