What is the board’s role in succession planning? At a bare minimum, a board should assure there is a pipeline of qualified candidates for its own succession planning.
While noting that there is no one-size-fits-all-approach to succession planning, a recent client alert from law firm Chapman and Cutler listed some key traits to consider in succession planning:
1. Examine the key corporate documents: This includes board review of all relevant corporate governance documents, including guidelines, the Charter for Board Governance, the Director Nomination Policy, and any relevant policies setting out the appropriate protocols and procedures.
2. Use an assessment framework: Consider the following (a) the current strengths and weaknesses of the board and each board committee; (b) the short- and long-term skills needs of the board; (c) evaluating how the board’s assessment changes regarding retiring directors; and (d) “shifting the board’s approach of automatically re-nominating existing directors to one that bases a director’s re-nomination on a number of criteria, such as the board’s evolving needs and director performance.”
3. Conduct due diligence: Conduct an executive level due-diligence background investigation, not simply a background check.
4. Maintain a pipeline: Every board should maintain a pipeline of qualified candidates. By doing so, this will enhance the effectiveness and efficiency of the succession process.
5. Assess board policies: Just as a company should periodically assess and reassess its policies and procedures. From this exercise, a board can identify current and future leadership and committee needs and the specific subject matter expertise required going forward.
6. Disclose your succession strategy: Boards should disclose their succession strategies.
7. Benchmark your succession strategy: A board should benchmark its succession strategy with industry peers around the use of the steps outlined in this piece and to stay aligned with the evolving policies and positions of large institutional shareholders and good corporate governance advocates.