Board Refreshment and Succession Planning in the New Normal

Next Generation BoardsBoard Composition and SuccessionBoard and CEO AdvisoryBoard Effectiveness
Article Icon News Article
10月 16, 2021
read
Next Generation BoardsBoard Composition and SuccessionBoard and CEO AdvisoryBoard Effectiveness
Executive Summary
Due to recent health, economic and geopolitical challenges, board work has never been more important.
rra-background-blue-14-2021.jpg

Excerpt from article originally published in Harvard Law School Forum on Corporate Governance

Increasingly assertive institutional investors, aggressive hedge fund activists, empowered ESG experts, and powerful proxy advisors are ramping up their demands on public company boards. These and other influential stakeholders are scrutinizing corporate boards to see if they have the right people to succeed—and that they are committed to effective refreshment, board succession, and board evaluation practices. For these reasons, Russell Reynolds is updating its prior advice to directors and boards on how to successful navigate these heightened expectations. Those found wanting are more likely than ever to face meaningful consequences, including losing for support incumbent directors in both contested and uncontested elections. 

Part of the reason for this enhanced attention is simple: the work of boards has never been more difficult and important. From the unprecedented challenges of the COVID-19 pandemic, economic volatility, geopolitical instability, and board agendas bursting at the seams with topics new and old, boards and their members are being tested like never before. Many boards have risen to the occasion, providing steady and thoughtful leadership; others have struggled, failing to add (or eroding) value. 

Against this backdrop, many boards and leadership teams have taken a step back to evaluate their composition and effectiveness, asking themselves tough questions: 

  1. What skills, backgrounds, and experiences are absent? 
  2. What skillsets are relevant for the company of yesterday but not tomorrow? 
  3. Are our board, committees, and individual directors all effectively contributing?
  4. Are there any board leadership or committee roles we could not replace if an incumbent left? 
  5. Will our board refreshment and effectiveness activities withstand stakeholder scrutiny?

To answer those challenging questions, enhance risk management, and support governance best practices, boards can start with a board composition analysis, a strategic planning process that consists of four primary activities led by the Nominating and Corporate Governance Committee (“the Committee”): 

 

  • Confirm Agreement on Company Strategy: Designing the right board for the future requires knowing where the Company is headed. The first step is to confirm agreement on the company’s strategy, including key strategic risks to the company. This is the foundation on which all successful board composition analyses rest. 
  • Align on the Skills and Experiences Required: The strategy is the foundation on which the committee develops a clear and agreed-upon set of definitions for the key backgrounds, skills, and experiences (including diversity) that will be needed at the board level. A successful process will be transparent and rigorous, incorporating both feedback from each director and an unbiased evaluation of existing skills and experiences against the agreed-upon definitions.
  • Forecast Board Changes: Some board vacancies can be anticipated, such as those driven by mandatory board refreshment policies or the stated plans of directors. Boards should be aware of those expected changes so that they can plan ahead—recognizing, of course, that some departures will not be so predictable.\
  • Disclose More: Investors are seeking more information in an easily digestible format to enable them to understand how board composition links to the company’s strategy. Having completed the prior steps, board leaders and the legal team can determine should be disclosed to investors about the board’s approach to refreshment, board composition, and related board effectiveness activities.

    To read the full article, click here.