Board Succession Planning

Phase 1—Establishing Priorities.

The nominating committee’s board succession process should first start with an honest assessment of the board’s priorities for future candidates. What characteristics are needed to align board dynamics with the organization’s values and goals? Does the board need additional demographic representation, such as further diversity in gender, ethnicity, age, or geographic background? In terms of skillset and expertise, are additional professional backgrounds, industry experiences, or specialized knowledge needed?

The boardroom is the hub of strategic thinking in the company, and board dynamics and cohesion are integral components of successful strategies. What characteristics could new board members bring to enhance synergy and collaboration? Are certain experiences or backgrounds more aligned with the company’s long-term vision? For example, a defense contractor may find board members with a recent military background crucial to staying up to date with the needs of military clients. Determining the factors that are highest priority for the board’s functioning is essential.

Each organization should identify a manageable set of priorities upon which to focus. If this is the first time the nominating committee has engaged in such an exercise, perhaps identify one demographic characteristic (such as age) and one board dynamic characteristic (such as prior military service). By assessing these needs before an election for a board replacement, the organization can effectively strategize and prioritize diversity goals. This example will focus on age and prior military service as sample priorities.

Each individual board must decide how to categorize priorities based on what is most relevant for the individual organization. Exhibit 2 provides an example of how two different companies might categorize the age of board members as markers of enhanced board performance.

As shown in Exhibit 2, the generation of a board member might be acutely important to a clothing retailer’s strategic vision, whereas for a defense contractor, broader categories may be sufficient to increase the diversity contributed by age-related perspectives.

Phase 2—Scanning the Landscape.

Once candidate priorities have been identified and categorized in phase 1, the nominating committee should identify a list of peer and aspirant boards to use as benchmarks. As in phase 1, this list is subjective and should be tailored to the needs of each company. It is imperative, however, to identify comparable boards for benchmarking whose relevant board membership demographic data is available. Exhibit 3 illustrates this benchmarking exercise.

Markers which the nominating committee might wish to note are concepts such as industry alignment, market position, or geographic presence. Companies on which to benchmark might also include strategic alliances, such as a major supplier or customer of your organization. Carrying the clothing retailer example further, below is an example of a benchmarking exercise.

Phase 3—Calculating a Board Diversity Index.

This example utilizes the Simpson Diversity Index (SDI), a variation of which has been popularized as the USA Today Index of Ethnic Diversity. This produces a model of board diversity that results in a recognized and understandable diversity score. It should be noted that this model can be adapted to measure the diversity of a group based upon a wide variety of both demographic (such as gender or ethnicity) and non-demographic (such as experience type or external board ties) variables. Thus, it can be adapted to those factors which a board deems most important in their organization (E. H. Simpson, “Measurement of Diversity,” Nature, vol. 163, p. 688, 1949).

• Treat each age range as a category.
• Count the number of board members in each age range.
• Calculate the proportion of members in each age range (that is, the number of members in the age range divided by the total number of board members).
• Square each proportion.
• Sum all the squared proportions.
• Subtract this sum from 1 to get the SDI.

The value of SDI ranges between 0 and 1. An SDI close to 0 indicates low diversity, meaning one category dominates. This would be the case if nearly all board members belonged to one age group, with little to no representation from others. An SDI close to 1 suggests high diversity, where categories are more evenly distributed. This would indicate that board members are more evenly spread across different age groups.

In the above example, following these steps yields the results shown in Exhibit 4. Applying this to the SDI scores calculated for each board yields the following:

• ▪ Company Board (SDI = 0.494): This board has a diversity index of 0.494, which suggests a moderate level of diversity. The distribution is uneven, which means there are one or two age groups that are more heavily represented than others.
• ▪ Peer Board 1 (SDI = 0.642): With an SDI of 0.642, this board has higher diversity than the sample company’s board. This suggests a more even distribution of members across age groups, with no single age group dominating.
• ▪ Aspirant Board 2 (SDI = 0.750): This board has the highest SDI of the benchmark group, indicating a highly diverse board in terms of age. This suggests that the members of this board are spread evenly across the different age categories, with no single age group dominating.
• ▪ Key Supplier Board 3 (SDI = 0.694): This board’s SDI suggests that it is more generationally diverse than the sample company but not as much as Aspirant Board 2.

