Transcript 4th Annual Corporate Governance Symposium

2011 ANNUAL
28TH ANNUAL
CONFERENCE
CONFERENCE
2011
A2 Board Responsibilities & CEO Succession
James Beck
Today’s topic
• The board’s role in CEO succession planning including
– Level of involvement
– Issues in CEO succession
– Principles of CEO succession
• The link with strategy
2
High performance board framework
ORGANISATIONAL ENVIRONMENT
INPUTS
THE BOARD ENVIRONMENT
Organisation
Type
BOARD INTELLECTUAL CAPITAL
Legal
Framework
Strategy
Board Behaviours
Board
Competencies
•
•
•
•
BOARD ROLES
Knowledge
Skills
Abilities
Contacts
Board
Dynamics
•
•
•
•
CEO Selection, Monitoring and
Evaluation
Personality
Values
Norms
Boardmanagement
relations
Monitoring
Risk Management
Compliance
Constitution
Policy Framework
Board Structures
Strategy
•
•
•
•
Networking
Stakeholder Communication
Policies
Processes
Procedures
Committees
Decision Making
Effective Governance
History
WORK WITH AND THROUGH THE CEO AND SMT
ORGANISATIONAL PERFORMANCE
Adapted from Nicholson & Kiel, 2004
CEO Role of the Board
CEO role of the board
SELECTION
REMUNERATION
DESELECTION
EVALUATION
MENTORING
SUCCESSION
Stages of Board Governance Maturity
5. Leading
practice
4. Continuous
learning
3. Consistent
2. Developing
1. Baseline
A board at this stage is leading practice in this area.
The board has learned through experience which changes
have worked and which have not worked.
The board has resolved to improve performance in this
area throughout the entire organisation.
The board understands the importance of the particular
area and has taken initial steps to improve its performance.
The board has little understanding of a particular area of
governance practice or of its importance.
Board Governance Maturity Model: CEO Evaluation
Stage
1
Baseline
2
Developing
3
Consistent
4
Continuous learning
5
Leading practice
CEO evaluation does not An informal CEO
occur.
evaluation occurs
annually.
There are no mid-term
or periodic reviews of
the CEO’s progress.
A formal CEO evaluation
occurs annually.
There are no mid-term
or periodic reviews of
the CEO’s progress.
A formal annual CEO
evaluation occurs
annually.
Mid-term and periodic
reviews of the CEO’s
progress are being
trialled.
A formal annual CEO
evaluation occurs
annually.
Mid-term and periodic
reviews of the CEO’s
progress take place.
Performance concerns
are not addressed by
the board.
Unsatisfactory
performance is
addressed by the board.
There is no formal
annual performance
exchange between the
CEO and the board.
Unsatisfactory
performance is
addressed by the board.
An informal annual
performance exchange
occurs between the CEO
and the remuneration
committee.
Unsatisfactory
performance is
addressed by the board.
A formal annual
performance exchange
between the CEO and
the full board is being
trialled.
Unsatisfactory
performance is
addressed by the board.
A formal annual
performance exchange
occurs between the
CEO and the full board.
The Chair provides
regular informal
feedback to the CEO.
The majority of the
following documents
do not exist: CEO
evaluation policy; CEO
evaluation procedures;
CEO’s position
description; CEO’s
performance
agreement; and
organisational values.
Some CEO evaluation
policies and procedures
are documented but are
out of date.
Existing CEO evaluation
policies and procedures
are being updated and
missing policies and
procedures are in
course of development.
An updated suite of CEO
evaluation policies and
procedures is being
trialled.
CEO evaluation policies
and procedures are fully
documented, updated
as required and
reviewed at least
annually.
Key area: CEO
evaluation
The Role of the Board in CEO
Succession
What the experts say...
When I work with boards on CEO succession planning, I am shocked at how
often I find that their emergency plan consists of little more than a list of highpotential internal candidates and a telephone tree of ‘who calls who’ if a crisis
breaks.
Beverly Behan, principal of Board Advisor LLC
Most large companies say they do succession planning, but if they do it at all
they don’t do it very well. Boards themselves don’t put enough effort into
seeing that internally senior management are developed and that externally
there’s a good search for external talent in time to find it.
Professor Thomas Clarke, UTS Centre for Corporate Governance
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Roles are evolving
Past
Present
Future
• CEO leads
and
decides
• Board
agrees
• Board and
CEO
collaborate
• Board
approves
• Board
leads and
decides
• CEO
provides
input
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Board involvement
Boards will differ in the degree of their involvement in CEO succession planning.
