Over the past decade, boards of directors at many companies have dramatically improved their handling of CEO succession. They have put in place long-range succession planning; they complete in-depth assessments of internal candidates; they scan the external market for potential candidates against whom they can benchmark internal candidates; and they continually review their plans. Some boards may have been reacting to pressure from activist shareholders and SEC rules like the 2009 directive concerning shareholder proposals for the disclosure of CEO succession planning policies. But, in our experience, many boards tackled the responsibility for CEO succession planning because they do what the best boards regularly do: lead, not follow, in matters of good governance.
Now it is time for boards to get out in front of a closely related issue--the succession of the nonexecutive leader of the board.
Whether it is the succession of the lead director in a company with a unitary chair/CEO or of the nonexecutive chair in a company where the roles are split, boards should bring the same rigor to this succession challenge as they bring to that of the chief executive. Currently, 27% of Fortune 500 companies have a nonexecutive chair and 56% have a lead director, and the numbers are likely to grow in the future. Although we believe that each board must decide on which governance model works best given the company's board and circumstances, most observers agree that the trend toward some form of the nonexecutive leader of the board will only grow stronger.
A comprehensive approach to succession of the nonexecutive board leader consists of three essential components: long-range planning, the process for selection, and the criteria for selection. Through careful attention to all three elements--planning, process, and criteria--boards can ensure that their selection will produce not just consensus but real alignment: the enthusiastic welcome of the choice by executive and nonexecutive board members alike.
Genuine long-range planning for board succession is an ongoing process, not a 'one-and-done.' Best-practice planning encompasses multiyear time horizons and should be reviewed annually. It provides the larger context in which selection takes place and, handled thoughtfully, should produce outstand-ing candidates when the time comes to make a choice. Based on our experience working with boards on nonexecutive leader...