A Comprehensive Guide for Board of Directors Succession Planning

There are times when a board member, executive, or CEO resigns. So, to not be caught off guard and adjust to changes quicker, a company should have a comprehensive board succession plan. 

However, only 35% of companies have a formalized board succession planning process for critical roles. Meanwhile, the average CEO tenure is less than five years — the lowest number in the last 20 years.

Keep reading the guide to learn the most important board of directors succession planning steps, what to keep in mind when going through recruiting and maintaining effective leadership, and what tools to use for efficient succession planning.

What is a board succession plan?

A board succession plan is a company’s long-term strategy that describes a set of actions required for replacing a board member or an executive director and identifying successors for a board’s leadership roles.

Board members leave their positions for a variety of reasons, which can be divided into two categories.

Emergency departure occurs when:

• A board member decides to resign on short board meeting notice. 
• A board member has unexpected health or family issues.
• A board member is removed from their position.

Planned departure happens when:

• A board member’s term limit is approaching.
• A board member announces an early departure.

However, no matter what the reason for a director’s departure is, an organization needs to start planning ahead, as the process is time-consuming.

Why is board succession planning so important? Here are the major reasons:

1. It maintains the sustainability of the organization.
2. It ensures continued success.
3. It provides a team with fresh ideas.
4. It increases board diversity.
5. It promotes resilience.

Note: Board of directors startup succession planning is equally crucial as a succession plan for established organizations, ensuring a smooth transition of leadership and organizational sustainability for startups as they grow and evolve.

5 benefits of the board of directors succession planning

Timely board chair succession planning brings advantages and prevents many problems associated with board turnover. 

Here’s how succession planning activities can help a corporate board.

1. Increase the availability of capable individuals for leadership positions. A serious approach to board succession planning means a better chance of finding qualified director candidates ready to take over leadership roles during urgent transitions in board membership.
2. Reduce the risk of losing experienced corporate directors. An effective board succession process can help ensure that a company doesn’t have to look for new board members externally, as they may already have qualified candidates on the team.
3. Minimize the disruptive risks from sudden departures. Investors, shareholders, and board members can rest assured that the nominating and governance committee knows what to do in case of unplanned turnover.
4. Reduce financial resources spent on candidate searches and training. Succession plans and policies developed beforehand help to save time and money spent on the recruitment and leadership development of future board directors.
5. Continuously assess board performance. Proactive boards take board assessments seriously to ensure continuing education and coaching initiatives. Furthermore, by doing so, they establish short- and long-term recruitment goals.

The board of directors succession planning process

A board checklist for succession planning may differ from company to company, but the key steps are usually the same.

1. Identify roles and responsibilities

Divide the roles into three groups based on their significance and emergency.

• Define the most critical positions to the business and its success. These usually include the CEO and executive leadership. Next, assess each key role in terms of business risks — should positions become vacant. This helps to prioritize the roles with the biggest risks when developing a board plan.

• Define the positions that may become vacant in the near future. These are directors and employees about to retire or go on maternity leave. They should be given high priority on a board succession plan.

• Define the positions that are less urgent or important. These are the employees with the least risk or impact on the business and, thus, have a lower priority in a board succession plan.

2. Identify key qualifications

When you have clearly defined roles for the board chair and members in terms of their impact on business, the next steps would be to: 

• Assess what qualifications each employee should have. Identify and write out competencies essential to a company’s success. These often include soft skills like the ability to work in a team or communicate effectively.

• Conduct a skills gap analysis. Consider what skills a board should have according to the business’s objectives, assess them against the board’s current capabilities, and identify what is lacking.

• Create initial job profiles. Document findings so that every participant of a board leadership succession planning process sees the qualities candidates should have.

3. Align a board around common objectives

The board of directors’ role in succession planning is significant. That’s why all members should be aware of business goals, stay up-to-date with changes, and participate in all succession process stages.

Thus, a proactive board is usually involved in assessing board composition, addressing board refreshment, creating job profiles, and searching for candidates.

Here are some succession planning questions for board of directors that help keep everyone aligned and progress with developing a plan: 

• Why are people resigning from the board?
• Do we have the necessary competencies and skills to achieve our goals?
• Should we reconsider board composition and increase board diversity?
• What will we do if one of our board members, CEO, or Secretary leaves?
• Do we have a strategy and resources for finding and recruiting new directors?
• What skills should a new director have?

4. Start the recruiting process

Recruitment should be the responsibility of the nominating and governance committee. It should include a high-level staff member, at least one board director, and any individuals who can facilitate and speed up the process. 

Here’s when a committee should start the talent search:

• Planned departures — six months in advance.
• Unexpected departures — as soon as an employee gives notice.

