Succession: reaching in, reaching down, reaching out; Boards are taking a new approach to succession management to provide the right talent at the right time and place.

• Author: Lindsay, M. Evan
• Position: HEIDRICK & STRUGGLES GOVERNANCE LETTER

THE BOARD OF A major financial services firm faced a dilemma. Directors had begun working with the CEO on his succession well in advance of his planned retirement and were reasonably comfortable with the lead candidate. However, as the time for the decision drew nearer, directors began to have questions about whether the lead candidate was going to make the strategic breakthroughs many thought were needed and whether a better candidate might be available on the outside. Further, they became increasingly uncomfortable with the fact that there were no other internal candidates and that they knew little of the talent pipeline further down the management ranks and the company's process for managing it.

In the face of these circumstances, the board decided to undertake an in-depth assessment of the lead candidate and scan the market for potential CEO candidates against whom they could benchmark their internal candidate or from whom they could select an alternative. Eventually, the board decided to go with the lead internal candidate, but with a far deeper understanding of that candidate's strengths, weaknesses, and coaching requirements.

However, the board went even further, requesting that the next two levels of executives also be assessed and that management provide the board with an annual, in-depth review of the succession management process and its effectiveness.

In our experience, this company is not alone. The work of boards in succession planning has historically been focused on CEO succession, with far less attention devoted to management succession and development further down the ranks. But as boards continue to reshape the ways they exercise their responsibility for overseeing key elements of their companies, they are beginning to take a far more active role in overall succession management beyond the CEO.

In this case, the board's activism was not in response to a crisis of confidence in management or as a result of dissatisfaction with the overall direction of the company. The company was doing well, the current CEO was highly respected by the board, and the company's prospects looked bright. Nevertheless, the directors decided they needed to exert more control over the wider succession management process to ensure the pipeline of talent was sufficient to meet the range of contingencies the company might face.

Pressure on succession management

Increasingly, the boards we work with are taking a far more vigorous approach to their oversight of succession management. They're not...