1. Jane Bridge Managing Partner Boardroom Partners

2. Introduction Boardroom Partners CSA Conference audience My observations are based on 15 years of board reviews (un named) and 4 reports/articles (named)

3. 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

4. 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

5. 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

6. Some differences we see BOARD Flexible timing Private decision making Low key process Informal ‘matching’ (Often) undertaken in house CEO Critical timing Public eye on process High risk decision (Generally) involves external expertise

7. 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 candidates 4.Selection criteria not agreed

8. Problems continued 5.No rigour around performance assessment or poor relationship board:CEO 6.Resistance to use formal/external expertise 7.Low board interaction with executives 8.Board sets up a race or public competition 9.CEO exit poorly managed 10.No contingency for emergencies

9. 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

10. 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

11. 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

12. James Beck Managing Director Effective Governance Pty Ltd

13. 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 13 CEO_Recruiting for Success_Oct12

14. 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

15. Recruiting for Success Framework Find Retain Fit Receive

16. CEO Assessment Framework CEO’s performance objectives Performance Assessment Workshop Performance bonus CEO’s management abilities eG CEO Expectations Survey and Workshop CEO’s competencies aligned to salary based on meeting or exceeding leadership and management expectations CEO’s leadership impact MLQ 360° Survey CEO Development CEO Review Remuneration outcomes Tools and processes Focus of evaluation CEO’s competencies CEO’s performance

17. Board skills

18. Board skills and competence Can you justify that your board has the skills and competence to deal with the issues before the company?

19. 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.

20. 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

21. What a skills assessment looks like

22. Key Individual meets or exceeds requirements Requirement not met Requirement met SectionCompetency Self-Assessment Current Competency Future Requirement Met / Not Met Director A Director B Director C Director D Director E Director F Maximu m Current Skill Level Current Number at Future Needs Skill Level Rounded Mean: Skill Level Required Rounded Mean: Directors Required Technical Skills and Experience 1.1Accounting3233223042 Not Met 1.2Finance2223223042 Not Met 1.3Industry experience1433424452 Not Met 1.4Law5122225141 Met 1.5Strategic marketing2222434232 Met 1.6Strategy development and implementation 2322434142 Not Met 1.7Risk management2322323232 Met 1.8HRM2223223132N ot Met 1.9Information technology1112222331Not Met 1.10Contemporary corporate governance 4323434243 Not Met

23. In the annual report... SectionCompetency 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

24. Michael Slater Chairman Newcastle Permanent Building Society

25. The CEO Role of the Board CEO SELECTION CEO ASSESSMENT CEO SUCCESSION CEO MENTORING CEO REMUNERATION CEO DESELECTION

26. 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 diversity o KRA’s and KPI’s o Behavioural/Attitudional modes o Targets/weighting

27. 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

28. 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

29. 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

30. Board Skills & Competence Annual Director 360 o 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

31. 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