This blog post is part of the HBR Online Forum The CEO’s Role in Fixing the System.No conversation regarding a call for a new CEO can be complete without a discussion of corporate boards and their role as the primary, determinative actors in the selection process. It is the board, after all, who is charged with succession planning and choosing the chief executive. But how well is this planning being executed in boardrooms across the globe?
Not very, according to a global survey we conducted earlier this year of over 700 corporate directors in 26 countries. 30 two per cent of US directors and 42 per cent of directors outside of the US said their boards did not have an effective CEO succession planning process and an even greater percentage said their boards had not vetted at least one viable candidate who could step in as CEO if necessary.
Not only did boards face significant challenges in choosing CEOs, our findings also revealed that they are also challenged when selecting their own members. Less than half of those surveyed said their boards had effective succession planning for directors (46 per cent of US directors and 40 per cent of directors outside US).
We also found that most directors get appointed to a board because they are known to the CEO or to the board. That is, boards are still using their own networks to fill their directors’ seats. And directors who come from the same network tend to share similar backgrounds and skill sets, thereby creating a potential void of certain perspectives and skill sets on boards. To wit: 46 per cent of US directors and 54 per cent of directors outside US said there were skill sets or areas of expertise missing or insufficiently represented on their boards.
Together, these data tell us that boards are not sure what constitutes best succession practices. And our report shows that boards are struggling with several other processes related to succession as well as many related to governance and board effectiveness. Diversity, for one.
We found, for instance, that 41 per cent of US directors and 54 per cent of directors outside US could not say that seating a diverse representation on the board was a priority for their boards and less than half could say their boards had adopted measures that successfully advanced diversity on the board (47 per cent of US directors and 39 per cent of directors outside US).
We also found striking differences between female and male directors around questions of diversity (as well as board governance and measures of board effectiveness). For example, 74% of male directors said their boards had a nearly ideal mix of members — a diverse set of people who bring different perspectives and experiences to the work — whereas 59% of the female directors said the same.
If boards cannot get their own dynamics and selection processes right, how can we expect them to get dynamics and selection of CEOs and senior management right for their organisations?
Dysfunctional boards lead to dysfunctional practices, including flawed and subpar succession planning, which in turn lead to the selection of less effective CEOs.
If we want to see the emergence of more effective CEOs, boards need to step up and be more accountable. This includes being educated about best practices, especially with regard to succession planning. What does an effective succession plan look like? What other practices can boards do more effectively that will contribute to the selection of more effective CEOs and overall more effectively run organisations? And how would these changes be best implemented?
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