It’s Time for Some Awkward Conversations about Succession in the Boardroom

gettyimages-200437037-001-compressorSound like a harsh assessment? Don’t worry, because it’s exactly what hundreds of American company directors are saying about their very own boards.

An astonishing one-in-three of the 620 directors questioned in a new survey said there are currently colleagues on their boards who should be replaced to make way for new skills and experience.

The research was conducted jointly by consultancy RHR International and the corporate governance arm of the New York Stock Exchange. Respondents collectively offered information on 900 boards of companies ranging from $100 million in revenue to the Fortune 100.

Some respondents said directors should go simply because they’d exceeded a certain tenure length, according to Paul Winum, a senior partner at RHR and the head of its board and CEO services practice.

“Boards should develop a skills matrix that sets out the core areas of expertise they need.”

But a greater proportion of respondents felt some directors no longer possessed the knowledge and capabilities necessary to do their jobs.

“Directors can, over time, not quite fit the profile of what the board needs,” Winum told Chief Executive in an interview.

Events that could trigger a change in a board’s duties—and leave a director out of their depth—could range from a company expanding into new markets or geographies, or a requirement to understand new technology and associated risks, such as cyber crime.

But just try telling someone they’re no longer needed, particularly if they’re a decorated business person with decades of experience under their belt.

“Having those conversations can be difficult,” Winum said. “Directors often serve very loyally and they usually have strong relationships with other directors, as well as with the CEO.”

To tackle the problem, he recommends boards develop a skills matrix that sets out the core areas of expertise they need. A nominating governance committee could then perform a gap analysis to identify directors that aren’t up to speed. Performing the analysis regularly, say on an annual basis, could allow the committee to spot issues early on, giving directors the opportunity to expand their skills, perhaps via continuing education.

“Most directors want to add value,” Winum said. “In the absence of feedback, they may go along thinking they’re doing just fine, when over time there is kind of an insidious shift from being fully capable and knowledgeable to borderline to not so much.”

And it seems that directors aren’t that sensitive to criticism anyway: 99% of the survey respondents said they would want to know if their colleagues thought it was time for them to retire from the board.

In any case, having a clearly outlined and regularly updated assessment process in place could at least make it easier to have that difficult conversation.

Ross Kelly
Ross Kelly is a London-based business journalist. He has been a staff correspondent or editor at The Wall Street Journal, Yahoo Finance and the Australian Associated Press.

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