As boards seek to improve oversight of key elements of their companies, many directors would agree that they need to take a far more active oversight role in overall management succession, not just in CEO succession. The question is: how?

Taking the Lead

In the past, boards typically focused narrowly on chief executive officer succession, looking for the emergency replacement and among the direct reports to the CEO.  They paid far less attention to succession in other C-level roles (CFO, CHRO) and almost none to learning more about high potentials, or good candidates, further down in the organization.  Today, however, boards—especially bank boards—are expected to exercise far more oversight of the larger succession management process.   In January 2012 already, we have seen federal bank regulators ask one of our bank clients for a better understanding of how the board was monitoring talent development and succession for several critical roles under the CEO. 

Many boards are not just reacting to federal scrutiny, but are proactively increasing their oversight while taking care not to overstep governance boundaries.  They want to ensure that the organization has adequately planned for contingencies regarding succession in particularly critical roles such as risk, finance and legal—often referred to as control leaders.  

For example, in the past eighteen months, while working with boards on leadership and succession issues, I witnessed three instances in which a Fortune 500 board strongly urged the CEO to remove a senior executive.  The case of one CFO is typical.  He had performed well in the past; he was highly talented and the company was not in trouble, but not thriving.  However, in looking at the company’s long-term strategy, the board reluctantly but firmly concluded that he did not have the right competencies to help take the company where it needed to go.  The CEO concurred and, following careful planning and communications, he departed just over 90 days later.

Where to Start

For boards eager to get on top of the issue, the place to begin is with 360-degree evaluations of executives from the C-level down through the next two layers of management.  The board should ask management to undertake a comprehensive assessment of the strengths and weaknesses of all of those executives. Whether conducted with internal resources or with external assistance, these evaluations should not simply be generic appraisals, but full assessments of each leader with multiple inputs and an in-depth assessment interview of each leader.

The executives should be evaluated against the requirements of their particular roles as well as in the context of the company’s long-term strategy and objectives.  Do they have the skills, experiences and leadership behaviors that will be required to successfully execute against the strategy over the coming years? Less proactive boards, especially at troubled banks, may find themselves conducting such evaluations anyway.  Increasingly, we have seen the Federal Reserve, the Federal Deposit Insurance Corp.  and state banking regulators request full assessments of executives (and in some cases directors) at banks with capital or loan exposure issues.

Supplement Evaluation with Exposure

Few people would deny that formal evaluation is an indispensable element in succession management at any level.  But formal evaluations of executives beyond the CEO and heirs-apparent could be greatly enhanced through more direct exposure between company leaders and the directors.

However, boards are usually exposed to only a handful of top executives—the CEO of course, and usually the chief financial officer the head of human resources and the general counsel/corporate secretary.  Contact with other executives is often limited for timing and other reasons. That’s unfortunate because directors are typically leaders whose success is based on their ability to judge top talent at first hand.  Direct contact with high potentials would enable directors to exercise their judgment, bring evaluations to life, and take the measure of these executives as individuals and as leaders. There are a number of natural opportunities for these interactions, including:  

• Board presentations:  Have more high potentials appear before the board to present business reviews, participate in Q&As, or otherwise engage in substantial business discussions with the directors.  Boards of course have to balance these additions to their already crowded agendas with the need to keep the length of their meetings manageable. 
• Strategy offsites:  Most companies conduct annual offsites, where leadership comes together for a couple of days to review and, if necessary, revise company strategy.  As with increased board presentations, these sessions offer opportunities for getting a grasp on the business acumen of high potentials.
• Site visits: Board members can visit high potential leaders where they actually work—at the divisions they run or in the geographies for which they are responsible.  Tour the sites; get to know these executives and the business more in-depth.   In fact, it’s a good idea to have new directors make such site visits as part of the onboarding process.
• Board dinners: The two to three hours of a dinner offer an ideal opportunity for directors to get a feel for high potentials as individuals and for those intangible characteristics that are so important for leadership.  It’s a simple matter of seating and subject matter: intersperse the executives and directors at the table and forgo the discussions of golf in favor of topics that get at who these executives really are.
• Special events: When there are special events relevant to directors, such as an occasion of honoring one of them, invite high potentials to participate.  Such occasions can provide directors with informal opportunities to glimpse another aspect of an executive that they had not previously appreciated.  

All of these interactions are win-win.  Directors gain an understanding of what is really taking place deep in the company’s talent pool, greater knowledge of the business and a multi-dimensional basis on which to judge talent and offer advice on managing it.  High potential executives develop earlier in their careers the ability to work with the board.

Ask Yourself How Well You Really Know These Executives

It is of course unlikely that your board does none of the things being suggested here.  The real question, however, is not how many of the boxes you may have checked. It is whether you are doing these things in a systematic, comprehensive way that yields substantive, multi-dimensional, and actionable knowledge of the company’s cadre of high potential leaders.  

For example, consider the substance and multi-dimensionality of your knowledge with regard to key executives and risk management.  Do you know the capabilities in risk management of each of those executives?  Do you have some idea of each individual’s appetite for risk and how it fits with the bank’s strategy? 

To gauge quality of your current ability to evaluate high potential executives, ask yourself these simple yes-or-no questions: 

• Is the board regularly provided with a summary of 360-degree evaluations of all direct reports of the CEO and selected high potential/ successors below that tier?

• Are the evaluations based on company’s forward looking strategic needs as well based on regular job and role requirements?

• Do you know who is in the pipeline not just as possible CEO successors, but also for other critical C-level roles—particularly those roles deemed critical by regulators?

• Do you feel you have enough information to evaluate those executives in terms of both their business and technical capabilities and their leadership ability?

• Do your current interactions with high potential executives fail to address any of the four or five chief criteria by which you think executive potential should be judged?

If you answered “no” to any of those questions, then it may be time for your board to adopt practices that provide more satisfying answers and better oversight.