News and Views
November 22, 2017
Posted in: WATSON Views
The mere mention of chair succession can silence even the most progressive boardroom. Uncomfortable broaching this delicate topic, many boards not only lack formal chair succession processes and policies, but in many cases, avoid the issue altogether. Today, however, we are witnessing a slow shift towards better governance. High performing boards are investing time and thought into choosing the right chair and, as they have these critical conversations, there is one word consistently rising to the top – commitment. Commitment to the importance of defining the role, commitment to establishing a robust process to identify the right future chair, commitment to transparency, and commitment to a smooth and seamless chair transition.
Boards are increasingly recognizing the value of a strong chair. The chair not only sets the tone for effective board functioning, but also plays a critical role in managing the board’s affairs, advancing the board’s agenda, liaising with the CEO, and representing the board internally and externally. The board chair’s ability to execute these responsibilities has a significant impact on the board’s relationship with management, the overall effectiveness of the board, and, ultimately, the success of the organization. Given the heightened demand for deeper experience, stronger leadership, and strategic agility, many boards are left with a dwindling list of suitable candidates. Pile on the increased time commitment and it may just seem impossible to find the right chair.
Like many aspects of governance, there is no standard practice; every board is unique, directors’ personalities are unique and a process that works in one boardroom may flop in another. Chair succession can be sensitive, particularly when an individual has been in the role for a number of years, or when a long serving director feels it is their turn. While the timing and process will be unique to every company, there is one aspect of chair succession planning that effective boards have in common – they plan for chair succession so they are ready, and when the time comes, can transition smoothly to the next leader. The board’s effectiveness depends on it; so too does the organization’s performance.
While there is no defined best practice in chair succession planning, boards who strive to govern with intention™:
- Define the role
- Design their approach
- Recruit and develop directors for leadership
Governance training like no other
1. Define the Role
What are the fundamental skills and experiences that are required of the chair at a given point in time?
Not every director has what it takes to be chair. In addition to governance experience and business-related skills and experience (knowledge of the company, the industry, the global landscape and the broader economic environment), key attributes most often sought in a board chair include: excellent communication and relationship skills, low ego, natural curiosity, understanding of group dynamics, and the ability to build consensus and bring out the best in individual directors. When identifying the skills, experience and attributes required of the role, boards need to shift their focus to the right leader for the organization at a given point in time. The right chair in the past may not be the right chair for the future, and the skills and experiences required in the current chair may be totally different than those required over the next five years.
And, while skills and experience are important, the single most important thing to look for in a potential chair is commitment. Does your candidate have the time and willingness to take on this significant role? In today’s environment, the demands of the board chair are significant and complex and will increase dramatically when major challenges arise. Be very clear on the commitment required of your chair – in the boardroom and, equally important, the time between meetings.
A word of caution: A director’s length of board service and commitment as a director should never guarantee a promotion to chair. Competency trumps tenure every time.
Tips to consider when defining the role:
- The chair role will change depending on circumstances and the company’s strategic priorities
- Annually review and update the board chair position description
- Revisit and refine the critical attributes as you get closer to transition
- Realistically map out the chair’s true required level of commitment – look beyond meetings to all the work the chair does between meetings – curating meetings, leading governance work and liaising with the CEO, committee chairs, directors and stakeholders
2. Design Your Approach
Given the growing complexity of the board chair role, and the relative scarcity of individuals who have the experience, personal attributes, and time to take on the role, boards need to be thoughtful and focused in their approach to chair succession.
a) Assign Responsibility
Who is responsible for overseeing the chair succession planning process? Who leads the transition?
Whether board chair succession comes up on a planned or unplanned basis, it’s important to be clear on who is responsible to lead the planning and transition process. In most cases the governance committee chair or the entire governance committee takes on this critical responsibility.
A word of caution: If the director leading the transition is a chair contender, appoint a director with the interpersonal skills to step in and lead the process.
Hey WATSON, chair term limits or no limit – what’s your opinion?
Having a defined term provides a level of predictability that supports orderly planning and transition. And it’s often possible to extend the term in exceptional circumstances.
Have a question about governance.
b) Define the Timeline
When does the board chair term end? When should transition planning start?
Start your succession planning approximately 12 to 24 months in advance of the anticipated transition to provide adequate time to review and refresh the position description, map out the process, canvass board members, make the selection and facilitate a smooth transition.
If your board doesn’t have term limits, keep an open and regular dialogue with the board chair to ascertain their interest and plans, and adjust the timing to accommodate company circumstances (e.g., CEO transition).
c) Define the Process
How will the new chair be selected? What are the expected roles of the governance committee, directors, the incumbent chair and CEO in the process?
- Determine the decision-making process ahead of time. When it comes to determining who the preferred candidate is, establish a process that has been agreed upon ahead of time, before personalities become involved. Different selection options include: consensus, recommendation or election.
- Document the processes and policies. Develop a formal board chair succession policy and chair position description outlining the chair’s responsibilities, plus the desirable attributes and skills that the future chair should have.
