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Your Board Expects More Out of Your CEO Succession Plan

by Olivia Berkman

Q&A With Deloitte’s Dan Konigsburg

With recent high-profile incidents that have called for CEOs to step down, it’s evident that ongoing board oversight of culture and CEO succession planning must operate in tandem. Not having a well-thought-out succession plan that incorporates cultural fit is a huge mistake, and boards are paying close attention. A study of the world’s 2,500 largest public companies shows that companies that scramble to find replacements for departing CEOs forgo an average of $1.8 billion in shareholder value.

Deloitte’s 9th annual publication, Directors’ Alert 2018: Linkages to Success, highlights governance topics that boards around the world will be focused on in the coming year, including key strategies boards can pursue to protect and enhance their organizations’ reputation.  FEI Daily spoke with Deloitte’s Dan Konigsburg, managing director of the Global Center for Corporate Governance, about one of the major topics on the minds of directors this year: CEO succession planning and how it connects to organizational culture.

FEI Daily: What are boards looking to hear from management when it comes to succession planning?

Dan Konigsburg: Boards want more than just a name or a list of names and more than just a reassurance that management has it under control. We have to acknowledge that for many boards still today in 2018, this is something that, sadly, does not get a lot of play and an area where boards can sometimes be left in the dark. Which is a real problem.

Like so many things in governance, there are two sides to the story and sometimes it’s management that doesn’t want to share or it’s very sensitive or political. It might be the CEO who simply just doesn’t want to talk about his or her mortality or their own succession. And on the other side, it might be that the board is all too happy to leave things in the hands of management, even though it’s their responsibility to be involved.

FEI Daily: What’s the connection between CEO succession planning and company culture?

Konigsburg: The word I would use is intentional. As you think about who you want next, as a board or board together with management, we’re recommending that you sit down and ask what kind of culture do we think we have? What kind of culture do we really have? And how is the person that we’re looking for next going to support that?

When you think about succession, it’s often about operations. Do they have the skills to do the work? Have they done it before? It’s much more about a skills and capability, competency model. Which is very important. But we’re saying that the strongest succession programs will have this extra element where they will talk about what kind of culture the company wants to have and looking at the various people either in the pipeline, or if there are external candidates, talking to lots of people who know the candidate to ask what kind of culture are they likely to be comfortable in? Is there going to be a mismatch if this person is dropped in and they're used to operating in a very different way? Then again, it’s about developing internal candidates, which of course is a cheaper way to do it and often a less disruptive way to do things. It’s getting the board involved and thinking about who they're grooming and cultural elements in that. Have these people had overseas assignments? Do they have exposure to different types of people in the years leading up to the transition? Have they dealt in a multi-cultural environment? Are they good at dealing with conflict? Again, so many boards will simply focus on competencies and less on what kind of person do we have here? And how do they react to different environments?

FEI Daily: Do boards have enough insight to this? If not, how can that change?

Konigsburg: We are seeing boards that do care now, where it’s a recurring item on the agenda, but few people do try to make that link with culture. There’s no end to the kinds of questions or data sets or ways that boards can get insight to succession and culture and they really do run the gamut: everything from a basic cultural survey that a lot of companies do but sometimes just never finds its way to the board, through a board committee or eventually to the full board, looking at focus groups to see if policies and procedures that affect culture are working or not working. Data about the talent pipeline I think is a basic thing that a lot of boards simply don’t see.

Every board will have business unit reviews, but it’s not quite so often that you’ll see more than one person from that business unit come and present to the board. We worked with one board recently where they changed that, precisely because of the concern about culture and having a window into succession. They changed it from a presentation from just the single business unit leader to the business unit leader plus two other people. And they did that for a couple of reasons. One is that you can get away with less when you’ve got other people there to hold you accountable. Number two, to give the board a window into succession.

FEI Daily: What are the things that prevent management from addressing succession planning?

Konigsburg: There are a few things that prevent them. It can come from more than one direction. It could be a reluctant management. It could be one of those stories of we’ve always done it this way. This is one of the more sensitive issues that boards deal with. It will affect people who are possibly in the boardroom themselves. Do they need to leave the room to have the discussion? Is this just for the executive session that the board has? It really deals with very sensitive questions on the management side. 

On the board side, it speaks to the perennial question for boards of how deep do we go and how much do we push management? Again, like most things in governance, there is often a constructive tension between how far the board goes and how much they push management to tell them what they’re doing about succession planning. If it’s something that board members haven’t seen on other boards where they serve, it can be difficult for them to accept it on this board. There are headwinds.

 

--Republished from FEI Daily (produced by Financial Executives International) with permission from the author. Find the original article here.

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