Rethink the board's succession.

• Author: Bromilow, Catherine
• Position: DIRECTOR SELECTION

While CEO succession has captured headlines recently, directors shouldn't neglect their own boards' succession planning. Despite recent trends toward extending director retirement ages (which may play a role in explaining the relatively low director turnover rate), nominating committees will eventually have to focus their efforts on recruiting candidates for their boards. Plus, the new proxy disclosures outlining directors' skills and experiences are highlighting boards' combined skills, and may allow shareholders to more easily identify skill gaps.

In PwC's 2010 Annual Corporate Directors Survey, of the 1,110 U.S. directors who responded, 45% say there is a shortage of qualified candidates. The most difficult skills to find? Information technology (cited by half those surveyed) and international experience (48%). It is even more difficult, directors say, to find diverse board members--either from ethnic minorities (64% citing the difficulty) or who are women (53%).

Part of the issue may arise from the criteria boards set for new directors. While almost every board would like its next new director to be a sitting or recently retired CEO, such candidates are rare.

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Making the search even more complicated, directors are reluctant to add members who have not had prior board experience. Another part of the challenge lies in how boards find candidates. Asked how they would recruit future members, 86% of directors say they rely on their own contacts. Placing such limits on the search--holding out for a chief executive, for a sitting director, or for someone they already know--makes it particularly difficult to add skills the board does not already have or to enhance board diversity.

Thus, nominating committees seeking new directors should expand their search, and think differently about the way they approach renewing the board. Here is a possible four-step process:

* Understand the impact that...