Having CEO and director succession plans is essential, but candidates must meet board and company approval
During Foley & Lardner’s National Directors Institute, the ‘Board and management succession planning’ webinar proved a lighthouse in the foggy world of succession planning, with panelists outlining the importance of sound plans while shedding light on potential obstacles.
Evelyn Dilsaver, director at Aeropostale, Tamalpais Bank and High Mark Funds, said that regarding succession planning, there’s often a dissonance between what should be done and what happens. ‘For a board to exercise its fiduciary responsibility, it is running up against more emotional issues than logical things,’ she explained. For that reason, she advised greater independence among directors and thorough consideration of potential CEOs. According to Dilsaver, having a succession plan for the CEO and top officers that can kick in quickly is of the utmost importance.
Another key issue involves making changes in the organization so a successor can be groomed. Pointing to the fall of Enron as a situation that evolved partly because the board did not know the incoming CEO, Dilsaver said having potential CEOs discuss challenges and give presentations can help the board learn more about the candidates’ business plans and - importantly - how they are perceived within the organization. ‘You could bring in an individual you think looks great, but who destroys the morale of the company,’ she warned.
‘I think a CEO can have a good presence in front of the board while not being a good leader to the people below him or her,’ added co-panelist Cindy Burrell, vice president of corporate relations and referrals at Boardroom Bound.
When it comes to director succession, many companies still use external recruiting firms, noted Steven Vazquez, a transactional and securities partner at Foley. Burrell said firms can give companies an idea of desired skills. Vazquez added that the board needs to examine what skills and depth it may be missing.
Experience on non-profit boards is one highly valued quality as it shows team-player abilities. ‘That’s the kind of intangible reference people really want to know about you when you’re going to join a corporate board,’ explained Burrell. Dilsaver noted that financial, technological and international experience are newly important skills.
Contention abounds regarding age limits for directors who on average retire from S&P 500 companies between ages 70 and 72. Some advisers are against limits, given the potential sacrifice of good members. Burrell agreed, but also acknowledged the need for new blood. Speaking from personal experience on a board that lost a good member due to these limits, Dilsaver said they also enabled the board to get rid of bad members. As a solution, the board developed a consulting contract to keep the favored member involved.
Dilsaver’s anecdote hit the heart of the issue: companies want good directors and officers who make positive contributions and motivate employees. Without these characteristics, the company risks establishing a leadership its employees are unable to follow.
