a2 board responsibilities & ceo succession james beck
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2011 Annual Conference. 28 TH ANNUAL 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. - PowerPoint PPT PresentationTRANSCRIPT
A2 Board Responsibilities & CEO Succession
James Beck
2011ANNU
AL
CONFERENCE
28TH ANNUAL
CONFERENCE
2011
2
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
ORGANISATIONAL ENVIRONMENT
THE BOARD ENVIRONMENT
BOARD INTELLECTUAL CAPITAL
Board Competencies
• Knowledge• Skills• Abilities• Contacts
Board Structures
• Policies• Processes• Procedures• Committees
BoardDynamics
Board Behaviours
• Personality• Values• Norms• Board-
management relations
BOARD ROLES
Monitoring
Risk Management
Compliance
Policy Framework
Networking
Stakeholder Communication
Effective Governance
CEO Selection, Monitoring and Evaluation
Strategy
Decision Making
ORGANISATIONAL PERFORMANCE
WORK WITH AND THROUGH THE CEO AND SMT
Adapted from Nicholson & Kiel, 2004
INPUTS
Organisation Type
History
Legal Framework
Constitution
Strategy
High performance board framework
CEO Role of the Board
SUCCESSION
DESELECTION
MENTORINGEVALUATION
SELECTION REMUNERATION
CEO role of the board
Stages of Board Governance Maturity
A board at this stage is leading practice in this area.5. Leading practice
The board has learned through experience which changes have worked and which have not worked.
4. Continuous learning
The board has resolved to improve performance in this area throughout the entire organisation.3. Consistent
The board understands the importance of the particular area and has taken initial steps to improve its performance.2. Developing
The board has little understanding of a particular area of governance practice or of its importance.1. Baseline
Stage1
Baseline2
Developing3
Consistent4
Continuous learning5
Leading practice
Key area: CEO evaluation
CEO evaluation does not occur.
An informal CEO 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.
Board Governance Maturity Model: CEO Evaluation
The Role of the Board in CEO Succession
9
What the experts say...
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
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 high-potential internal candidates and a telephone tree of ‘who calls who’ if a crisis breaks.
Beverly Behan, principal of Board Advisor LLC
10
Roles are evolving
Past•CEO leads and decides•Board agrees
Present•Board and CEO collaborate•Board approves
Future•Board leads and decides•CEO provides input
11
Board involvement
MinimalComplete Control
Collaborative
Boards will differ in the degree of their involvement in CEO succession planning.
Board drives the process in close collaboration with the current CEO
Board controls the process with little or no input from the current CEO
CEO controls the process with little or no input from the board
12
Rational
EmotionalPolitical
The Rational/Analytical Component• 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
Issues in CEO succession
Political• Dealing with factions
within the board• Avoiding destructive
internal politics• Balancing the needs of
external stakeholders
Emotional• Coping with personal emotions• Helping those not selected adjust• Creating support for the new CEO• Moving on
Source: Nadler, Krupp, & Hossack, 2009
13
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
14
Internal vs. external
Internal
• 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
External
• 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
15
Danger!
• External appointments can disappoint potential internal candidates
Keeping the talent pool filled
16
Organisational Talent Pool
Leadership PlanningProactively developing and deploying
leadership talent
Continuity PlanningPreventing expertise and knowledge loss that would reduce performance
Succession PlanningProactively assessing and satisfying
organisational needs
17
New CEO Appointed
Establish Criteria for Next CEO
Identify / Recruit Candidates
Continual Candidate Review and Development
Designate Transition Plan to
CEOCEO
Succession Process
18
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
Strategy and Succession
The Right CEO
Good listener
EmpathySense of humour
Flexibility
Generosity
Open-mindedness Intelligence
Humility
Inclusiveness
Integrity
If you don’t know where you are going, any CEO will get you there
Experience
Knowledge
21
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
22
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
Planning for the Event
Preparing for a smooth transition
Recognise that it is the board’s responsibility
Engage the CEO as an ally in succession planning
Make succession planning part of strategic planning
Have an emergency transition plan
Include board development and transition issues in succession planning
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?
25
ThankYou
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:
Phone: 07 3510 8111
AppendixSuccession Planning Checklist
28
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?
29
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?