Dr. Earl R. Smith II

Dr. Earl R. Smith II
Managing Partner, The Federal Circle
DrSmith@Dr-Smith.com
Dr-Smith.com

Corporations change leadership. All too frequently this change is not well planned. Boards need to understand the need for succession planning, but too often, the issue is treated like a leaky roof: no one feels the urge to fix it until it begins to leak heavily. Few corporate decisions are more important than selecting the Chairman of the Board. Having a good governance structure in place to quickly deal with the issue of a departing executive can maintain shareholder confidence, limit corporate director disruption, and continue the continuity of the corporate strategic plan.

When left unaddressed, board succession plans are informal and often not finalized. In fact, non-formalized succession plans often fall into one or more of the following categories:

• Pecking order – this plan has many characteristics of replacing a battlefield commander killed in action. The problem with this plan is that the 2nd in command is not always ready to assume command. This is common when nepotism is involved in company hierarchy.
• The step aside – generally, this plan involves the planned retirement of the Chairman. Notice is given and the board starts an orderly process of searching for new leadership. Problems can arise if some feels like the board should be using the ‘pecking order’ method and feel they are next in line.
• Mother necessity – sometimes secession decisions are forced on the board as when board leadership needs to terminate the CEO or Chairman. The executive may – even with coaching support – to improve performance. Perhaps, after a leadership assessment, it becomes clear that new leadership is necessary to guide the company through the next strategic plan. Mother necessity often forces new directors – particularly in the are of personal growth – and the company is pushed into a crash leadership development mode. This situation can often cause serious set-backs to the corporate strategic plan and cause stockholders to face issues of deteriorating share value. Corporate finances often take a backseat to corporate board infighting and finding the new leader. This is a potentially costly loss of focus.

Leadership is the most important component of successful succession planning. The Chairman’s leadership style in addressing the possibility of a CEO’s departure – or his own departure – is central. The Chairman should send prior notice that a strategic planning session will address this issue, but that departure is not imminent. Often the Chairman is hesitant about addressing the issue of departure – however succession planning is an excellent tool for leadership development and should be seen as such if succession planning is addressed in the normal course of corporate strategic planning rather than in a crisis.

Corporate governance involves developing strategic plans for issues that are sometimes uncomfortable to review. Good corporate governance involves personal growth and leadership development that allows boards, CEO’s and Chairmen to interact and openly discuss issues of corporate ethics, compliance management, and succession planning before the board is forced into a crisis mode. Sarbanes-Oxley places the burden on the board of directors for succession planning, but professional governance dictates the CEO should play an advisory role. Succession committee, as an advisory committee should not exercise any authority not delegated to the committee by the board, and the chair of the succession committee should report to the board several times during the strategic planning process on the progress of the plan. Gathering input from all board members will strengthen the plan and will eliminate surprises when the plan is put into action.

Related Articles:

• Nomination Committee Strategies

• Characteristics of a Task Oriented Director

• Inspirational Governance

• New Board Member Selection

• Practical Governance Practices

• Officer and Director Vetting

Dr. Smith is Managing Partner of The Federal Circle. The Federal Circle partners with teams and existing companies. We help them up their game and win big in the Federal space. We also arrange funding for acquisitions and expansion by acquisition. Our model is based on the belief that, if you select the very best and work with them in a highly professional and focused manner, the results will be truly amazing. He is the author of Amazing Pace: Turbo-charged Business Development – a book that shows how Advisory Boards can dramatically increase revenue. Dr. Smith is also the author of Dream Walk: Parables for the Living – a book of Raven Tales and exploration.

This entry was posted on Sunday, September 28th, 2008 at 10:17 AM and is filed under Governance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.