Jane Bridge

Managing PartnerBoardroom Partners

Introduction

• Boardroom Partners• CSA Conference audience• My observations are based on 15 years of

board reviews (un named) and 4 reports/articles (named)

What is succession planning and why is it difficult?

• Planning and agreeing who takes over (the seat)

• Great reforms in all sectors in governance practices

• Board and CEO succession – less developed• Not like other dimensions of governance• Has a strong emotional component, is

often political and can be irrational

Succession plans….

• Can be elegant, detailed and deliberate, but will fail if they are based on an underlying model that looks more ‘like a chessboard than a playground’ (Nadler 2010)

• Need to acknowledge complexity rather than focus on mechanistic approach

• Some systematic element necessary to guide an inherently messy and essentially human process

Importance of succession planning

• Probably THE single most important decision that a board will ever make – alongside strategy; risk and their own composition)

• Has 3 dimensions – Analytical; Political; and Emotional

Some differences we see

BOARD

Flexible timingPrivate decision makingLow key processInformal ‘matching’(Often) undertaken in house

CEO

Critical timingPublic eye on processHigh risk decision(Generally) involves external expertise

10 problems we see

1. No planning at all – or – the board starts too late

2. Some board members only involved and fail to take others with them (Options: concurrence; crisis; collaborative)

3. No focus on developing internal candidates4. Selection criteria not agreed

Problems continued

5. No rigour around performance assessment or poor relationship board:CEO

6. Resistance to use formal/external expertise7. Low board interaction with executives8. Board sets up a race or public competition 9. CEO exit poorly managed10.No contingency for emergencies

A few words from Walker

Characteristics of high functioning boards identified – capacity to deliver dependent on four factors: • Character and personality of the directors and

dynamics of their interactions• Balance between CEO/Chair; CEO/Board;

Executives/Non executives• Environment in which board meetings are held, and• Culture of the board and the company in general

Conclusions

• As Co Secs – enormous capacity to influence these factors.

• Provide link between board and management Act as the Chief of Staff to the Chair

• Have access to expertise, knowledge and wherewithal to make a difference

Good luck

References

• Beyond Best Practice: Revisiting the Board’s Role in CEO Succession. Mark Nadler, 2010 Oliver Wyman

• Boardroom Behaviours – Report by Sir David Walker for ICSA UK June 2009

• CEO Turnover in 2006 – Succession Planning – The Era of Internal Candidates. Booz Allen Hamilton

• Changing Leaders: The Board’s Role in CEO Succession (US Roundtable) Jay Lorsch and Rakesh Khurana

James Beck

Managing DirectorEffective Governance Pty Ltd

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

13 CEO_Recruiting for Success_Oct12

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

14

Recruiting for Success Framework

Find

Retain

Fit

Receive

CEO Assessment Framework

CEO’s performance

objectives

Performance Assessment

Workshop

Performance bonus

CEO’s management

abilities

eG CEO Expectations

Survey and WorkshopCEO’s competencies aligned to

salarybased on meeting or exceeding

leadership and management expectations

CEO’s leadership

impact

MLQ 360°Survey

CEO Development CEO ReviewR

em

un

era

tio

n o

utc

om

esTo

ols

an

d

pro

cesses

Focu

s o

f evalu

ati

on CEO’s competencies

CEO’s performance

Board skills

Board skills and competence

Can you justify that your board has the skills and

competence to deal with the issues before the company?

Board competencies

Behavioural

Governance

Technical

Industry

The essential governance knowledge and understanding all directors should possess or develop if they are to be effective board members. Includes some specific technical competencies as applied at board level

The attributes and competencies enabling individual board members to use their knowledge and skills to function well as team members and to interact with key stakeholders

Experience in and knowledge of the industry in which the organisation operates

Technical/professional skills and specialist knowledge to assist with ongoing aspects of the board’s role

Source: GC Kiel et al., 2012, Directors at work: a practical guide for boards, Sydney: Thomson Reuters.

None

(1)

No professional experience in accounting No understanding of basic accounting concepts including cash flows, assets, inventory, short and long term debt, balance sheets, income types, payroll or similar No practical accounting exposure at an organisational level No understanding of methodology and terminology used in accounting or financial analysis No understanding or experience in tax related matters Holds no formal or informal training or qualification in accounting and has not been exposed to the concepts

Basic

(2)

Director understands fundamental accounting standards Can identify the key elements of financial reports such as profit and loss, cash flow, assets and liabilities Demonstrated ability to dissect given sections of the company’s balance sheet, income statement and statement of cash flows Some understanding of accounting methodologies and calculating standards Exhibits an appreciation for the relationship between account keeping and tax liability May have worked in the finance section of an organisation May have had access to informal training in accounting

Operational

(3)

Demonstrated understanding and application of standard accounting principles and concepts including cash flows, assets, inventory, short and long term debt, balance sheets, income types, payroll or similar

Is able to identify the tax implications applicable to operations Has worked with the accounts of an organisation for a period of 5 years or more Can identify and provide analysis of the key elements of accounts statements and reports Demonstrated ability to dissect many elements of the company’s balance sheet, income statement and statement of cash flows May hold a Diploma or similar in accounting practice and may be a member of the National Institute of Accountants Has a working understanding of accounting methodologies and calculating standards

Extensive

(4)

Is a member of CPA Australia or the Institute of Chartered Accountants in Australia Holds at least a Bachelors Degree in Accounting or directly aligned discipline Has worked extensively in accounting across medium to large organisations for a period of 10 years or more Has experience with developing and reporting key accounts data in periodic reports Has lead a team with accounting responsibility for more than 7 years Has advanced knowledge of accounting processes and standards Proven ability to provide oversight and acknowledged high level advice on accounting processes Is able to identify the tax implications applicable to operations and ensure compliance across an organisation Has demonstrated an ability to think strategically about accounting across an organisation, enhancing performance as a result

