Board succession plan

Why is board succession planning important?

Succession planning enables an organisation to refresh its leaders in order to continue meeting the challenges of a constantly changing business environment. While it is usually discussed in terms of CEOs and senior executives, succession planning is equally beneficial for boards. The aim is to have the right person able to fill a vacancy at the right time. 

The ASX Corporate Governance Council advises that board renewal is critical to performance. Specifically, it recommends that boards establish a nomination committee to undertake activities related to board succession planning, director induction and development, performance evaluation, and the appointment and re-election of directors.

How should boards approach succession planning?

Boards should take a strategic approach to succession planning, considering both short-term and long-term needs. Key steps include: 

• Conduct regular skills audits to identify current capabilities and future needs
• Develop a board skills matrix outlining desired attributes and experiences
• Maintain a list of potential candidates and monitor it regularly
• Consider both internal and external candidates for board positions
• Plan for diversity in board composition, including gender diversity
• Establish clear policies and procedures for director appointment and retirement

It's important to note that succession planning is an ongoing process. The skills, knowledge and experience required to effectively steer an organisation will change over time in response to market developments, opportunities and challenges.

What are some considerations for chair succession?

The chair's role should be included in succession plans. Common approaches include: 

• Appointing a deputy chair
• Identifying likely successors from within the board
• Appointing a new director with the expectation they will become chair within a specified timeframe 

For organisations that have performed poorly, appointing a new chair from outside the existing board can signal to shareholders and stakeholders that significant change can be expected.

How does CEO succession planning differ from board succession?

While there are similarities, CEO succession planning often requires more immediate action due to the higher turnover of CEOs in Australian companies. The average tenure of CEOs in 2016 was 5.5 years. Boards should consider both short-term and long-term scenarios for CEO succession: 

• Short-term plans should identify who will step in as acting CEO during planned or unplanned absences
• Long-term plans should address permanent replacements when the current CEO leaves 

Boards typically consider both internal and external candidates for CEO succession. While internal appointments often have advantages in terms of organisational knowledge, external appointments may be preferred when significant strategic or cultural change is needed.

How can boards ensure effective implementation of succession plans?

To ensure succession plans are effectively implemented, boards should: 

• Make succession planning a regular agenda item
• Engage in ongoing monitoring and evaluation of potential candidates
• Provide development opportunities for promising internal candidates
• Maintain relationships with executive search firms to assist with external searchesRegularly review and update succession plans to reflect changing organisational needs 

By taking a proactive and strategic approach to succession planning, boards can ensure they have the right mix of skills, experience, and diversity to guide their organisations through future challenges and opportunities.