Minimal
Collaborative
CEO controls the
process with little or
no input from the
board
Board drives the process
in close collaboration with
the current CEO
Complete
Control
Board controls the
process with little or
no input from the
current CEO
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Issues in CEO succession
The Rational/Analytical
Component
•
•
Political
•
•
•
•
Rational
Dealing with factions within
the board
Avoiding destructive
internal politics
Balancing the needs of
external stakeholders
•
Political
Identifying job requirements based
on company strategy
Searching diligently for the best
candidate
Assessing candidates using
multiple methods and raters
Selecting the best candidate
regardless of personal loyalties
Emotional
Emotional
Source: Nadler, Krupp, & Hossack, 2009
•
•
•
•
Coping with personal emotions
Helping those not selected adjust
Creating support for the new CEO
Moving on
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Key types of CEO succession
• Tournament/contest
– Top executives are pitted against outsiders for the position
• Relay
– Heir apparent works with the incumbent CEO
• Horse race
– Two or more top executives compete for the CEO post
• Coup d’etat
– A coalition of board members mounts enough force to unseat the
incumbent CEO
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Internal vs. external
Internal
External
• Greater likelihood to maintain current strategic vision
• Leads to homogeneous groups because of similarity in
past experience and organisation tenure
– More cohesive
– Communicate more frequently
– High level of integration
• More likely to follow in predecessor’s footsteps
• Greater likelihood to experience significant strategic
change
– Recommended when significant change is needed
• Leads to more heterogeneous work group
– Challenge existing viewpoints
– More solutions
• Represents raw power base because of few ties to old
system
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Danger!
• External appointments can disappoint
potential internal candidates
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Keeping the talent pool filled
Organisational Talent Pool
Leadership Planning
Proactively developing and deploying
leadership talent
Succession Planning
Proactively assessing and satisfying
organisational needs
Continuity Planning
Preventing expertise and knowledge
loss that would reduce performance
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New CEO
Appointed
Designate
Transition
Plan to CEO
Establish
Criteria for
Next CEO
CEO
Succession
Process
Continual
Candidate
Review and
Development
Identify /
Recruit
Candidates
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5 principles of CEO succession
1. The goal of CEO succession is finding the right leader at the
right time.
2. CEO succession is a board-driven, collaborative process.
3. CEO succession is a continuous process.
4. The board should ensure that the CEO builds a talent-rich
organization by attracting and developing the right people.
5. Succession planning should be driven by corporate strategy.
Source: NACD, 1998
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Strategy and Succession
If you don’t know where you are going,
any CEO will get you there
Inclusiveness
Intelligence
Open-mindedness
Generosity
Flexibility
Sense of
humour
Humility
Knowledge
Experience
Good listener
Empathy
Integrity
Strategy drives succession
•
Before considering any particular candidate to succeed the current CEO, the board
should understand the strategic context in which the next CEO will have to
operate, i.e.
– Key business drivers;
– Industry trends;
– Competitive landscape;
– Markets; and
– Goals (both financial and non-financial).
•
Then it is possible to define the competencies that the next CEO will need
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Firing the CEO?
Often a board does not understand their company’s strategy well
enough to make an informed CEO selection
Boards need to:
•
Allow strategic needs, not the market to dictate any selection
process
•
Appropriately support CEOs by:
– setting realistic performance expectations; and
– supporting the CEO in communicating realistic earnings
forecasts and “bad news”
•
Provide more strategic oversight
•
Provide the CEO with more appropriate feedback on his or her
strategic performance
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Planning for the Event
Preparing for a smooth transition
Recognise that it is the board’s responsibility
Make succession planning part
of strategic planning
Engage the CEO as an ally in
succession planning
Include board development and
transition issues in succession
planning
Have an emergency transition
plan
Emergency transition plan
• Who will take the CEO’s place?
• Who will handle the work of the person(s) filling in for the CEO?
• How much authority will the interim CEO have?
• If that authority will be more limited than that of the former CEO, what
controls will be put in place?
• Who needs to be informed and how and when will each relevant party be
notified?
• Who is authorised to speak on behalf of the organisation?
• At what point, and how, will the board initiate a formal search for a new
CEO?
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Thank
You
If you have any questions about
today’s topic or any other
organisational matters, feel free to
contact James Beck or Judith Winn
at Effective Governance:
[email protected]
[email protected]
Phone: 07 3510 8111
Appendix
Succession Planning Checklist
Board CEO Succession Planning
Checklist
• Do board members support the current mission statement?
• Do the board and the CEO have a collective vision of how the
organisation should be evolving?
• Does the work of the board and employees reflect defined strategic
direction and goals?
• Does the board have a clear understanding of the financial
condition of the organisation?
• Is there a current and adequate written job description that clearly
spells out the responsibilities of the CEO?
• Is there a climate of mutual trust and respect between the board
and the CEO?
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Board Checklist (cont’d)
• Do board members understand their roles and responsibilities?
• Is there agreement between the board and the CEO on their
respective roles and mutual expectations?
• Does the board have a constructive process for reviewing the CEO’s
performance and remuneration package on a regular basis?
• Does the board have a regular and effective process for assessing its
own performance?
• Does the board have in place emergency management transition
policies if the CEO departed suddenly?
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