The best kind of succession planning: the number one priority for the board is to insure that there is a companywide plan for the succession and the cultivation of leadership talent.

• Author: Wilson, Douglas

Tolstoy opens Anna Karenina by observing that happy families are all basically the same, while unhappy families are unhappy in their own particular ways.

The same observation might be reasonably applied to companies that have recently experienced a management succession or transition: Those that feel satisfied about the results they have achieved in a smooth succession are generally happy.

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The challenge for students of corporate governance is to isolate those common elements that lead to a successful outcome, regardless of industry, sector, size or nature of company. Understanding the common elements that these "happy families" share will permit a codification of policies and procedures that differentiates sound from unsound governance.

It is generally agreed that the top priority for a board of directors is to hire or fire the CEO. We suggest that the number one priority is to insure that there is a companywide plan for the succession and the cultivation of leadership talent, starting first with the CEO and moving then throughout the company.

Picking the next CEO is only the start. Larry Higby, the former CEO of Apria Health Care, who now serves on three public boards and five nonprofit boards, says that only focusing on CEO succession is a huge mistake made by boards. He says, "Succession is a company-wide issue. The board needs exposure to multiple players in management, not just the CEO." In other words, the board needs to insure that talent development is a dedicated business process. The framework must include regular assessment of leadership, skills and talent gaps in the organization, along with a program and budget to close these gaps either through professional development or external executive coaches and recruitment of outside talent.

Talent Development Committee

The board must also possess the political will to enforce the planning process when the sitting CEO is reluctant. It strikes us as odd that the most important committees of the board are generally deemed to be the Audit, Nominating, and Compensation committees. These functions of the board are critically important to good governance practices; so is creating a process for identifying, grooming and preparing future CEO leadership. Wouldn't it make sense for every corporate board to create a new committee called the Talent Development Committee?

Over the past five years we interviewed executives at a number of companies that...