Exploring Corporate Governance Around the World

By Allison Garrett, Senior Vice President for Academic Affairs at Oklahoma Christian University

Wednesday, August 11, 2010

Thoughts on Succession Planning

With Mark Hurd's sudden ouster at HP, my thoughts turned to the topic of succession planning, why it's so important and what the board's role is in planning the future leadership of an organization. Sudden departures are frequent enough that regular succession planning should be a part of every board's annual agenda. In fact, arguably the most important role of the board is overseeing the succession process.

In the past decade, we've had CEOs who died in surgery and others who -- like Mark Hurd -- were ousted quickly in the wake of some scandal. And when it comes to likely successors, those within a company who have been identified as the CEO's most likely successors are likely to be those who are driven and who will be heavily recruited by others. What happens when the most likely successors are recruited away?

Here are a few thoughts on what good succession planning practices look like:

At least annually, the full board or some committee (usually the compensation and nominating or governance committee) should have a discussion with the CEO about successors for his or her position. The CEO should identify those within and even outside the organization who have the skills to lead the organization.

For those within the company, the CEO should analyze the skills these individuals already possess and should note competency gaps. A plan should be designed for each to fill the competency gaps over the next few years. For example, if one likely successor has significant operations experience, but little experience on the financial side consider ways that individual can gain greater expertise in the financial area. Can reporting relationships be changed? Can he or she serve on certain committees where financial issues are discussed in great detail?

For these likely successors, it is also extremely important to pay close attention to the salary and perquisites he or she is receiving. Are salary and benefits on par with similar positions at other organizations? You can find out what the CEO and other most highly compensated officers are making from the company's proxy statement each year. Sometimes you can dig a little deeper by looking for employment contracts with other senior executives that are filed as attachments to the company's 10-K each year.

Those who will be likely successors to the CEO should also be encouraged to develop successors. After all, it's much easier to promote someone when it is fairly clear who can fill their role.