The importance of succession planning

A couple of months ago, I wrote an op-ed about how boards of directors can become dysfunctional. I received feedback asking me what I thought was the most critical function of a board.

This led me to ruminate on the importance of succession planning in organizations, and the critical fiduciary role the board must play in ensuring the institution and its stakeholders suffer a minimum amount of disruption and financial risk.

A difficult succession process can result when there is a sudden loss of leadership resulting from the death or permanent incapacitation of an organization’s leader and, in many circumstances, its founder. So, how should board members go about carrying out this responsibility?

A first good step is full recognition that the board works for the stakeholders and with the CEO and senior management team. This fundamental principle of a board member’s responsibility can become blurred as personal relationships develop and financial benefits and positional veneration dull the inherent tension accompanying this fiduciary obligation.

Successful boards focus a significant amount of time and energy analyzing the current conditions of the business including its strengths and need for further development. They dispassionately separate personality from competency and inventory what additional competencies would further strengthen the management team and embed, or maintain, a performance driven culture. They establish development plans with timelines for their high performing executives and create a continuous flow of organizational development with a productive feedback and evaluation loop. In addition, they maintain robust scenario planning that responds to a sudden loss of leadership.

The result is a dynamic team environment united around the mission of the organization, not steering the board for personal gain. I have seen where this can be overwhelming for boards, and they become a bit too complacent and “hopeful” that things will be OK. This approach introduces many risks which are not good for the stakeholders. Some of the early warning signals are dominant executives who, based on their business success to date, adopt a “master of the universe” persona the board refuses to confront. One thing I have observed over the years is that “what got you here won’t get you there.” The more senior the position in the organization, the greater need for skills of influence, persuasion and collaboration, not the misguided view that positional power can compel cooperation.

Another trouble sign is when a board adopts what is referred to as the “Messiah Complex,” this being “we are only one great hire away from everything being perfect.”  But hoping is not a strategy. In the end, a board that approaches succession planning with vigilance and vigor will continually prime the well of success.

Patrick Burke is the managing principal of Burke Group, a retirement plan consulting & administration, actuarial services and compensation consulting firm.