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Posts Tagged ‘Board of Directors’

Boards of Directors have a difficult, but critically important job to do with CEO succession planning.  If a Board selects the right person to succeed a departing CEO, shareholders, employees and regulators will be happy with the results.  On the other hand, a failure with CEO succession can bring about the failure of the enterprise.  If it is not THE most important thing a Board does, it is very close.

I am often asked whether a retiring CEO should be on the Search Committee.  There are times when the answer is an obvious “no.”  However, there are situations wherein the Board feels more comfortable with their role if they have a long-term, successful CEO heavily involved in the process.  My 35 years of participation in these processes has taught me that no two companies are exactly alike, so there is no right or wrong answer to the question.  To me the ideal is for both the CEO and the Board to have important, but different well-defined roles in the process.

The most productive role for a CEO in succession planning starts the day they become CEO.  From the beginning, a CEO should start preparing their potential internal successors by assessing strengths and weaknesses, getting them training, development and coaching as needed while exposing them to the Board.  The CEO should be sure the Board understands the efforts being made to develop successors internally and frequently share candid assessments with the Board.  If this work is done properly, the Board should have a good idea of their “bench strength” in case of an emergency and when it is time for the CEO to retire.

Roles Fork

CEO and Board work together until decision time

The role of the Board (usually with the help of a Search Committee) is to select the best candidate from inside or outside the company.  If the departing CEO has done his/her job, the internal candidates should be strong contenders, given their intimate knowledge of the company and its culture.  Nonetheless, today, most Boards feel like it is their fiduciary duty to look outside the company as well as inside.  So, most often the Board or Committee will have some good internal and external choices.  When it comes time to make a choice, a long-term, successful CEO should be available to the Board, but should take a passive role except in extenuating circumstances.

The departing CEO will justifiably favor the internal candidates, and any external candidates the CEO brought in early.  However, the departing CEO is most often not going to have to live with the consequences of the selection.  The CEO can still be on-call with the Board to answer technical questions about the job, but the sorting and grading of the candidates should not include the CEO unless there are strong reasons to include him or her.  Sometimes, the Board will choose a successor a year or two before the departing CEO steps down, in order to give the new CEO time to learn from the departing CEO.  In other situations, the departing CEO will be staying on in a Board role, which has its own issues that we will discuss in a future blog.

For now, suffice it to say that including a CEO in the final selection of their successor is fraught with issues and should be avoided unless there are compelling reasons to keep them involved to that extent.  If it would help your Board to have a full discussion about this issue, call me at 919-732-2716, or click here and give me your contact information.

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The plan is never finished.  Strategic Planning is a process that never ends.  Banks should revisit their strategies every 12 to 18 months.  Bankers should ask these questions to reassess internal attitudes and the outside world:

  • What have we done successfully?
  • How has the competition reacted?
  • What is different in our environment?
  • Should we continue on current path or make changes?
  • Are any failures due to poor strategies or poor execution?

For strategic planning to succeed, management and the Board must view the process as an ongoing commitment—not an exercise to satisfy regulators.

Management and Board must reach consensus.  Poor communication between a bank’s management and its board can present hurdles.  If these two groups do not have a shared vision, strategic planning has little chance to succeed.  Therefore, it is crucial to engage both groups in the planning sessions.

Many voices must speak.  A CEO and one or two people may complete a strategic plan without involving any of those who execute it.  The plan will be impractical, and managers will have no personal investment in its success.  Banks should search for ways to let employees share in the rewards and risks inherent in the development of strategic plans.  This may mean rewarding performance using bonuses or incentives, stock plans and other alternatives to pure salary.

Strategic Planning

Strategic Planning Cannot Predict the Future

Follow-through is essential.  A frenetic management style can create difficulties.  The CEO and board may eagerly develop a strategy, but lose interest when it comes to monitoring progress and overseeing implementation.  As soon as the first crisis comes along, they forget about the planning.

Power to harness change creatively.  Strategic planning cannot predict the future.  You cannot predict exactly when a quake might hit your institution—or its size and duration.  With strategic planning, you can make wrong decisions as well as right ones.  But strategic planning will help you learn your institution’s strengths and weaknesses and discover how your resources can be marshaled to help your bank survive and thrive.  Strategic planning strips change of its power to frighten and immobilize bankers.  It offers executives the power to harness change creatively.

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