Board refreshment and succession planning by Elise Perraud
Board refreshment and succession planning are important aspects of the recently introduced UK Corporate Governance Code and Wates Corporate Governance Principles for Large Private Companies. Recruiting the right NEDs is imperative for companies to address complex business challenges, remain competitive, innovate and answer shareholders’ demand for diversity. Making the wrong NED hire is time consuming and diverts the energy of NEDs from the business. What are some of the best practices when it comes to effective board refreshment and succession planning? How to uncover the right candidates for companies looking to refresh the composition of their boards?
In its 2018 report, Spencer Stuart discloses that the average tenure of non-executive directors is 4.3 years with a shorter tenure for women NEDs (3.7 years) vs. men NEDs (4.6 years). For chair, the average tenure is 5 years. These data apply to the top 150 FTSE companies. As we start looking into private companies, the average length of service increases as refreshment at boards is a key challenge of medium-sized companies.
Board Succession Planning
Effective succession planning considers the following elements, which are then summarised in a skills matrix:
- The current interplay of skills.
- Subject matter expertise on the board.
- Technical expertise on the board.
While technical expertise is required, today’s boards cannot become boards of functional experts. There is a need for rounded viewpoints and broad business experience and effective boards are composed of broad business thinkers as well as experts.
The skills matrix evolves as the business grows and the operating environment changes. It should be reviewed and refreshed periodically. In doing so, boards and/or Nominations Committee should incorporate the diversity dimension and be open to candidates that are aspiring to the boardroom but have not been NEDs or board members. This includes bringing on board younger non-executive directors.
Related post: NEDonBoard Board Best Practice®, Succession Planning
NEDs newly appointed to a board need proper induction to add value and contribute. A successful onboarding programme will have the following characteristics:
The induction should clearly set expectations such as how quickly the newly appointed NED is expected to contribute, explain the role of the company secretary, provide context around the personalities composing the boardroom, explain the strategy and financial aspects. Assigning a mentor to the newly appointed NED may be considered, notably if this is the first appointment of the NED.
Board education is important to the effective operation of boards. Training does not stop with the induction programme but should continue. Principle 2 of the Wates Corporate Governance Principle for Large Private Companies states that “companies should demonstrate a commitment to the ongoing professional development of their board, and directors should embrace such opportunities and ensure that they have sufficient time to discharge their duties”.
The GC100 “Guidance on Directors’ Duties – Section 172 and Stakeholder Considerations” list training among the five specific things to help organisations embed section 172 in decision-making and discharge directors’ duty under section 172.
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Through its group membership, NEDonBoard provides boards with the professional development opportunities that their NEDs and board members need to remain up to date with latest trends and board best practices. NEDonBoard provides courses for newly appointed non-executive directors, bespoke and in-house training and. For more information about the NEDonBoard Group Membership and other training opportunities, please contact us at [email protected].