The board and the nomination committee working hand in hand on CEO succession

0
50

By Felix Marks – Felix.Marks@EthicalBoardroom.com

CEO succession is a critical decision for corporations in the current business climate. Nominating committees must seek talent and must possess the insight and knowledge in selection so as to avoid falling short of finding the best candidate for the role. The nomination committee of an organisation is a fundamental part of the corporate governance structure of the enterprise. The nomination committee’s focus in predominantly on evaluating the board of directors of the particular organisation as well as on examining the talents, characteristics and skills that will be required from candidates to be nominated to join the board. Nomination committees will typically have additional duties, which can vary depending on each company’s needs. Often the nomination committee will identify and propose candidates they deem suitable for a range of director positions at the company – and this includes the candidate selection for CEO succession. The nomination committee work is this area is pivotal in assuring shareholders of the long-term stability and growth of the company going forward. 

There is a growing range of issues competing for the board member’s time and attention. Therefore it is even more important that the nominating committee drive and maintain a persistent focus on sustainable CEO succession planning. They should provide proper oversight of executive talent recruitment and development, and aim to ensure that transition of directors onto and off the board is as smooth as possible – especially in the case of CEO succession. Correct CEO succession is vital to driving the company forward. Not in the least because often CEO’s concurrently establish shareholder, business partner and employee expectations about the company’s commitment to growth, value generation, management development, diversity, recruitment and retention. The nominating committee is responsible, working alongside the corporate secretary, chief human resources (HR) officer and other senior executives, for qualifying the candidate in their ability to fulfil this role as the appointed leader of the company. 

In addition to the nominating committee proper CEO succession is amongst the board’s most important responsibilities. They too must ensure a periodic assessment of succession, development and recruitment procedures is taking place continually. In addition they must ascertain the risks and benefits related to the selection of a member of the firm who currently works directly with or reports directly to the CEO as in numerous cases these people may be the best serious candidate to consider as a potential CEO successor. Without the proper planning and procedures both the nominating committee and individual board members will risk significant damage reputationally when a CEO exits and a rushed, haphazard engagement and search has to be put in place. This will leave shareholders and analysts questioning the stability and competency of the organisation. Also this can lead to a rushed selection of a candidate who may not be a cultural fit to the organization and may risk harming the company longer term.

Succession risk management must be driven forward by each of these parties. The HR officer is typically an extremely valuable partner to the nominating committee, and the corporate secretary may act as a useful facilitator of the relationship between the two. The nominating committee faces the most potential risk of criticism if a lack of understanding of current talent recruitment needs is exhibited. That is why they should drive forward work with the board towards developing practices that periodically review and adapt CEO succession procedure as required. CEO succession is a major point of focus with shareholders and therefore the nominating committee must work with and yet be the driving force when it comes to ensuring that the board keeps continually focused on succession selection and related practices. This is to avoid surprise situations that may spiral out of control further down the line that could have been avoided with some proper forethought and preparation. Both the board and the nominating committee must maintain CEO succession planning as a key ongoing focus – not a short term, one-time problem to be solved or one that is only placed on the board’s list of priorities every three to five years. 

 

Accreditation Photo– Chris Potter