What is a board succession plan and why is it important?

Succession planning is a critical aspect of organisational governance, ensuring a smooth transition of leadership to address various scenarios, from unexpected departures to planned exits. In the context of boards, a well-crafted succession plan is essential to maintain stability, uphold fiduciary responsibilities, and adapt to the ever-evolving business landscape.

Boards must anticipate and plan for orderly succession to mitigate disruptions caused by sudden resignations, illnesses and the departure of key members over time. CEO succession planning is a core responsibility of the board, but planning for the departure of directors is also critical. This planning limits reactive hiring, and allows organisations to refresh directors strategically, ensuring that the right individuals are ready to step into crucial roles when needed.

Best practices for board succession planning

When beginning board succession planning, it’s important to first understand what’s important to the organisation. What kind of skills are required to ensure the appropriate oversight? What values does the business uphold? From there, it’s a matter of the following:

Do: make it a priority

Despite numerous responsibilities, boards must prioritise succession planning. Allocating time in both committee and board agendas is crucial to fostering opening dialogues about ongoing refreshment, upcoming vacancies and required skill sets. Transparency about the existence and frequency of succession planning discussions is vital to meet stakeholder expectations.

Don’t: rush

Board succession planning shouldn’t be a one-time event – it’s an ongoing process. Rushing through the planning stages may result in inadequate assessments and overlooked details. A thoughtful, deliberate approach ensures a seamless transition between directors.

Do: use a skills matrix

A board skills matrix can streamline and enhance the board succession planning process. By reviewing what skills are required and incorporating them into a matrix, it becomes easier to identify where the gaps are and whether different candidates can fill these gaps.

Don’t: make it a box-ticking exercise

To establish a detailed succession plan, it’s important the process isn’t simply a box-ticking exercise. For example, BoardOutlook’s skills matrix includes a diagnostic that not only determines whether the director has a critical skill, but what level of competency they possess. This makes for a more robust conversation when succession planning.

Director competencies to consider for board succession planning

Board succession planning involves identifying the right competencies for board members. These competencies typically fall within the following four categories:

Behavioural factors

Personal and interpersonal competencies are foundational, encompassing common sense, sound judgement, enthusiasm, resilience, analytical thinking, decision-making ability, level of scepticism and effective communication skills.

Governance

Financial literacy, strategic awareness and a risk-management orientation are crucial governance competencies that contribute to effective board functioning.

Technical skills

Directors should possess technical skills relevant to board responsibilities, such as legal, accounting and engineering abilities. While not every director needs expertise in every area, a balance is essential.

Industry skills

Understanding industry intricacies, including the competitive environment, governance regulations, value-adding processes and market dynamics, is vital.

Don’t make board succession planning an afterthought

A comprehensive plan is crucial for securing top talent, ensuring diversity, maintaining stability, reinforcing trust, and facilitating smooth leadership transitions. Despite this, there are a number of boards across the globe that lack formal board succession plans, despite leaders planning to exit in the near future.

Proactive and strategic board succession planning is integral to an organisation’s long-term sustainability. It’s not merely a response to departures or an afterthought, but a continuous effort to align leadership with the evolving needs of the business environment. Adopting best practices, utilising software tools like BoardOutlook, and prioritising succession discussions are essential steps towards building resilient and effective boards.