News and Views
July 30, 2020
Posted in: WATSON Views
The current state of the world has put CEO succession in sharp focus (more on that here). At the same time, it is also exposing a shift in how the board oversees succession of the senior team. The pandemic is accelerating a shift already in motion with the broadening role of the human resources committee (HRC), resulting in a more intentional approach to how the board oversees succession beyond the CEO.
What used to be called the compensation committee, focused largely on the performance, succession, and yes, compensation of the CEO, is now commonly referred to as the HRC and is expanding to oversee broad human capital matters throughout the organization. With a close lens on the CEO, a wider view of the senior team, and a high-level view across the organization, the HRC and board play a critical role in overseeing the health of the organization in terms of people, leadership, and culture.
While it might sound like a board creeping into operational matters, the reality is boards are recognizing that as more of their organization’s assets, value, and risks reside with people, they need to better understand the organization’s opportunities and risks in terms of human capital. Boards that manage this balance well respect the CEO’s space to lead and also recognize that they have a responsibility to focus on what is material in this area; their CEOs value the board’s thoughtful insight and oversight and benefit from having more minds engaged in this complex and nuanced space.
Hey WATSON, what is the HRC responsible for these days?
Every organization is different, but an HRC’s purview may include:
- Oversight of the CEO lifecycle, from onboarding, development planning, and performance evaluation, to forward-looking succession planning – the CEO is the board’s only employee and the HRC supports the board in ensuring the right CEO is in place and that they are supported with rich development opportunities and feedback
- Consultation on material changes to the size and level of the senior team (e.g., additions or restructuring of the senior team) – this relates to financial materiality, risk, and organizational effectiveness
- Input into performance reviews (and potentially any important actions arising from them) for executives with a close tie to the board or its committees (e.g., a CFO who works closely with a finance and audit committee) – this has a direct impact on board functioning
- Confidence, through some direct involvement and oversight, that succession risks and opportunities are known and managed for mission critical roles, including executives under the CEO – this relates to risk and strategic opportunity and can have a direct impact on CEO succession
- Insight into the health of the top team – observation and awareness of the strength of the talent at the top, the CEO’s effectiveness in leading their team, and how effectively the team partners together – this relates to risk, succession, culture, and ethics
- Human capital oversight – insight into whether the organization has the structures, talent, leadership, and culture to succeed (reviewing strategies, plans, and dashboards/reports) – this relates to risk, strategy, and operational effectiveness
Have a governance or talent question?
When it comes to succession, the board and HRC are typically accountable for CEO succession, involving the CEO as a collaborator. They generally have insight and input into succession plans for the CEO’s direct reports to ensure they have confidence and awareness. Beyond the senior team, they are provided information to have confidence that the organization can attract, retain, and build the talent it needs. If there are a few critical specialized roles in the organization, they may ask for richer insight there.
How the board engages in succession planning conversations beyond the CEO requires a delicate balance, respecting the CEO’s space to lead while ensuring the board, through the HRC, is exercising its oversight responsibility. Often the CEO will lead the work, with the clear understanding that the HRC expects to be consulted, expects regular visibility into plans, and should be able to question, influence and, if necessary, direct action. The HRC provides oversight by providing input up front, engaging as a thought partner to the CEO throughout the process, reviewing the outcomes, and working with the CEO to develop a cycle and process to refresh the plans. Often the HRC engages an advisor to partner with the committee and the CEO. Much of the advisor’s time would be spent with the CEO (and sometimes the CHRO), but their accountability is to the HRC. In the normal course of business, the work of succession planning beyond the CEO might entail the following:
|Understanding the roles||
|Understanding the talent||
|Bringing it together||
This may feel like a lot, even without the shadow of a global pandemic. As boards and HRCs deepen their role in how they oversee succession beyond the CEO, we recommend starting small and iterating from there. Start with a rough high-level approach and workshop it with an advisor. External advisors or internal strategic HR leaders can help support and guide this work (CEOs often lack the time, expertise, and/or objectivity to do it alone). Prioritize the biggest gaps, risks, and opportunities and start there, broadening focus over time as you learn and develop a framework and process.
In this moment when succession risks may be in sharp focus, consider how best to target the board and HRC’s work on the immediate opportunities and challenges. What happens if something happens to the CEO? What is the risk of multiple executives, including the CEO’s emergency successors, falling ill? Are there any executives close to retirement that may not be willing to weather the storm? Will necessary financial cuts put the retention of key leaders at risk?
When you are more reliant than ever on great leadership, people risks and vulnerability heighten. As we emerge from crisis mode into recovery and forward planning, boards, through their HRCs, need to have confidence that the organization is managing material risks related to people, and has the structure, talent, leadership, and culture in place to position the organization for success. More than ever, this includes having a clear picture and high confidence that not only do you have successors for the CEO, you have bench strength below that.