The Succession Committee – Selecting Leadership for the Future

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

I do a lot of work with boards of directors and serve on a number of them. One of the thorniest issues that any board faces is succession – particularly with regard to the CEO. In early stage companies and many mature ones, the issue of succession is the ‘third rail’ of corporate governance. CEOs are understandably sensitive to the issue as it deals directly with their continued employment. However, the liability for dealing professionally with and preparing for CEO succession rests with the board of directors. If their company has the wrong CEO, the shareholders will hold the board and its members accountable.

The Succession Committee has the board responsibility for retaining and recruiting talent to continue the leadership of the organization for the benefit of the shareholders. The Succession Committee should have at its disposal the resources necessary to conduct a thorough assessment of both the board of directors and corporate management. The Succession Committee should have written documents detailing governance policies, strategic plans and leadership expectations to assist in determining the talent needed. The Succession Committee should also have an orientation kit to provide to prospective new directors detailing the good governance policies.

The Succession Committees charter should document the minimum number of directors to serve on the committee, and the criteria for service. A majority of the members of the Succession Committee should be independent, non-employee directors with a thorough understanding of the challenges facing the organization. Its charter should document the autonomy of the committee’s search, and detail the resources the committee should use in resolving issues that arise during the search process. Some common tools used by Succession Committees include:

• External human resource firms
• Leadership and executive coaches
• Opinion surveys
• Leadership, management and organizational assessment programs
• Leadership Interviews
• Corporate management credentials survey
• Industry standards and credential comparisons assessments
• Legal counsel

The Succession Committee should have access to the corporate strategic plan. It should review the plan, note compliance issues, and make judgments regarding the current and needed talent. If failure to meet the objectives within the strategic plan is due to a lack of needed skill sets or knowledge, the Succession Committee should select a director with the leadership and technical ability to address the noted exception. The purpose of this process is to develop a proposal for remedying the situation. The resulting proposal should be submitted to the board for approval.

Should the failure be the result of lack of either ability or interest on the part of the CEO or other members of the senior team, the Succession Committee should:

• Begin a process of reviewing the current senior team to see if there are changes that need to be made, and
• Refer the matter to the Compensation Committee. That committee should include the issue in their annual evaluation process.

The CEO and affected senior team members should be invited to provide input regarding the failure to meet the objectives in the strategic plan.

The Succession Committee should have written leadership, management and organizational assessment protocols. The assessment process should be on going throughout the year. Records on every member of the senior management team should include:

• The results of all assessments
• Actions plans which resulted from those assessments
• Details of the support given to each team member – such as leadership or executive coaching, educational opportunities and incentives
• A careful analysis of the team member’s progress in important areas
• A succession plan for the eventual replacement of the team member – including identification of candidates
• Recommendations for future treatment of the team member

Additionally, each senior team member should be required to set personal growth and development goals. The Succession Committee should review the personal growth and development goals and compare the member’s goals with the steps taken by them to reach the goals set.

Developing a succession committee, putting protocols and processes in place and developing a succession plan are often daunting challenges for a board of directors. Very often companies call in outside advisers to guide the process. Given recent corporate scandals and the increased focus on board member liabilities, it is hard to see why any thinking director would take the risk of ignoring this process or rubber-stamping management’s proposals. The stakes are simply too high.

© Dr. Earl R. Smith II

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• Nomination Committee Strategies

• Practical Governance Practices

• Good Governance – Balancing Eight Key Factors

• Good Governance – Strategic Positioning for Strategic Planning

• Components of Good Governance – Three Committees

• Sound Audit Committee Governance

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