When a CEO leaves, his or her successor will be chosen from among internal and external candidates. Research shows that a board of directors will know surprisingly little about internal candidates, since directors have minimal interaction with executives below the CEO level — often limited to formal board presentations. Effective succession planning requires directors to become more directly involved in the organization’s talent development program.
Succession planning is a vital issue for corporations. As CEOs leave, the smoother transitions occur when a successor or a short list of successors has been groomed and is prepared to step into the position. Since it is the board of directors’ responsibility to replace a departing CEO, one would expect that they would be somewhat involved in the development of top management — or at least be familiar with potential successors.
As the survey by Stanford, The Institute of Executive Development (IED), and The Conference Board shows, however, that board directors know very little about the top executives in their companies. The survey focused on how directors interacted and engaged with executives one level down from the CEO — that is, at the level where legitimate contenders to the CEO position would be found.
These interactions, the survey shows, do not occur as frequently as they should — and in some cases not at all. Only about two-thirds of the directors surveyed had ever interacted with the full top management team professionally (for example, working with managers on a specific task or even informally discussing ideas). About 20% of board directors only knew half of the top managers professionally, and 14% knew less than half.
Almost all board directors acknowledge that they can communicate with top executives without CEO presence. However, only a quarter of directors take advantage of this access on a quarterly basis; most managers (65%) say they will meet with executives outside the presence of the CEO only “when circumstances warrant.” Even just visiting a company office outside of the presence of the CEO is rare for directors: 70% say they will visit an office on an “intermittent” basis — a general term that leaves much wiggle room. Nearly 20% will never appear in an office or workspace at all.
Instead of working with executives professionally or even visiting their workspaces, the most common interactions between directors and top managers consist of formal board presentations: about 90% of board directors attended 3 or more presentations by senior management to the full board, and 80% attended 3 or more presentations in committee meetings.
Not surprisingly, many directors acknowledge that they have little insight into the professional capabilities of executives in their companies. Half of directors say they understand the strengths and weaknesses of top managers very well, while one third say they understand these strengths and weaknesses only “moderately well” — and the remaining 11% of directors say they understand them “slightly well” or “not at all well.”
Nevertheless, more than 80% of directors insist that they have a short list of senior executives who are ready to become CEO immediately, if necessary. Such a list might be of limited value, however — perhaps no more than an emergency back-up plan — given that the information was probably gleaned from structured board presentations and reviewing performance appraisals prepared by management.
The following steps will increase the active involvement of directors in the development of executive talent, giving them better insight into the strengths and weaknesses of potential candidates for the top job.
Put in place a formal talent development program with active board involvement. In many companies, talent development programs do not reach into the senior management level. No matter how experienced, however, all executives will have some areas that need to be developed. CEOs should work with their direct reports to identify these areas, prepare development plans accordingly, and involve directors who can offer their expertise and experience to address specific development needs.
Integrate talent development and succession planning. The managers being trained today are the future candidates from which the board of directors will have to choose a successor to a departing CEO. Directors must keep this in mind as they review the progress of individual executives; an actionable succession plan means that directors 1) identify the skills, experience and character that would be required of a new CEO and 2) are personally informed of how well the skills, experience and character of their top executives fit these requirements.
Encourage directors to play an active role. Only interacting with executives “when circumstances warrant” is not good enough. Directors can help develop talent in many ways, from serving as mentors or advisors to periodically visiting executives in the workplace (with CEO approval) to fully appreciate the skills of executives.
Hold the CEO accountable. Directors have the responsibility to get personally involved, but it is the CEO who must ultimately be held accountable for the development of his or her top managers. CEOs should provide formal progress reports to the board on the development of senior executives. One obvious way to ensure CEO commitment: link talent development to compensation.
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- Stanford Graduate School of Business
- The Institute of Executive Development (IED)
- The Conference Board
- March 2014
- October 2014