From our discussions with chairs and company secretaries, it's clear they don't believe succession planning below the board is always given the attention it deserves. In our 2021 Corporate Governance Review, we found only 37% of the FTSE 350 provided good or detailed reporting into succession planning. Perhaps this is due to the time and resource involved, or that succession planning isn't always seen to deliver much in the way of tangible value. Whatever the reason, getting to grips with effective succession planning can strengthen both the organisation and its board's resilience in challenging times.
Succession planning isn't always seen as a priority
The UK Corporate Governance Code is clear: "The board should establish a nomination committee to lead the process for appointments, ensure plans are in place for orderly succession to both the board and the senior management positions, and oversee the development of a diverse pipeline for succession."
Companies, though, are yet to get to grips with ways of making succession planning a value-add activity. Our governance research showed that 46% of FTSE 350 companies provided little or no detailed disclosure on succession planning below board. In fact, only 29% recognised it as a priority.
Nomination chairs tell us there can be a reluctance to engage in producing detailed plans given the fast-moving, unpredictable nature of business today. In that respect, succession planning can seem to be an outdated activity, more relevant to when workforce retention was stable and candidate mobility less prevalent.
This, combined with a lack of clarity over where and when the remits of boards and executive committees start and stop in this space, means that succession planning is at risk of slipping down the priorities list.
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Components of effective succession planning
There's still a place for 20th-century-style leadership, focused on tasks and results, but leadership now needs to bring an equal focus to sustainability, in every sense of the word.
Board members and nomination committees need to be equipped to generate discussions beyond traditional succession planning. Understanding how they can support both in and out of the boardroom will ensure a joined-up approach with progressive individual and peer development.
To add value, boards also need to be provided with a well-formed story of business succession as part of a wider, integrated strategy, which includes the culture. A dynamic approach should lead the way in discussion and decision-making, and not be reliant on data.
How can succession planning add value?
Our research shows that since 2019, there has been an 8.9% increase of FTSE 350 companies providing good or detailed disclosures. They see it as an integral part of the board’s work on strategy and as important as scenario planning; in fact, the two go hand-in-hand. And if succession planning is part and parcel of strategy delivery then its primary sponsor is the CEO, which warrants the board and CEO’s attention.
Succession plans that sit separately as a piece of work and only visited annually are unlikely to add tangible value. Like strategy, they should be seen as a dynamic, ongoing process of proactive engagement, research and benchmarking – and an ever-present component that supports board discussion.
Just as a well-researched board skills matrix brings the range of skills needed today and tomorrow together in one place, so should a succession plan. To be effective and add value to discussions, it should have a purpose, objectives and the necessary connections to align growth plans with future roles for board and below.
In other words, rather than filling slots with a set of names, a succession plan can be a live map of talent, movers in the market and up-and-coming future leaders. It can provide clarity around the continued expansion of management team capability. And it can help deliver better-equipped executives in the future than are available today.
Five actions for boards to consider
1 Check timelines of executive and senior management succession planning
Do they cover short term (one to three years), medium term (three to five years) and long-term (five-plus years) as well as contingency or emergency?
2 Make the talent pipeline at board level visible with involvement from the CEO or wider management team
This can be through an annual calendar of board-driven planned activities, such as dinners, away days, rotational shadowing, mentoring and partnering schemes, and development programmes.
3 Develop a skills matrix of the talent pipeline
Similar to board-level succession, encourage and support the CEO and executive to produce a skills matrix of the talent pipeline. This provides the ongoing opportunity to proactively consider and address the skills and attributes of the talent pipeline in light of strategy.
4 Increase diversity to add resilience
Ensure board-driven activities around the talent pipeline include systemic actions that support diversity across the widest range of attributes. This may include considering if the composition of senior management reflects the company’s diversity of customers and stakeholder groups.
5 Support the alignment with strategy and talent management
In its oversight capacity, the board, with the help of the nomination committee, can support the CEO to develop and review succession plans. They can help ensure the succession plans align with strategy and promote active talent management to aid senior management retention and motivation.
Creating effective succession plans requires a future-focused approach. It should take in strategy, scenario planning and consideration of future hybrid culture development. Those making it onto the succession plan should be able to demonstrate the new skills of leadership, such as collaboration, strategic thinking and the ability to evolve their leadership alongside the business’s needs.
Above all, succession plans should be able to demonstrate integrated thinking to ensure future leaders are set up for success, not just in their technical capabilities but also in their skills as business leaders and navigators of an increasingly complex world. Succession should be a shared commitment between the board, the organisation and the individual.
To be more ambitious with your succession planning, or simply to get started, contact with Karen Brice.