Dr. Earl R. Smith II

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

Professional corporate governance demands the organization have a succession plan in place. It must allow for an orderly transition of power and authority. The plan must anticipate the retirement, incapacitation or death of members of the senior management team. It should also anticipate the possibility that the board might have to change management leadership. The Succession Committee formalizes the strategic succession plan and makes recommendations to the full board of directors. Sarbanes-Oxley requires this for public companies but most privately held companies have recognized the importance of an orderly transition and have adopted some type of formal succession plan as well.

In privately held companies, it is typical for the CEO to surround himself on the board with close business associates and allies. It is also typical for the CEO in privately held companies or organizations to name his corporate directors and his successor. In most of these situations, the board is a single-issue board and the directors all share a common vision and goal.

In publicly traded companies covered by the Sarbanes-Oxley Act of 2002, the corporate board is required to be composed of at least 51% independent directors. In the normal course of business, directors will come and go, and the board must replace directors quickly. The degree of CEO involvement in the selection, interviewing and appointing process depends on many factors. Too much CEO involvement may lead to cronyism on the board and cause the board to operate in a less than independent fashion. Too little CEO involvement and the board may not be as valuable to the CEO as it could because of a lack of trust or because of poor chemistry between the CEO and the board.

If the CEO is reaching mandatory retirement age and openings happen on the board, CEO involvement may not need to be as great. The CEO can and should work with the new board members to provide a broad prospective of the challenges the board will face and the strategies to address each challenge. The CEO can also provide invaluable insight into the senior management’s ability to carry out the strategy. In this situation, the Nominating Committee may not need to strongly consider business ties or affiliations candidates may share with the out-going CEO.

If a new CEO assumes the position from within the company some board members may elect to resign and allow the new CEO to build a nucleus of new board members he feels will enhance his ability to govern the company. When this is the case, the Nominating Committee should certainly respect the CEO’s recommendations, but the Nominating Committee still bears the responsibility to nominate board members based upon the criteria needed to provide broad and productive skills to serve the interest of the company. The Nominating Committee should however attempt to nominate candidates with whom the new CEO can build strong ties with and have a strong, professional working relationship with.

The Nominating Committee and the Succession Committee are two of four key committees usually establish by a corporate board. The other two are the Audit Committee and the Compensation Committee. The Nominating Committee holds the key to board composition, while the Succession Committee plans for future leadership. The composition of the board determines how a board reaches its decisions. Leadership styles and personality issues have a great bearing on whether a board is able to harmoniously address issues and discuss alternatives to current strategies.

© Dr. Earl R. Smith II

Related Articles:

• Recruiting Successful Board Members
• Board Governance – Searching for Leadership
• Nomination Committee Strategies
• New Board Member Selection
• Officer and Director Vetting
• The CEO’s role in board member selection

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 Monday, January 19th, 2009 at 11:53 AM and is filed under Governance. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.