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Succession Planning must be a key business strategy

28 August 2007 Ernst & Young

Managing a company's risk should be at all levels. What happens when a key player in a company goes down? Who takes over? Succession planning is often viewed as a compliance issue rather than a genuine threat to business.

"While most businesses have business continuity plans that map out what to do after disruptions such as natural disasters, succession planning often receives less attention and boards do not allocate sufficient resources to address it, yet it is a primary component of good corporate governance," says Jayne Mammatt, senior manager, Governance & Sustainability at Ernst & Young.

She says that the very nature of a board succession planning mindset is that the company can be seen internally to be providing opportunities for promotion to the board from within. "The visible succession planning at board level is a definite morale boosting factor throughout any organisation".

Mammatt, warns that leaving succession planning until a key player such as a CEO or chairman has left will result in a dip in confidence from stakeholders and investors and also have serious repercussions on the companys reputation. She says that a good organisation must look internally for potential candidates.

"Developing people for board responsibility means that the organisation must have clear and well structured induction programmes in place dealing with the duties, responsibilities, powers, rights and potential personal liabilities that directors assume when appointed to a board, either as an executive or non-executive director," she adds.

She continues by saying it is necessary to build a sustainable pipeline of potential successors due to factors such as the skills shortage that is plaguing the country. The New Companies Act (currently being drafted) which aims to maximise shareholder protection and prevent corporate failures by, among other things, legislating directors duties and imposing additional liability is another. There has been speculation that this additional liability may lead to a mass exodus of directors leaving company boards populated by inexperienced people.

"For non executive directors, it is no longer just a case of turning up for board meetings, but a fiduciary duty of all board members firstly to attend board meetings well informed, and secondly keep fully informed about the business. There are real personal risks when holding a directorship or trusteeship. Organisations therefore have to create a pool of candidates with high leadership potential," says Mammatt.

"The induction process must therefore be continuous training in order to update existing directors and potential candidates for board appointments with regard to the statutory laws and regulations under which the organisation operates, the fiduciary duties to which they are bound and how the business operates in a local and international context," she adds.

Mammatt reiterates that the role of the chairperson is vital in succession planning. "The chairperson is the leader of every board and is responsible for the competence of the board as a whole and the ability of each and every director to contribute to the board debate. In this context, the chairperson must communicate his/her expectations to those serving on the board".

"The failure to plan for succession particularly at board level is one of the most frequent causes of the rapid demise of organisations. The value of intellectual capital should not be underestimated and no matter an organisations size or how solid and well thought out its processes, individuals matter," concludes Mammatt.

 

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