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Blog Archive :: July 2014

Jul 24, 2014

Engaging the Board in Succession Planning

This is the second post in this two-part series on engaging the board in planning. In the previous post, we discussed how to involve the board in strategic planning, and now we turn our focus on how to engage a board in succession planning.

Many boards approach succession planning by imposing age or term limits on its board or, by default, the decision is made by death or disability of a board member. This probably does not meet the state law duties to act in good faith, in a manner each board member reasonably believes to be in or not opposed to the best interests of the corporation, and with the care that an ordinarily prudent person in a like position would use under similar circumstances.

We believe that the board should continuously strive to build an “expertise” board that is composed of persons each having particular competencies (i.e., knowledge, skills, experience and expertise) needed for the board to collectively achieve its future objectives. This is in contrast to a “constituency” board, which is composed of persons who represent the view of a particular constituency (such as the U.S. Congress or a state legislature).

Our experience is that this is best done if the board has first agreed upon the organization’s future strategic direction (see the July 10, 2014, post on involving the board in strategic planning). As part of the strategic planning process, the board should assess the core competencies among the board members and management team; prioritize the additional competencies necessary for its future strategic direction; and recruit persons having those competencies for nomination as board members (see June 12, 2014, and June 26, 2014, posts on board evaluations).

We find with succession planning ¾ as with strategic planning ¾ board members’ eyes tend to glaze over and it may be difficult to keep their attention. Often, the board will become more involved in the succession planning process if outside facilitation is used instead of management.

Our preferred method of engaging the board is to divide into groups of two or three for a customized simulation. Each group is told by the CEO that all of the other board members have resigned prior to the meeting and that legal counsel has advised that as the remaining members of the board, each group needs to fill the vacancies.  Facilitators then guide the groups in discussions on desired skill sets for new board members, gently pushing them toward building an “expertise” board composed of persons with competencies needed for the future success of the organization.

Advising a board member that someone else will be nominated in his or her place can be difficult unless the board has already reached the conclusion that it needs a different composition of core competencies for its future direction. Getting the board’s commitment on building its expertise allows the group to focus on filling gaps in skills rather than age, terms or the personal attributes of the director.


Posted by J. Beavers in  Governance Best Practices   |  Permalink


Jul 10, 2014

Engaging the Board in Strategic Planning

Now that we’ve completed our two-post series on board evaluations and five-post series on corporate compliance for governing boards, we shift our focus to how to engage a board in strategic planning for the first time.

Under state corporation law, all authority for:

·         Decision-making as to matters of policy, direction, strategy and governance; and

·         Oversight as to matters critical to the health of the organization for its various stakeholders

is to be exercised under the direction of the organization’s board. Accordingly, the role of the board is to provide direction, and the role of management is to execute that direction. 

A board provides direction by:

·         Granting authority; and

·         Setting limitations

e.g., the board establishes benchmarks to achieve and grants management the authority to pursue, while providing limitations on how.

Most boards provide direction by approving an annual budget that management is typically authorized to carry out. A more important way to provide direction is the authorization of a strategic plan that covers multiple years (typically three to five). Because of the Great Recession that began in 2007, authorizing a strategic plan is becoming one of most important responsibilities of the board of any organization.

We find that when board members first engage in strategic planning, their eyes may glaze over and their attentions may wander. Often, the board will become more involved in the strategic planning process if outside facilitation is used instead of management. However, even with facilitation, boards get bored hearing that they must be constructively involved and learning someone’s definition of what constitutes a strategic plan.

We find the best way to engage the board is to use a customized simulation of a factual scenario where the board is faced with a paradigm shift. The simulated factual scenario is determined in advance, typically with the CEO and board chairperson, and then is played out so that the board is making what it believes are real-time decisions.

For example, in one scenario the board is informed that one of its major competitors is being acquired by another competitor, or a strategic buyer, that has unlimited resources. The board is then advised by the organization’s legal counsel that its duty of care requires the board to oversee that there is direction as to what the organization should do in response. To make the scenario appear as real as possible,  it includes simulated press releases, phone calls from the competitor CEOs and statements by other stakeholders.

Outside facilitation is important to remind the board that state corporation law expects, and gives board members protection for, relying upon management to provide input and suggest directions for the board to consider.

The focus of the facilitation is to get the board to ask management, “What do you recommend we do?” Management needs to come prepared with strategies that address the paradigm shift.  Then the board needs to be led to ask, “Why are you recommending the business should take this strategy?”  The board, as policy makers, should ask:

·         Whose interests are benefited by this strategy?

·         What red flags are there?

·         What is being asked of us as a board?

·         What is to be expected of management?

·         What financial, legal, ethical, strategic and reputational issues are involved?

And the most important question:  “What if things don’t go as expected?”  Policy makers, such as board members, must consider all possibilities, especially those that could have a high impact (albeit remotely probable) and not just the normal.

The next post will focus on how to engage the board in succession planning, which is another of the board’s most important responsibilities.


Posted by J. Beavers in  Governance Best Practices   |  Permalink




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