Expert

(5)

Has been a career financial executive in large organisations (could include universities) Appreciates and has demonstrated an ability to apply superior knowledge of accounting principles strategically Has superior understanding of/capability in accounting Has lead a team with significant accounting responsibility for more than 10 years Is a Fellow of CPA Australia or the Institute of Chartered Accountants in Australia Holds a Masters Degree or higher in accounting or directly aligned discipline Has significantly contributed to research and associated literature in the accounting discipline Has worked for 15 or more years in accounting and has provided expert technical advice on complex accounting issues Appreciates and has demonstrated an ability to apply superior knowledge of accounting principles strategically Regularly provides advice on tax implications applicable to operations, ensures compliance across an organisation and locates areas of strategic opportunity for the

entity Sought after ability to provide oversight and acknowledged high level advice on accounting processes

Person Director A

Director B

Director C

Director D

Director E

Director F

Director G

Maximum Rating Required on the Board for this Competency

Number of Directors Required with Maximum Rating

Response

1.1 Technical Skills and Experience: Accounting

What a skills

assessment looks

like

Can also Assess PEERS

What a skills assessment looks like

0

1

2

3

4

5

Accounting

Finance

Industry

Legal

Strategic marketing

Strategy development

Risk management

HRM

Information technology

Contemporary corporate

governance

Current number of directors meeting maximum competence level

Number of directors required for future at maximum competence level

What a skills assessment looks like

Key

Individual meets or exceeds requirements

Requirement not met

Requirement met

Section Competency

Self-AssessmentCurrent

CompetencyFuture

Requirement

Met / Not MetDire

ctor A

Director

B

Director

C

Director

D

Director

E

Director

F

Maximum

Current Skill Level

Current Number at Future

Needs Skill Level

Rounded Mean:

Skill Level Required

Rounded Mean:

Directors Required

Technical Skills and Experienc

e

1.1 Accounting 3 2 3 3 2 2 3 0 4 2 Not Met

1.2 Finance 2 2 2 3 2 2 3 0 4 2 Not Met

1.3 Industry experience 1 4 3 3 4 2 4 4 5 2 Not Met

1.4 Law 5 1 2 2 2 2 5 1 4 1 Met

1.5 Strategic marketing 2 2 2 2 4 3 4 2 3 2 Met

1.6 Strategy development and implementation 2 3 2 2 4 3 4 1 4 2 Not Met

1.7 Risk management 2 3 2 2 3 2 3 2 3 2 Met

1.8 HRM 2 2 2 3 2 2 3 1 3 2 Not Met

1.9 Information technology 1 1 1 2 2 2 2 3 3 1 Not Met

1.10 Contemporary corporate governance 4 3 2 3 4 3 4 2 4 3 Not Met

In the annual report...

Section Competency

Self-Assessment

Director A

Director B

Director C

Director D

Director E

Director F

Technical Skills and

Experience

Accounting

Finance

Industry experience

Law

Strategic marketing

Strategy development and implementation

Risk management

HRM

Information technology

Contemporary corporate governance

Michael Slater

ChairmanNewcastle Permanent Building Society

The CEO Role of the Board

CEOSELECTION

CEOASSESSMENT

CEOSUCCESSION

CEOMENTORING

CEOREMUNERATION

CEODESELECTION

Practical Experience dealing with and

optimisation of CEO performance

• Applied Governance— Roles of CEO and Board— Documentation of Governance

• CEO and Board work in partnership• Mechanics:

— Corporate Governance charter— Strategic Plan— Operational Plan— Delegations Manual— Functional structure— Budgets— Policy formulation— Performance monitoring and performance management— Balance performance “scorecard” criteria

o Timeframe diversityo KRA’s and KPI’so Behavioural/Attitudional modeso Targets/weighting

Practical Experience dealing with and optimisation of CEO performance

• Board and Management work as a team

• Board and Management have to “buy in” and “commit”

• CEO’s operate with Board- is accountable to “Board”

• Variance of relationship between organisations and CEO’s in

performance

• CEO/Chair relationship

• Role clarity

• CEO’s role and responsibility for outcomes

• Bottom line is CEO/Board alignment of goals in Strategic Plan

Planning for the future – succession planning

• One of the criteria for CEO performance assessment and remuneration

• Integrated into targeted program for executive and management training

• Forms part of the executive and CEO performance evaluation score card

• Linked to the goals and objectives in the strategic and operating plans

• Establishes a “benchmark” standard for attributes of skills/expertise before

going to market

• Opens up career opportunities

NPBS Experience

• Endorses succession planning program

• An advance in corporate culture

• Critical time dimension

• Risk mitigation to key roles

• Executive CPD (Harvard)

• CEO succession planning should remain as a Board agenda item

on an ongoing basis

Board Skills & Competence

• Annual Director 360o Peer Group Review (inclusive of CEO input) - skills

- expertise- modes of behaviour

Facilitated by independent consultant

• Annual Chairman Review by Directors (inclusive of CEO input)Facilitated by independent consultant

• Annual Review of Chairman of Board Subcommittees by respective subcommittee Director members

Facilitated by independent consultant

• Monthly Boardroom Barometer – trend analysis of Board and Director performance by independent input of all Directors

Facilitated by independent consultant

• Bi Annual – skills/behaviour mode/expertise analysis and assessment- review current status contrasted to perceived needs requirements- gap analysis- Director succession planning

Facilitated by independent consultant

• Summary results presented in a Governance Activity Statement to Australian Prudential Regulatory Authority – (APS 510)

• Continuing CPD— ASIC Summer School— CSA Annual Conference— Various others

Board Skills & Competence cont