There are two ways of hiring new members:

• Internal hiring. Internal nominees or applicants are more familiar with board culture and business processes, bring value to leadership positions, and can take over a new role more smoothly. 

• External hiring. External candidates bring new skills and fresh ideas, but the transition usually takes longer.

5. Create a development plan

Most companies prefer hiring internally. They regard it as more advantageous since they can start preparing a candidate for a position before a vacancy opens.

After choosing a candidate, the committee should:

• Assess the candidate’s skills and competencies
• Identify a candidate’s areas for improvement
• Create a development plan based on the skills and capabilities a candidate lacks
• Evaluate and monitor the progress against the development plan

Board succession planning best practices

When creating an effective board succession plan, high-performing companies often take the following recommendations.

Use board management software

Board management software, or a board portal, is a tool organizations use to streamline the board succession planning process. More specifically, it helps board members:

• Communicate effortlessly via chat, discussion threads, or comments
• Vote and choose the best candidates for key board positions
• Store and share board materials securely
• Assign tasks to responsible individuals, set deadlines, and track progress

Check out the guide of the best board portal providers to find the one that best suits your board’s needs.

Emphasize board succession planning

Board members often don’t give succession planning enough attention. However, to create an effective and successful plan, a board should:

• Take a proactive approach and make board succession planning one of their priorities
• Regard board succession planning as an ongoing process and add it to their agenda regularly 
• Consider all upcoming vacancies as an opportunity to improve the board by adding new skills and specific expertise

Understand the board’s needs

For successful board succession planning, board members should continually be aware of the types of candidates they require. That’s why they should:

• Evaluate board member skills and competencies
• Conduct gap analyses
• Receive feedback from current board members, executive leaders, and managers

A board of directors succession planning template

Here are some templates that might be helpful during board succession planning. 

Template 1: Succession planning chart

Position	Incumbent name	Retirement date	Number of candidates	Candidates names	Readiness rating

Template 2: Board succession plan checklist 

Task	Date
Review term limits for board members in current by-laws.
Evaluate current board roles and determine the priority level of each.
Conduct board self-evaluations and gap analysis.
Identify key qualifications that candidates should have.
Conduct exit interviews with members leaving the board.
Review the needs of an organization with regard to upcoming projects.
Identify potential leaders from the current board list.
Decide on the order in which candidates will be offered the positions.
Create a development plan for each potential candidate.
Assign a mentor to each new board member.

If working for a nonprofit organization, learn to build a strong nonprofit strategic plan and use templates to help create it.

What will change on the board in 2023?

Today, more organizations have started using board portals as an effective tool for a successful board member succession planning process.

Here are the features that board portal providers offer.

Group of features	Features
Security features	⏺  User access permissions ⏺ Two-factor authentication ⏺  Encryption of sensitive data
Communication features	⏺ Private and group chats ⏺ Zoom and Skype integrations ⏺ Document annotations ⏺ Mentions ⏺ Highlights ⏺ Comments
Meeting management features	⏺ Calendar ⏺ Agenda builder ⏺ Voting ⏺ Reminders ⏺ Automatic meeting minutes drafts
Reporting features	⏺ Overview of boardroom activity in a table or graphic ⏺ Audit trails for member activity
Task management features	⏺ Task creation ⏺ Deadline setting ⏺ Specialist assignment ⏺ Progress monitoring

The advantages of board portals include:

1. Accessibility. Prepare and conduct a virtual board meeting from anywhere.
2. User-friendliness. Start using a portal quickly — with no prior training.
3. Effective communication. Ensure better board communication and engagement using the best collaboration tools.
4. Secure storage. Store critical business documents in one secure space.
5. Secure file sharing. Share a succession planning presentation and other board materials with key stakeholders quickly and securely.
6. Environmental friendliness. Reduce environmental impact by conducting a paperless board meeting.
7. Customer support. Contact a support representative 24/7 with requests or questions.

If you are looking for board management software, try the board portal by iDeals. It is a TOP-1 choice of our experts. 

FAQ

What is a board succession planning policy?

The board succession planning policy is a company’s strategy that describes the process that corporate boards should follow when replacing board members or executive directors. 

Companies need board succession planning to reduce potential risks from unplanned departures, ensure smooth leadership transition, and maintain the sustainability of an organization.

Who is responsible for developing a board succession plan?

The responsibility for succession planning falls to a nominating and governance committee. It usually consists of a high-level staff member, at least one board director, and any individuals that can facilitate a board succession planning process. 

Sometimes organizations turn to executive or non-executive director recruitment agencies to assist them with finding new fellow directors.