Boards Are Ignoring A Critical Risk

Sharing the results of their 2024 survey (in partnership with RHR International), Melanie Nolen, research editor for Corporate Board Member (CBM) revealed: "A quarter [of respondents] said they don’t have a detailed plan in place for the CEO or other mission-critical roles."[1]

Respondents to the 2024 RHR-CBM survey included over 400 directors at US public companies. In a separate 2016 survey, Professors Robert Hooijberg and Nancy Lane of IMD found that?58% of boards?don’t have succession plans. Even without directly comparing the two surveys, it’s likely safe to say that the problem – and risk – persists.

Both surveys focused on public companies, likely because the data is more easily gathered. More so than their privately-held counterparts, public companies are subject to comprehensive independent oversight – including guidelines requiring transparency about a company’s succession plan and process. Thus, I find their lack of succession plans to be particularly worrisome.

It appears that boards are ignoring a critical risk.

Smooth, effective leadership transitions are mission critical for any organization – nonprofit, public or privately held. At the very least, failure to have appropriate, valid succession plans in place is both disruptive and expensive – impacting market and organizational performance, brand equity, relationships, etc.

Thus, seeing statistics like the latest from Corporate Board Member, never ceases to amaze me. And (no surprise) succession planning is a regular topic among the CEOs and boards I advise. For others, succession can be a remarkably difficult subject to broach, as I discuss here: Has “Succession” Become A Dirty Word?

Succession plan mitigates the impact.

A good succession plan mitigates the impact of unplanned departures. Yet, planning for succession is not just about managing through a crisis. It should be a key part of overall talent strategy – one you review and update regularly. The most effective succession plans maintain direct links to vision and strategic priorities. They inform leadership development, becoming a roadmap for building the capabilities the organization needs to get to its destination.

Boards must assure the sustainability of the organization.

A good succession plan helps. Further, while the board’s explicit responsibility usually includes only the CEO (or Executive Director), it is in the company’s best interest for the board to look beyond the C-suite.[2] In fact, meaningful succession planning assures a ready supply of talent to take on the critical roles, wherever they reside. Board involvement has two important benefits:

• Identifies the specialized skills or expertise that, if lost, could be devastating. Not typically found in the C-suite, these capabilities are dispersed throughout the organization at any level. They create distinct advantage for the business and are found in any discipline or function and at any level. The board’s external perspective is extremely helpful for identifying the specialized skills needed for today and the future. Their foresight also encourages both boards and CEOs to take action – and allocate resources – to develop, maintain, or expand those critical capabilities before they are urgently needed.
• Enables an effective sequence?of succession (rather than a single shift) for which each person must be prepared. Promoting an internal successor triggers a domino effect, creating openings at other levels or in different parts of the organization. When the board actively supports a robust and deep succession planning process and assesses critical capabilities gaps, it helps to mitigate the broader risk of losing capabilities throughout the organization. Furthermore, CEOs benefit from enabling the board’s deeper and more meaningful connection to strategic thinking and what’s happening on the ground – without the board getting mired in operational details.

Planning succession is a highly strategic endeavor – one that both mitigates risk and promotes the sustainability of the organization, two critical board functions. Whether the precise percentage of public companies without succession plans is 25% or 58%, the bottom line is clear: too many corporate boards are ignoring a critical risk.

[1] CBM weekly newsletter 6/14/2024.

[2] See this short clip (or the full episode) from my conversation with Elizabeth Humphrey, in an episode of Strategy Conversations with Tara?.

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?2024 Tara J Rethore.?All rights reserved.?Permission granted to excerpt or reprint with attribution.