- Set the rules. Avoid a popularity contest by establishing rules limiting directors campaigning for office.
- Ensure objectivity in managing the process. Typically, the governance committee will manage chair succession planning. In the case of a conflict of interest, transfer responsibility to an individual (or committee) not personally interested in assuming the role or seek unbiased external support.
- Commit to transparency. Start by embedding the process in your forward calendar to take some of the awkwardness out of the conversation; when directors see it coming, they tend to be more receptive to discussing the topic.
- Determine how the CEO will be involved. Responsibility for choosing the board chair lies squarely with the directors and the CEO should not play a role in the ultimate decision. However, given the importance of a strong, positive working relationship between the board chair and CEO, many boards invite the CEO to provide feedback on potential chair candidates and take the feedback into consideration in making their decision.
- Engage stakeholders. Typically, shareholders and stakeholders are not engaged in the board chair selection process. However, there may be circumstances (e.g., a small number of large shareholders) where the board may wish to elicit feedback on key criteria from stakeholders’ perspectives. Also, the board may wish to engage in an explicit approach to communicating the choice of a new chair to shareholders and/or stakeholders. This is an area that requires careful consideration, so as not to create expectations.
- Proceed in a timely manner. Once the board chair announces that they intend to step down, or as the final term is coming to a close, those who are interested in the position may, consciously or unconsciously, jockey for the role. This can be a death sentence for overall board dynamics. Once the transition process has started, complete the process as quickly as possible (e.g., within a few months).
d) Plan for Emergency Succession
Who will step in on an interim basis?
As with CEO succession, the board must be prepared to manage a smooth chair transition in the event of an emergency departure of the chair. Be intentional about your approach and build this into the succession policy – whether to appoint an interim chair pending the choice of a new chair, or go through the full process to transition to a permanent chair. When choosing the interim chair option, engage the entire board to discuss the key criteria of an interim chair and, if possible, be explicit about who will step in. This provides continuity internally in the organization and externally with stakeholders.
What’s the Current Chair’s Role?
While a chair should never anoint a successor, the current chair does have a role to play in planning for succession.
Ways the chair can help:
- Ensure there is a written board chair succession policy
- Put chair succession on the forward calendar
- Elevate leadership potential to an essential competency when considering new directors
- Create leadership opportunities for potential candidates within the board (e.g., committee chair assignments)
- Provide insight and feedback to directors on their leadership skills during peer reviews
- Contribute to the development of the position description for the incoming chair, drawing on personal knowledge of the company, industry and stakeholders, and of the actual time required to do the job right
- Share insights on potential candidates
The single greatest way the chair can support the transition process is to commit to transparency. The current chair must create a culture of open dialogue and an approach to transition that is aligned with the best interests of the organization.
3. Recruit and Develop Directors for Leadership
Today, it is considered good practice to develop and recruit from current directors – they know the board and company well, have established relationships, and should be able to provide a seamless transition.
a) Prepare Directors for Board Leadership
There are many opportunities to help high potential directors prepare for board leadership.
Tips on how to integrate chair succession with board renewal:
- Proactively develop multiple future chairs
- Appoint potential chair candidates to committee leadership positions and, if appropriate based on their background, rotate them among committees
- Invite chair candidates to serve on the CEO search committee or other special committees in order to build important relationships or gain in depth knowledge in key areas
- Invest in external training for candidates to allow for a smooth transition to board leadership
- Mine peer evaluation results to identify and develop potential future chairs
Integrate Board Chair Evaluation into Chair Succession Planning
Many boards are evolving their approach to board chair evaluation, which ties directly into board chair succession. Feedback on chair performance and contribution is often part of the traditional board evaluation process, but many companies are taking the board chair evaluation process a step further by providing time for the directors to meet and review the chair feedback and formulate key messages for the chair. Board chair evaluation provides an opportunity to review the board’s support for the current chair and to think pro-actively about what it takes to be a great chair.
b) Recruit from Current Directors
Transparency is crucial during chair selection. The board should commit to an open and fair process. Each director should be offered the opportunity to express their interest in the position and to consider whom they would support in the position.
Many companies integrate chair succession planning into overall board succession planning. Annually, the governance committee should review the board membership to identify multiple chair successor candidates. In the case of new director recruitment, the nominating committee should factor the board’s future leadership needs into the selection process.
A word of caution: At no time should the board promise the role to any one director or create implied expectations. As circumstances change, so too must the responsibilities and attributes of the chair. If you recruit a new director with the promise of a future seat at the head of the table, there is bound to be disappointment and frustration when the situation changes.
The shift to thoughtful and deliberate governance is lifting the veil of secrecy on chair succession planning. Responding to the increased expectations and pressures put on boards across sectors, boards are trading in side conversations and haphazard approaches to chair succession in favour of intentionally designed processes and open dialogue. Boards are heavily investing to ensure they have the right chair to lead during these demanding times. The commitment to a tailored approach, transparency and people is elevating performance inside and outside of the boardroom.