Cracking Chairman Succession

The succession strategy for the chairman is as important as for the CEO. All too often, this is something that gets forgotten as the lines of responsibility for who decides on the next chairman of an organisation become blurred. That needs to change.

Stephen Davis, a Criticaleye Thought Leader and Executive Director of the Yale School of Management, says: “There is far less focus on succession planning for the role of chair than there is for that of the CEO and this may be attributed to a quiet and perhaps undeserved assumption that the selection of a chair is not as critical… [Yet] it’s not sensible to ignore chair succession as… the performance, productivity and the success or failure of the CEO, is going to hinge to a very large extent on the attitude and functioning of the board of directors and, by extension, its leadership: the chair.”

Peter Waine
, a Criticaleye Associate and Partner at search and selection agency Hanson Green, comments: “Many companies duck the issue of chairman succession, but this should be challenged… I’d go further and say that it should be part of a company’s formal annual review process.”

The question is: how formal? Lady Barbara Judge CBE, Chairman of the Pension Protection Fund, says: “There should be no prescriptive legislation or regulation for how companies go about chairman succession planning. In fact, regulating such a process is not likely to be effective, particularly as each board is different.”

It’s these nuances, varying as they do according to company and sector that renders a one-size fits all approach undesirable. Anthony Fry, Chairman of Dairy Crest Group plc, comments that “the problem with many succession plans is that they are too rigid, which often leads to people making erroneous assumptions as to their heir.”

Lead role

In times where market reactions to apparent uncertainty in an organisation can have drastic results, a plan of some description is needed. Beverley Hodson, NED at recruitment consultancy, Randstad Holdings NV and at the National Farmers’ Union Mutual Insurance Society, says: “Generally, you will have someone identified to take the reins as a result of a ‘fall-under-a-bus’ type scenario. Such an individual may then be assessed… for their suitability in a more permanent capacity. Plans vary from one company to another, but there is always a contingency plan.”

For Ian Harley, a Criticaleye Associate and Senior Independent Director (SID) at Menzies plc, who has over 25-years of FTSE boardroom experience, the SID has to drive the agenda: “Unless the chairman is happy to put a date on his departure, I don’t think it’s appropriate [for succession to be part of the formal annual review process]. And if he does this too far in advance, he risks being a lame duck. If there is a real performance issue with a chairman, the SID has to step in and address the situation.”

Sir James Crosby, Chairman of software company Misys, comments: “It is the SID’s role but, given his/her comparative lack of authority, as such it is their role to facilitate the non-executives’ consideration of chairman succession off the back of the performance reviews. This includes consultation with the CEO but centres around the collective discussion of the non-executives.”

Assuming a departure is amicable, it makes sense to heed the outgoing chairman’s opinion. “Planning your own succession, in terms of the board having not only a recognised process but also putative candidates around the board table is absolutely fundamental to good chairmanship. That doesn’t mean you hand it on to x or y as the Crown Prince – it means you hand it on in good order and with consensus and agreement,” says Anthony.

Bernard Cragg, a Criticaleye Associate and SID at Mothercare plc, says: “The existing chairman does need to be fully involved, especially in terms of specifying the role, the time involved, the challenges and opportunities. He/she cannot be anything other than an adviser in the process.”

Barbara
 agrees. “In terms of the process itself, it should be handled by the Nominations Committee and be considered on an annual basis. The chairman should be part of this process, of course, but he/she should not have a vote and certainly should not control it. After all, this is not about cherry picking or moulding your anointed successor; it’s about stewardship.”

Shop around

As for where to look for candidates, opinion is divided between the need for continuity and industry knowledge versus the importance of a fresh pair of eyes. Mike Turner, Non-executive Chairman of Babcock International plc, says: “The appointment of the next chairman from the current pool of non-executives, who therefore has a good deal of knowledge about the company and its people, is a far better approach than the appointment of a chairman who has no prior knowledge of the company. In fact, from my own experience, the appointment of such an outsider can be quite disastrous for the company.”

This shouldn’t be confused with cronyism. “The best person to succeed as chair is often someone who is already on the board,” argues Barbara.  “While the guidelines may suggest otherwise, it should not matter if the new chair has been on the board for a number of years. Such a person should not be disqualified based simply on a perceived lack of independence.”

Stephen takes a slightly different view: “In terms of whether a chair needs to have industry experience, it may be an advantage but it may also not be the most important thing you want from a chair. It could be that the ability to understand group dynamics, forge consensus and see clearly the strengths and weaknesses of the individuals is more relevant.”

If a company is truly on its game, then there is likely to be a succession in place as boards now realise their responsibility for upholding the reputation and brand of an organisation. Lord Mervyn Davies CBE, a Non-executive Director at Diageo, says: “To that end, corporate memory at the SID and chair level is critical – they need to gather experience but also ensure that is passed on.

“That is their role and responsibility so, as a NED or new Chair is appointed, it is an opportunity for a handover of… knowledge in order that the history of the board and what they have seen and gone through is passed on and understood.”

Hopefully sense will prevail among policymakers who are itching to crackdown further on governance codes. Nevertheless, when it comes to chairman succession, boards must have grown-up conversations concerning the systems they have in place for ensuring the best people are either nurtured or brought in for the role.

Please get in touch if you have any comments about the issues raised here.

I hope to see you soon.

Matthew

www.twitter.com/criticaleyeuk

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