Importance of CEO succession planning

Amrop contends that it is no longer possible for corporate boards to deny the importance of effective succession plans, not only for their CEO, but also for non-executive board positions. "Orderly leadership succession is critical for business sustainability, and the nominations committee is the key player in achieving this," says Sandra Burmeister, CEO of Amrop Landelahni, South Africa.

While the SA Companies Act does not mandate the provision of a nominations committee, the King III report on governance recommends its formation as one of the board's constituents.

Moreover, corporate governance codes demand limited tenure of board directors in order to refresh the board and encourage independence. "Board tenure has been reduced from some 15 years in 2005 to five years now. This makes the need for proactive board succession planning even more urgent.

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"Too often board and CEO appointments are made at the last moment. Instead the chairman and nominations committee should consider the shape and form of a winning board that can set the company's strategy for future success."

Nominations committees central to task

As nominations committees move centre stage and demands are increasing for succession planning to become more robust, how can businesses best move forward?

Constant changes in regulation, technology and markets make it difficult to know where to begin the search for talent. Succession planning is complicated by the need to keep boards lean. The research makes it evident that strategic human resources sourcing and development is clearly needed. Yet such expertise is clearly missing from many a boardroom table.

"We believe the time is now right for corporations and their boardrooms to use their nominations committees as strategic, human capital think-tanks," says Amrop executive board member, Fredy Hausammann. "Gone are the days when nominations committees were considered as merely the guardians of compensation and CEO nomination.

"Instead, the nominations committee should be wired into two critical dimensions - the organisation's talent circuit board and its corporate strategy. Moreover, one or more committee members need to have first-hand experience in this area."

The research shows that mid-caps in particular need to find ways to compensate for pitfalls in internally-focused board and executive recruitment. Independent board members can play a vital role in challenging homegrown assumptions and widening perspectives.

Particularly in South America, where many businesses continue to be family-run, organisations face succession planning challenges when it comes to replacing a CEO or board chairman position with a professional, non-family member.

Diverse range develops strategic growth

"A diverse range of directors enables the board to advance as a forward-looking unit, concerned with developing strategy for future growth," continues Burmeister. "In South Africa, with its challenges of black economic empowerment and the need to accommodate different investment groups and other stakeholders, succession planning is even more critical.

"We need board members who are engaged, can ask the right questions, challenge decisions and participate in robust debate. Independence and diversity guard against 'group think' and bring impartial judgement and a challenging mind-set to issues such as leadership succession and talent management.

"Boards hold an oversight role and a strategic one. It should be in their DNA to question, debate and consider alternatives and nowhere is this more important than in the working of the nominations committee. That is the only way to avoid gaps in executive management and blind spots in board thinking.

"Only by considering different perspectives and being able to evaluate risks in a shifting business environment, can boards plan an effective succession strategy for key leadership to ensure long-term sustainability and profitability," concludes Burmeister.