TOWARDS DYNAMIC GOVERNANCE 2014


European Corporate Governance Report


LEADERSHIP TALENT


If boards are there to think about the long-term, then they need to invest time and thought into planning the flow of talent. People execute strategy. This means that boards must, for example, use more sophisticated recruitment techniques than simply interviewing likely candidates.


Succession is more than a decorative plan filed away somewhere; it is about finding realistic successors to fit with the business’s unique context. As Boris Groysberg of Harvard Business School puts it: “In the long run, the systematic development of stars is the most effective strategy to create a sustainable competitive advantage.”10


There is near universal agreement on boards that talent performance and engagement in succession planning is important. An impressive 92% agree. The trouble is that only 55% rate their own board’s performance as satisfactory. Similarly, 76% of respondents rated having clear criteria for the replacement of board members as important, yet only 62% rated their own board’s performance in this area as satisfactory.


An earlier study by Heidrick & Struggles and the Rock Center for Corporate Governance at Stanford University found that on average, boards spend only two hours a


10 Groysberg, Boris, Chasing Stars: The myth of talent and the portability of performance, Princeton University Press, 2010


People execute strategy


Identifying and developing leadership talent and planning succession issues among a company’s leaders is often on the to-do list of boards. There it can remain.


year on CEO succession planning and only 50% have a written document detailing the skills required by the next CEO. More of our research discovered that only two-thirds of American directors said their boards had vetted at least one viable candidate who could immediately step in as CEO if necessary.


Our experience with succession planning suggests that best practice is characterised by six elements: a focus on the company’s future needs rather than a rearward- looking replacement for the current CEO; engagement with key stakeholders to align an objective set of key skills, experience and personal qualities; the provision of opportunities for internal candidates to test and demonstrate their capabilities beyond the context of their current roles; an emphasis on building a team; understanding that succession is a continuous process and practice; and recognition that no candidate is ever likely to be perfect, they require robust and tailored support.


CEO succession is a sometimes emotive and always political journey. Everyone has a view and wants to have a say. It is important to have an objective process that recognises the emotional and subjective nature of succession and gives key stakeholders a sense of involvement. But, identifying and developing talent must begin with the board.


14 Towards Dynamic Governance 2014 – European Corporate Governance Report


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