Boards – private or quoted, non-profit or commercial – face unprecedented challenge and disruption. Fidelio’s research with leading Chairmen reveals a heightened focus on Board composition: Board readiness is contingent on having the right mix of good people at the top table. To achieve this in a rapidly moving unstable environment, succession planning is key.
Based on our Board Search and Evaluation experience, in this Overture Fidelio shares four critical steps in Board succession planning:
(1) Robust Approach to the Skill Matrix
(2) Shifting the Framework
(3) Embracing Diversity
(4) Creating the Eco-System
A rigorous approach to succession planning is a key tool for the Chairman in building a Board fit for the future.
1. Robust Approach to the Skill Matrix
As disruption and public mistrust intensifies, it is clear that skills needed in the Boardroom tomorrow will differ substantially from today. The majority of quoted Boards have in place a skill matrix. This is for internal use but increasingly also available to regulators and shareholders.
The skill matrix is the basis for succession planning. It will cover the obvious requirements of governance:
- Balance of skills on the Board
- Population/composition of Committees
- Diversity of gender and, increasingly, also ethnicity
Assessing and filling the skills required today is but the first step; if Boards are to successfully navigate disruption, potentially turning it into opportunity, decisive thinking about the future is also required.
The majority of Boards have already identified gaps in today’s skill matrix – frequently relating to digital awareness; cyber expertise; understanding of big data; ability to engage with regulators; ability to engage with stakeholders; and ability to engage with shareholders. Diversity is often also a “gap” to be filled. The gaps may be clear but Chairmen and the Nomination Committees often struggle (a) to prioritise and (b) to identify individuals who are able to “fill” these gaps while contributing to the work of the Board as a whole.
To address this challenge the skill matrix needs to function along three axes:
- Contribution to business requirements
- Contribution to governance requirements
- Time
In a tightly constructed Board, individual Board Members will typically tick several boxes of the matrix bringing both governance and relevant business experience. The time dimension can be more problematic: how to phase in new skills while retaining relevant experience? Increasingly we see a further tension: Boards are becoming the long-term custodians of the values of the business, but equally they need to be comfortable in guiding the organisation through very rapid change.
As such we find greater focus on the skill matrix: in the context of a Board Evaluation; as part of a regular composition review by the Nomination Committee; and before embarking upon a Search. The quality of thinking underpinning the skill matrix has increased substantially.
2. Shifting the Framework
In current discussions with Chairmen, Fidelio sees a recurring challenge. Most Boards are seeking to increase the level of digital awareness; understandably Chairmen also want to populate the top table with individuals who can contribute to the overall business of the Board – ideally with well-rounded operational and financial backgrounds.
Current wisdom suggests that deep digital expertise and a strong, pragmatic understanding of operational processes and challenges are seldom combined in one individual. Indeed in the UK and internationally since the Financial Crisis we have seen an increase in the number of Board Directors with a corporate/P&L/operational background.
Have we created too narrow a framework? Fidelio argues that in the meantime there are indeed digital experts who also bring a commercial approach to the business as a whole, are very capable of thinking in terms of governance frameworks, as well as contributing to the broader business of the Board.
Boards of tomorrow will, by necessity, look different from today. Too narrow a focus on the DAX30/FTSE100/Fortune500 corporate heritage deprives Boards of the insight and drive needed to navigate disruption and change. Robust succession planning allows Chairmen to “shift the framework”, extending the talent pool and ultimately introducing a very different dynamic into the Boardroom.
3. Embracing Diversity
An excellent example of shifting the framework is the change in Boardroom attitudes towards diversity. Five to ten years ago the requirements to increase diversity at Board level, be it gender or ethnic diversity, were all too frequently seen as intrusive and an additional regulatory burden. Increasingly, however, we see Chairmen recognising diversity as an opportunity to tackle disruption.
Indeed, in research that Fidelio has been conducting into the role of the Chair in enabling the Board to navigate disruption, several Chairmen have emphasised the importance of diversity. Diversity of thinking, diversity of composition is often, quite rightly, the first port of call in preparing the Board for rapid change. With regard to succession planning this manifests itself in several ways:
- Certainly quoted Boards, but also a number of privately-held Boards, will now very deliberately insist upon a diverse long- and shortlist. The old push-back that there are too few senior women in a given sector is heard less and less and no longer constitutes a good reason for lack of diversity.
- The Board clearly requires strong finance and remuneration skills, for example, and there is little shortage of impressive women with robust finance backgrounds for example, or women who have experience tackling some of the thorniest remuneration issues.
- The FRC consultation in the UK has proposed that UK Nomination Committees should focus on developing a diverse pipeline at the executive level within the organisation – effective Boards are already taking this role seriously. For example, we see that it is frequently a Chair or a Non-Executive Director who will nominate a talented woman within the organisation to Fidelio’s “A Seat at the Table” for senior female executives and directors programme.
Fidelio observes that Chairmen are becoming alert to developing women internally, for example enabling them to shadow the Board for the course of a year and/or to sit on external Boards. While this may not always directly feed into Board diversity, there is increasing potential for female CEOs and female Executive Directors to contribute at the top table. Equally, this is an important step to enrich the pool of talent for the broader business community and arguably also has an important societal impact.
4. Creating the Ecosystem
Overall, the very thinking about Board appointments is shifting. Five years ago each individual Board appointment was frequently treated in isolation and was often transactional in nature. Today Chairman who have to sign viability statements are thinking longer-term and holistically about the skills needed around the Boardroom table.
In order to provide access to the best Board talent and to explore what type of profile will be a fit for the Board in the near to mid-term, we find leading Chairmen are thinking in terms of ecosystems:
(i) Creating a targeted network of individuals whose skills and profiles are of potential interest to the Board in the future;
(ii) Getting to know these potential Candidates better to understand how they could add value to the Board and, if appropriate, bringing them into a Board refreshment process in an orderly way;
(ii) With a clear radar screen of potential Candidates, the Chair has a safety net should disruption strike and refreshment be necessary at an earlier stage.
Equally, we are seeing Chairmen adopting quite innovative strategies including (i) building structured networks of support for Committee Chairs; (ii) developing structured programmes of bringing insight into the Boardroom; and (iii) providing development to recently appointed Board Directors. For example, we have welcomed FTSE100 Non-Executive Directors on the “A Seat at the Table” programme as they think through their presence, impact and effectiveness in the Boardroom.
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In Germany, the US, the UK and the Netherlands, to name but a few, we see a renewed focus on succession planning for the Board. This is not surprising and links directly to the Board’s need to respond to disruption and change.
Long-term, robust, and future-focussed succession planning is a critical step in ensuring the Board is fit for the future. To learn more about Fidelio’s work in supporting Chairmen through succession planning, please contact Luke Main or call +44 (0)207 759 2200.