Jane Bridge
Managing Partner
Boardroom Partners
Introduction
• Boardroom Partners
• CSA Conference audience
• My observations are based on 15 years of
board reviews (un named) and 4
reports/articles (named)
What is succession planning and
why is it difficult?
• Planning and agreeing who takes over (the
seat)
• Great reforms in all sectors in governance
practices
• Board and CEO succession – less developed
• Not like other dimensions of governance
• Has a strong emotional component, is
often political and can be irrational
Succession plans….
• Can be elegant, detailed and deliberate,
but will fail if they are based on an
underlying model that looks more ‘like a
chessboard than a playground’ (Nadler 2010)
• Need to acknowledge complexity rather
than focus on mechanistic approach
• Some systematic element necessary to
guide an inherently messy and essentially
human process
Importance of succession planning
• Probably THE single most important
decision that a board will ever make –
alongside strategy; risk and their own
composition)
• Has 3 dimensions – Analytical; Political;
and Emotional
Some differences we see
BOARD
CEO
Flexible timing
Private decision making
Low key process
Informal ‘matching’
(Often) undertaken in
house
Critical timing
Public eye on process
High risk decision
(Generally) involves
external expertise
10 problems we see
1. No planning at all – or – the board starts too
late
2. Some board members only involved and fail
to take others with them (Options:
concurrence; crisis; collaborative)
3. No focus on developing internal candidates
4. Selection criteria not agreed
Problems continued
5. No rigour around performance assessment
or poor relationship board:CEO
6. Resistance to use formal/external expertise
7. Low board interaction with executives
8. Board sets up a race or public competition
9. CEO exit poorly managed
10.No contingency for emergencies
A few words from Walker
Characteristics of high functioning boards
identified – capacity to deliver dependent on
four factors:
• Character and personality of the directors and
dynamics of their interactions
• Balance between CEO/Chair; CEO/Board;
Executives/Non executives
• Environment in which board meetings are held, and
• Culture of the board and the company in general
Conclusions
• As Co Secs – enormous capacity to influence
these factors.
• Provide link between board and
management Act as the Chief of Staff to the
Chair
• Have access to expertise, knowledge and
wherewithal to make a difference
Good luck
References
• Beyond Best Practice: Revisiting the Board’s Role in
CEO Succession. Mark Nadler, 2010 Oliver Wyman
• Boardroom Behaviours – Report by Sir David Walker
for ICSA UK June 2009
• CEO Turnover in 2006 – Succession Planning – The
Era of Internal Candidates. Booz Allen Hamilton
• Changing Leaders: The Board’s Role in CEO
Succession (US Roundtable) Jay Lorsch and Rakesh
Khurana
James Beck
Managing Director
Effective Governance Pty Ltd
If you don’t know where you are going, any
CEO will get you there
Inclusiveness
Intelligence
Open-mindedness
Knowledge
Generosity
Experience
Flexibility
Good listener
Sense of
humour
Empathy
Humility
Integrity
13
CEO_Recruiting for Success_Oct12
Strategy Drives Succession
• Before considering any particular candidate to succeed the
current CEO, the board should understand the strategic context in
which the next CEO will have to operate, i.e.
– Key business drivers;
– Industry trends;
– Competitive landscape;
– Markets; and
– Goals (both financial and non-financial).
• Then it is possible to define the competencies that the next CEO
will need
14
Recruiting for Success
Framework
Find
Retain
Fit
Receive
CEO Assessment Framework
CEO Review
Remuneration Tools and
outcomes
processes
Focus of
evaluation
CEO Development
CEO’s competencies
CEO’s performance
CEO’s leadership
impact
CEO’s management
abilities
CEO’s performance
objectives
MLQ 360°
Survey
eG CEO Expectations
Survey and Workshop
Performance
Assessment
Workshop
CEO’s competencies aligned to salary
based on meeting or exceeding leadership
and management expectations
Performance bonus
Board skills
Board skills and competence
Can you justify that your board
has the skills and competence to
deal with the issues before the
company?
Board competencies
Behavioural
Governance
Technical
Industry
Source: GC Kiel et al., 2012, Directors at work: a
practical guide for boards, Sydney: Thomson Reuters.
The attributes and competencies enabling individual
board members to use their knowledge and skills to
function well as team members and to interact with
key stakeholders
The essential governance knowledge and
understanding all directors should possess or develop
if they are to be effective board members. Includes
some specific technical competencies as applied at
board level
Technical/professional skills and specialist
knowledge to assist with ongoing aspects
of the board’s role
Experience in and knowledge of the industry in
which the organisation operates
1.1 Technical Skills and Experience: Accounting
None
(1)
Basic
(2)
Operational
(3)
Extensive
(4)
Expert
(5)
Person
Response






