Every organism has to continually evolve to ensure its sustainability and relevance. Companies are no different. It is incumbent for the board to chart the way forward and to lift the company to its next level. In this context, stale leadership at the board level is a liability.
Succession planning, as part of the board’s responsibility on continual refreshment, is often relegated to the back burner only to be visited when the situation warrants: directors intend to retire for personal reasons, have met the limit of their tenure as an independent director, to promote gender diversity or to enlarge the board.
Succession planning allows for fresh blood to enter. As in any blood transfusion, it is imperative that the quality of the blood brought in is not compromised as it has its knock-on effects. Hence a proactive, disciplined and targeted approach will pay dividends.
The key fact that the MCCG 2017 (Principle A, Clause 4.7) makes specific reference to succession planning and assigns responsibility for it should already be an indicator of how important this facet is.
Clause 4.6 further recommends that ‘The board should use a variety of approaches and sources to ensure that it is able to identify the most suitable candidates. This may include sourcing from a directors’ registry and open advertisements or the use of independent search firms.
In addition, if the selection of candidates was solely based on recommendations made by existing board members, management or major shareholders, there should be an explanation in the annual report as to why other sources were not used.
The implication of such articulation is that there should be transparency and not a decision of convenience attracting ‘old friends, old schoolmates or retired civil servants’. Dynamism and clarity in the process appears to be what the regulators are gunning for.
This underscores the fact that succession planning is crucial in supporting board diversity and board dynamics. There should be no compromise on getting it done right at the onset.
The need for a robust succession planning framework cannot be overemphasised. It is a key launching pad and cornerstone for the success on the other dimensions of board composition and diversity, board leadership and board dynamics.
These are the key dimensions prominently featured in the Board Evaluation Exercise (BEE), which is an assessment of the performance of the board as recommended under the MCCG.
If the succession planning process is not robust, this will be reflected specifically on these dimensions and consequentially reflect adversely on the overall evaluation.
The essence of succession planning is to be ahead of the curve; understand the strategies of the business, forecast the skillsets needed and proactively bring onboard the new talents required on a programmed basis. This will allow for time to facilitate the ‘immersion’ process of new independent directors into the company culture.
It is not rocket science that diversity at board level provides for constructive debates, leading to more informed decisions. Diversity pertains not only to gender and ethnicity. It should not be considered an inconvenience forced upon by the regulators.
Since customer requirements shift and change, the niche a company operates in needs to be refined or even redefined to create sustainable long-term value.
Any board that has been successful in looking at the rear-view mirror is not going to continue to be successful in meeting the obligations placed on directors in a dramatically changing environment.
Self-evaluation, as part of the BEE process which is best executed by an independent party, is especially important in a fast-changing world. It may reveal that senior (by age) board members should step down, sooner than later, in order to make room for new directors with more relevant expertise be it in digitalisation, cybersecurity or otherwise.
The criticality lies in having the foresight to avoid redundancies in current skill sets, experiences, and relationships. Literally, it is a step out of the comfort zone. ‘Outsiders”, or independents, as directors can prevail with unbiased perspectives, help create new insights and facilitate among multiple constituencies.
Succession Planning Framework
A basic framework should stipulate the key minimum qualities to be met. This is easily obtained from the Companies Act 2016 relating to character, experience, integrity and time availability.
What is more critical, to facilitate the targeted outcomes of a full-bodied succession planning process, is the formulation of a matrix. This should encompass the required skill sets separated on the basis of those which have an organisational impact and those which have an impact at the boardroom.
A further granular divide will incorporate the parameters of core skills and specialised skills which are deemed essential to be a fully contributing professional member at board deliberations supported by the requisite soft skills and generic business skills.
This is something which can be easily designed inhouse and perhaps supplemented by external parties which have a wider perspective and are able to incorporate global best practices if a bespoke framework is required.
Boards should take cognisance of the rapid pace of change and the multifarious challenges that companies are facing. Gone are the days when independent directors were just a ‘decorative piece or an ornament’ who play a passive role.
The function of succession planning should not be the exclusive domain of the senior director and/or the chairman of the Nominating Committee but a shared responsibility of the board to ensure that directors of the right calibre are proactively identified on a continuous basis and brought in at the right time.
The refreshing process, pursuant to succession planning, calls for directors past their shelf life to be retired as deemed necessary in the interests of the prolonged life and adaptability of the company to its ever-challenging environment.
Walter Sandosam is a facilitator of ICDM Board & Directors Effectiveness Evaluation. He is also an Associate Director at CG Board Asia Pacific and an Accreditation Panel Member, at Finance Accreditation Agency (FAA)