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A2 Board Responsibilities & CEO Succession James Beck 2011 ANNUAL CONFERENCE 28 TH ANNUAL CONFERENCE 2011.

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Presentation on theme: "A2 Board Responsibilities & CEO Succession James Beck 2011 ANNUAL CONFERENCE 28 TH ANNUAL CONFERENCE 2011."— Presentation transcript:

1 A2 Board Responsibilities & CEO Succession James Beck 2011 ANNUAL CONFERENCE 28 TH 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 2

3 ORGANISATIONAL ENVIRONMENT THE BOARD ENVIRONMENT BOARD INTELLECTUAL CAPITAL Board Competencies Knowledge Skills Abilities Contacts Board Structures Policies Processes Procedures Committees Board Dynamics Board Dynamics 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

4 CEO Role of the Board

5 CEO role of the board

6 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

7 Stage 1 Baseline 2 Developing 3 Consistent 4 Continuous learning 5 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

8 The Role of the Board in CEO Succession

9 What the experts say... 9 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 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 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 10 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 11 Minimal Complete 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 12 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 13 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 14 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 15

16 Keeping the talent pool filled 16 Organisational Talent Pool Leadership Planning Proactively developing and deploying leadership talent Leadership Planning Proactively developing and deploying leadership talent Continuity Planning Preventing expertise and knowledge loss that would reduce performance Continuity Planning Preventing expertise and knowledge loss that would reduce performance Succession Planning Proactively assessing and satisfying organisational needs Succession Planning Proactively assessing and satisfying organisational needs

17 17 New CEO Appointed Establish Criteria for Next CEO Identify / Recruit Candidates Continual Candidate Review and Development Designate Transition Plan to CEO CEO 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,

19 Strategy and Succession

20 The Right CEO Good listener Empathy Sense 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 21

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 22

23 Planning for the Event

24 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

25 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

26 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: Phone:

27 Appendix Succession 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? 28

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? 29


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