No professional experience in accounting
No understanding of basic accounting concepts including cash flows, assets, inventory, short and long term debt, balance sheets, income types, payroll or similar
No practical accounting exposure at an organisational level
No understanding of methodology and terminology used in accounting or financial analysis
No understanding or experience in tax related matters
Holds no formal or informal training or qualification in accounting and has not been exposed to the concepts








Director understands fundamental accounting standards
Can identify the key elements of financial reports such as profit and loss, cash flow, assets and liabilities
Demonstrated ability to dissect given sections of the company’s balance sheet, income statement and statement of cash flows
Some understanding of accounting methodologies and calculating standards
Exhibits an appreciation for the relationship between account keeping and tax liability
May have worked in the finance section of an organisation
May have had access to informal training in accounting
Demonstrated understanding and application of standard accounting principles and concepts including cash flows, assets, inventory, short and long term debt,
balance sheets, income types, payroll or similar
 Is able to identify the tax implications applicable to operations
 Has worked with the accounts of an organisation for a period of 5 years or more
 Can identify and provide analysis of the key elements of accounts statements and reports
 Demonstrated ability to dissect many elements of the company’s balance sheet, income statement and statement of cash flows
 May hold a Diploma or similar in accounting practice and may be a member of the National Institute of Accountants
 Has a working understanding of accounting methodologies and calculating standards
 Is a member of CPA Australia or the Institute of Chartered Accountants in Australia
 Holds at least a Bachelors Degree in Accounting or directly aligned discipline
 Has worked extensively in accounting across medium to large organisations for a period of 10 years or more
 Has experience with developing and reporting key accounts data in periodic reports
 Has lead a team with accounting responsibility for more than 7 years
 Has advanced knowledge of accounting processes and standards
 Proven ability to provide oversight and acknowledged high level advice on accounting processes
 Is able to identify the tax implications applicable to operations and ensure compliance across an organisation
 Has demonstrated an ability to think strategically about accounting across an organisation, enhancing performance as a result
 Has been a career financial executive in large organisations (could include universities)
 Appreciates and has demonstrated an ability to apply superior knowledge of accounting principles strategically
 Has superior understanding of/capability in accounting
 Has lead a team with significant accounting responsibility for more than 10 years
 Is a Fellow of CPA Australia or the Institute of Chartered Accountants in Australia
 Holds a Masters Degree or higher in accounting or directly aligned discipline
 Has significantly contributed to research and associated literature in the accounting discipline
 Has worked for 15 or more years in accounting and has provided expert technical advice on complex accounting issues
 Appreciates and has demonstrated an ability to apply superior knowledge of accounting principles strategically
 Regularly provides advice on tax implications applicable to operations, ensures compliance across an organisation and locates areas of strategic opportunity for the
entity
 Sought after ability to provide oversight and acknowledged high level advice on accounting processes
Director Director Director Director Director Director Director
Maximum Rating Required on the Board
Number of Directors Required with
A
B
C
D
E
F
G
for this Competency
Maximum Rating
Can also Assess PEERS
What a skills assessment looks like
Accounting
5
Contemporary
corporate
governance
4
Finance
3
Information
technology
2
Industry
1
0
HRM
Legal
Strategic
marketing
Risk management
Strategy
development
Current number of directors meeting
maximum competence level
Number of directors required for future
at maximum competence level
What a skills assessment looks like
Current
Competency
Director D
Director E
Director F
Met / Not
Met
Director C
Current
Maximu
Rounded Rounded
Number
m
Mean:
Mean:
at Future
Current
Skill Level Directors
Needs
Skill Level
Required Required
Skill Level
Director B
Technical Skills and Experience
Section
Future
Requirement
Director A
Self-Assessment
1.1 Accounting
3
2
3
3
2
2
3
0
4
2
Not Met
1.2 Finance
2
2
2
3
2
2
3
0
4
2
Not Met
1.3 Industry experience
1
4
3
3
4
2
4
4
5
2
Not Met
1.4 Law
5
1
2
2
2
2
5
1
4
1
Met
1.5 Strategic marketing
2
2
2
2
4
3
4
2
3
2
Met
1.6 Strategy development
and implementation
2
3
2
2
4
3
4
1
4
2
Not Met
1.7 Risk management
2
3
2
2
3
2
3
2
3
2
Met
1.8 HRM
2
2
2
3
2
2
3
1
3
2
Not Met
1.9 Information technology
1
1
1
2
2
2
2
3
3
1
Not Met
1.10 Contemporary
corporate governance
4
3
2
3
4
3
4
2
4
3
Not Met
Competency
Key
Individual meets or exceeds requirements
Requirement not met
Requirement met
In the annual report...
Director E
Director F
Director D
Director C
Director B
Director A
Self-Assessment
Strategic marketing


