Who’s on Deck?

Part of Jack Welch’s legacy at GE was the storied roomu00e2u20ac”I still wonder if it really existedu00e2u20ac”where under lock and key was kept a photograph of every key executive, under which were photos of the people who might move up the executive ladder in the event the big offices became vacant.

GE’s foresight was widely admired, if somewhat less widely followed; and as he neared retirement, Welch himself presided over the competition for crown prince of the realm. Yet planning for CEO succession remains limited in American corporations, and nowhere is it less discussed and less settled than in bank boardrooms.

This fall, Board Member Inc. teamed up with the New York Stock Exchange to hold our second annual Summit on Corporate Governance at the Waldorf Astoria Hotel. Directors, CEOs, and general counsel of some of the largest companies in the country discussed, among other things, issues surrounding CEO succession.

Bank directors should take note of their findings:

Directors recognize that CEO succession is close to the number one responsibility of bank boards. Yet when executive search firm Spencer Stuart surveyed America’s corporate directors, it found 43% of them felt CEO succession was the area where the board was least effective.

Board succession should be a regular agenda item. It should be discussed frequently, and a specific committeeu00e2u20ac”a nominating committee, a governance committee, an executive committee of nonexecutive directorsu00e2u20ac”should be charged with CEO succession responsibility.

Directors should have frequent exposure to senior management, not just in formal presentations at board meetings but in social settings as wellu00e2u20ac”including one-on-one sessions where the CEO isn’t around.

Boards should have a clear methodology for choosing a CEO, one that operates while the CEO is firmly in place and slides smoothly into gear when the CEO leaves office suddenly or as part of a longstanding plan. The CEO should be the board’s partner in the succession plan and should be accountable for its functioning. It’s the CEO’s job to move executives around to gain exposure to all areas of the business and to make sure candidates’ compensation plans are designed to ensure their availability when the time for succession comes.

When the board fails to be proactive in board succession, leadership too often fails. The CEO’s occasionally biased view of contenders dominates the process; contenders may feel they won’t be considered and thus may move on prematurely; perfectly capable candidates arrive at the moment of succession not fully seasoned; and the board is forced to go outside for a successor.

CEO succession isn’t always an easy subject for a bank board, but it gets easier every time it’s discussed. And having someone ready to take the helm, someone with whom the board is familiar and comfortable, is critical to good governance and good board leadership.

So ask yourself … if your bank’s CEO gets hit by a Brinks truck, who’s on deck?