Headhunters Confidential

Reengineering the Nominating Process


In the age of increased regulation and risk management, the board of directors' strategic functions require retooling. Case in point: the nominating process, the most crucial board function. The nominating committee's work will grow more pivotal in assuring shareholders of the long-range health, stability, and growth of the enterprise.

The members of the nominating committee, now more than ever, must drive and sustain a relentless focus on succession planning, provide effective oversight of executive talent development and recruitment, and facilitate the smooth transition of directors onto and off of the board.

As chief executives continue to extol the productivity and profit-boosting potential of their "single biggest competitive advantage" and largest intangible asset—their workforce—they concurrently set shareholder, employee, and business partner expectations about their commitment to executive management development, recruiting, diversity, and retention.

It is the nominating committee's responsibility, working with the corporate secretary, chief human resource officer, and other senior executives, to qualify the authenticity and enterprise commitment to that "feel good" CEO mantra.

Don't Neglect Candidates Within

If effective CEO succession indeed ranks among the board's most essential responsibilities, so also must a continual assessment of succession, development, and recruitment practices, risks, and opportunities related to the CEO's direct reports, who in many cases merit serious consideration as potential successors.

Otherwise, the nominating committee and individual board members risk significant reputational damage when a CEO suddenly exits. How? The committee commences a rushed, haphazardly engaged external search for a successor whose name and reputation alone may placate shareholders, analysts, and employees, yet whose cultural mismatch with the organization portends an eventual succession crisis.

Consider for a moment one board director's recent backlash against an executive search consultant's promise to recruit a "star" chief executive in a manner that suggested the individual's marketability and reputation trumped all other qualifications for the role.

Indeed, the introduction of "the usual suspects" most impedes the board's search for fresh faces, new ideas, and committed overseers and impugns the efficacy of engaging leadership recruitment consultants. The homogeneity of CEO and board role specifications—now influenced in part by new disclosure requirements regarding director qualifications—continues to emphasize exclusion from succession consideration rather than inclusion, leading many directors to bemoan a general lack of qualified talent, especially among women and minority candidates. This lack of nominating-related due diligence only perpetuates that self-fulfilling prophecy.

Key Executive Partners

The continued emergence of the talent management function not only forecasts the business potential of the oft-maligned human resource function but also opens a new channel to inform the board's nominating agenda and connect directors with the chief human resource officer, corporate secretary, and general counsel.

Succession risk management must be led and informed by each of these parties. The chief human resource officer can serve as a valuable partner to the board's nominating committee and the corporate secretary as a facilitator of that relationship. Otherwise, public statements about the quality of management, nimbleness of an enterprise workforce, and corporate commitment to diversity ring hollow.

The nominating committee must insert succession-oriented dialogue into the board's periodic review of business operations and its oversight of business strategy. There may be no better predictor of business performance—and board performance, for that matter—than the nominating committee's depth of understanding of how the company is developing, recruiting, assessing, rewarding, and retaining its management bench.

That exercise helps inform and instruct the nominating committee's CEO succession planning. It may also present new and emerging practices relating to the recruitment of new directors—the lifeblood of any board. It is the nominating committee that faces the most significant risk and potential criticism if a lack of connection with current talent recruitment and development practices aren't periodically reviewed and challenged.

Avoid Defensive Decision-Making

Because CEO succession is a potential flash point for shareholders, the nominating committee must take the lead in keeping the board focused on succession options and talent-related practices. Otherwise, succession issues surface only occasionally and/or tactically, or in immediate response to a succession crisis that neither the nominating committee nor the wider board saw coming.

That alone leads most to reactive and defensive-minded decision-making, ceding too much influence to an external search process largely driven by how the recruitment of a particular "star" candidate will make up for the board's lack of oversight and attention to the most critical of business sustainability and risk management issues.

Yet a mere lack of attention isn't the only risky influence on CEO and board succession. So too is the engagement of an executive search consultant to conduct a seemingly objective board assessment that all too often leads to a recommendation that new directors be recruited to make up for competency gaps.

Putting a recruitment assignment in the very same hands that just completed a board assessment exercise should raise questions about who, exactly, is driving the nominating process and about the objectivity of such third-party recommendations. That's an important point, particularly given how any board-skills assessment influences the search for new directors, and how it may inhibit the addition of new, diverse members of the board, often in favor of highly marketable "star" candidates.

Deferring to the Present Boss

Another misstep that often inhibits board development and succession is the continual avoidance of CEO succession discussions out of deference to the sitting chief executive.

It has been said that the best business leaders take an active interest in, and help contribute to, the succession dialogue concerning their own eventual transition, death, or retirement. The others are simply too intimidated by such conversations.

But one of the symptoms of the so-called "go along to get along" board is one whose directors don't regularly contemplate and discuss the succession implications of business strategy and their oversight of related governance matters.

A Six-Point Road Map

In order to multiply CEO and board succession options, minimize succession risks, and optimize the recruiting process, consider this road map for reengineering the nominating process:

• The nominating committee must take ownership of the board's due diligence regarding CEO and director succession by presenting regular reports at board meetings and institutionalizing its continuous input into the ongoing board agenda.

• The nominating committee must connect regularly and meaningfully with the chief human resource officer to understand the development, recruitment, and retention of the CEO's direct reports, each of whom may represent a potential successor. The corporate secretary and general counsel may also bring considerable talent and succession practices, challenges, and opportunities to the table.

• The CEO should be involved in succession discussions about his or her own role, but it is the nominating committee that must drive the process, ensure its objectivity, and assume most of the responsibility for a smooth transition.

• The nominating committee must understand how external parties influence succession. It should keep the engagement of a board of assessment advisers separate from the engagement of a board search consultant to ensure maximum objectivity and alignment with those consultants' core competencies.

• The nominating committee, working in partnership with the chief human resources officer, must also align stated organizational diversity objectives with its own deliberations about executive management and board succession.

• The board and the nominating committee must make succession an ongoing, evergreen focus, as opposed to a one-time event or one merely dusted off the board's To Do list every three to five years.

What you invest in most business decisions preordains the results an enterprise gets from them. Increasingly, the board nominating committee's own decisions about how it operates, who it interfaces with, and the extent to which it allows external forces to influence its work say a lot about where a company and its board are heading.

Joe_mccool
Joseph Daniel McCool is the author of Deciding Who Leads, named "one of the best business books of 2008" by Soundview and Business Book Review, and principal of www.TheMcCoolGroup.com, which advises corporate decision-makers on assessment, selection, engagement, and performance score-carding of executive search consultants and related externally focused management succession issues.

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