Strategy development and implementation

Section
Competency
Technical Skills and Experience
Accounting
Finance
Industry experience
Law
Risk management
HRM
Information technology
Contemporary corporate governance




Michael Slater
Chairman
Newcastle Permanent Building Society
The CEO Role of the Board
CEO
SELECTION
CEO
ASSESSMENT
CEO
SUCCESSION
CEO
REMUNERATION
CEO
MENTORING
CEO
DESELECTION
Practical Experience dealing with and
optimisation of CEO performance
• Applied Governance
— Roles of CEO and Board
— Documentation of Governance
• CEO and Board work in partnership
• Mechanics:
— Corporate Governance charter
— Strategic Plan
— Operational Plan
— Delegations Manual
— Functional structure
— Budgets
— Policy formulation
— Performance monitoring and performance management
— Balance performance “scorecard” criteria
o Timeframe diversity
o KRA’s and KPI’s
o Behavioural/Attitudional modes
o Targets/weighting
Practical Experience dealing with and
optimisation of CEO performance
• Board and Management work as a team
• Board and Management have to “buy in” and “commit”
• CEO’s operate with Board
- is accountable to “Board”
• Variance of relationship between organisations and CEO’s in
performance
• CEO/Chair relationship
• Role clarity
• CEO’s role and responsibility for outcomes
• Bottom line is CEO/Board alignment of goals in Strategic Plan
Planning for the future – succession planning
• One of the criteria for CEO performance assessment and remuneration
• Integrated into targeted program for executive and management training
• Forms part of the executive and CEO performance evaluation score card
• Linked to the goals and objectives in the strategic and operating plans
• Establishes a “benchmark” standard for attributes of skills/expertise before
going to market
• Opens up career opportunities
NPBS Experience
• Endorses succession planning program
• An advance in corporate culture
• Critical time dimension
• Risk mitigation to key roles
• Executive CPD (Harvard)
• CEO succession planning should remain as a Board agenda item
on an ongoing basis
Board Skills & Competence
• Annual Director 360o Peer Group Review (inclusive of CEO input)
- skills
- expertise
- modes of behaviour
Facilitated by independent consultant
• Annual Chairman Review by Directors (inclusive of CEO input)
Facilitated by independent consultant
• Annual Review of Chairman of Board Subcommittees by respective subcommittee Director
members
Facilitated by independent consultant
• Monthly Boardroom Barometer – trend analysis of Board and Director performance by independent
input of all Directors
Facilitated by independent consultant
• Bi Annual – skills/behaviour mode/expertise analysis and assessment
- review current status contrasted to perceived needs requirements
- gap analysis
- Director succession planning
Facilitated by independent consultant
Board Skills & Competence cont
• Summary results presented in a Governance
Activity Statement to Australian Prudential
Regulatory Authority – (APS 510)
• Continuing CPD
— ASIC Summer School
— CSA Annual Conference
— Various others