In summary, the higher the SDI value, the more balanced the board is regarding generational diversity. Once an organization has the category template and formula set up, the nominating committee can then easily run what-if scenarios. In this example, consider the following:

What if a retiring Silent Generation board member (age 75) is replaced with an incoming millennial board member (age 32)? This substitution of an older board member with a millennial should intuitively result in greater age diversity. This can be quantified by the SDI, which would rise from .494 (as calculated above) to .617 (with a new millennial member). This would be significantly closer to the identified peer and aspirant board groups.

While it is beyond the scope of this simple illustration, it should also be noted that SDI is a measure that considers both richness (the number of different categories) and evenness (the distribution of individuals across those categories). Thus, adding additional dimensions (age, gender, experience type, or others) only enhances the usability of the index when weighted by importance. For example, for this current board vacancy, the nominating committee could weigh age as 30% important, gender as 30% important, and experience type as 40% important. It can be beneficial to introduce customizations over time as the board gets accustomed to using these types of performance metrics.

Phase 4—Establishing an action plan.

The authors propose that, after assessing priorities for future candidates, a board establish a recruitment committee responsible for identifying suitable candidates. This step works well for organizations with many board members; therefore, each organization should decide whether a special committee may yield a smoother recruitment process. Establishing a special recruiting committee apportions responsibility, encourages collaborative efforts, and allows for different viewpoints, all of which improve the odds of success.

The special selection committee should formulate recruitment talking points to educate candidates on the commitment of a board appointment. Such talking points may include specific organizational attributes and values of interest to potential candidates. Other taking points may touch on governance issues. Specifically, what factors should potential board members know before committing to join the organization? The selection committee should be thorough in coming up with talking points, making sure candidates have all the necessary information before committing.

Once talking points are established, the selection committee should identify viable sources for recruiting potential board members. These sources are different for each organization, but they may include word-of-mouth, community connections, and social media platforms such as LinkedIn. Alternatively, organizations can select suitable and attainable candidates from industry organizations.

The next step in the process is to use the identified sources of potential board candidates to compile a comprehensive list of qualified individuals. The selection committee should engage in intense discussions, identifying the strongest candidates based on the established priorities. Listing and eventually selecting the strongest candidates enhances the chance of selecting a mutually beneficial fit that adds value to the organization.

Once a list of candidates has been settled, the selection committee should determine how to contact the candidates for interviews. The protocol may vary based on the method used to find the candidate. For example, if a candidate was referred by an existing board member, it may be appropriate for the same board member to reach out. If procedures call for the selection committee chair to reach out to candidates, applicable policies should be followed.

The final step in the nominating process involves following up with selected board candidates to inform them of the decision. Again, a process should be in place that dictates who makes initial or follow-up calls. The member tasked to follow up should be prepared to answer questions from the prospective board member before an acceptance is made.

In the event the board struggles to find candidates with certain attributes (such as someone who speaks a particular language), it should prioritize those attributes that are easiest to find given the board’s composition, allowing for the most diverse board possible at that time. When filling more challenging board attributes, one should take a holistic and strategic approach, ensuring the desired and suitable candidates are appointed. For each needed board attribute, assign leadership roles within the selection committee for the recruitment and appointment of relevant qualified board members. This can increase accountability and aid board diversification.

The chosen board members should go through a developed onboarding process that includes orientation, training, and setting expectations. In addition, the board should articulate tenure policies and their appropriate applications (George Anderson, Julie Hembrock Daum, “Board Composition: The Road to Strategic Refreshment and Succession,” SpencerStuart, March 2021, http://tinyurl.com/4nvj67mp).

The board should regularly assess its composition as the needs of the organization change. Requesting annual feedback from board members assists in identifying areas where diversity is lacking. Thoughtful annual feedback can assist in identifying needed skills in the boardroom. Furthermore, the board should assess its portfolio at least annually, addressing gaps brought about by roles and responsibility changes, annual feedback, assessments, regulatory requirements, and evolvement of stakeholder expectations.

The nominating committee should implement a thoughtful board member succession plan that stretches several years into the future based on the gap analysis. Careful planning of this phase minimizes potential disruptions and promotes seamless board member transitions. As a long-term plan, a list of potential board candidates should be established, maintained, and regularly updated as the organization’s needs evolve (“Board Succession Planning: The Complete Guide,” OnBoard Meetings, January 5, 2022, https://tinyurl.com/preview/2ra28amr).

The sidebar Board Diversity Resources includes a list of resources to further assist with auditing board diversity.