November18,2010

Competency-Based Succession Planning

Building a board with the right skills, diversity, and culture
EvenbeforetheEnronscandal,whichfeatureddirectorswho didntunderstandthecompanyscomplexfinancialtransactions, andbeforetheSarbanesOxleyActrequiredpubliclyowned corporationstodisclosewhethertheirboardsincludedirectors withfinancialexpertise,itshouldhavebeenselfevidentthat relevantknowledgeandexperienceareprerequisitesfor effectivegovernance. Untilrecently,though,manygoverningboards,includingthose atcommunityhospitalsandhealthsystems,approachedthe nominatingprocesswithoutagreatdetailofprecisionor planning.Communityhospitalboardsfilledvacanciesfromthe samesocialandbusinesscirclesascurrentmembers. Withoutquestion,manyvisionary,dedicated,andaccomplished individualshavejoinedboardsthroughthispathwayoverthe years.However,astheexpectationsforgovernance accountabilityandeffectivenesshaveincreased,thelimitsof traditional,informalboardrecruitmentarebecomingapparent. Someboardshavefoundthemselvesrichindirectorswith certainbackgrounds,suchasfinanceorlaw,butshortof individualswithneededbackgroundsinhealthcare,audit,

As the expectations for governance accountability and effectiveness have increased, the limits of traditional, informal board recruitment are becoming apparent.

quality,advocacy,orcommunityhealth.Diversityorrather thelackofitalsohasbeenaproblem.Thegoodoldboy networkplentifullyproducedolderwhitemalesbuthasa hardertimeunearthingmidcareerindividuals,women,and ethnicminorities.Healthsystemsthatpopulateparentboard seatswithrepresentativesfromlocalboardscanfindthese directorsprotectbackhomeinterestsandfailtoappreciate theirfiduciaryresponsibilitytothesystemasawhole.Some physiciandirectorshaveahardtimerecognizingtheyare systemfiduciariesandnotmedicalstaffrepresentatives. Boardsmayelectnewmembersbasedonlimitedinformation.A lackofcarefulvettingsometimesproducesnewdirectorswho, despitegoodintentions,simplylacksufficienttraining, experienceortimetomasterthehighlevel,complexissues theyareaskedtoaddress.Askedtocandidlyassesstheir boards,itscommontoheartheboardchairorCEOobserve, Wehavesomegreatpeople,butwehaveothertrusteeswho dontaddalottodiscussions.

The same rigor that goes into choosing managers and clinicians certainty ought to be applied to governance.

Succession Planning Process

Ironically,hospitalsandhealthsystemshaveformalskills requirementsandhiringpracticesforeveryotherjob,fromthe lowestleveltechniciantotheCEOandmedicalstaff,butnotfor theirhighestposition:theboard.Thesamerigorthatgoesinto choosingmanagersandclinicianscertainlyoughttobeapplied togovernance. Anexplicit,competencybasedsuccessionplanningprocessis thebestguaranteeaboardhasforrecruitinganddeveloping directorswhobringarangeofneededprofessionalskills,

November18,2010GreatBoardsNewsletter

backgrounds,anddiversitythatisreflectiveofthe communityserved.These10elementsareintegraltoa competencybasedsuccessionplanningprocess: 1. Committeeresponsibility.Theboarddelegatesspecific responsibilityforsuccessionplanningtoacommittee, suchastheGovernanceandNominatingCommitteeor theExecutiveCommittee. 2. Competencybasedcriteria.Thegovernance committeedevelopsandrecommendstotheboard competencybasedcriteriatobeusedasaguidelinefor recruitingandelectingboardmembers.Competency criteriamaybegroupedintotwocategories: Universalcompetenciesthatalldirectorsshould possess,suchascommitmenttothemission, leadershipskills,communications,andteamwork abilities;personalintegrity;strategicandcritical thinkingskills;andademonstratedunderstandingof thedifferencebetweengovernanceand management. Essentialcollectivecompetenciesthatoneormore membersbringtohelptheboardexecuteits responsibilitieseffectively.Commoncollective competenciesincludebackgroundsinexecutive leadership,businessmanagement,healthcare, investments,audit,clinicalcareandquality improvement,law,andcommunityhealthneeds.

The board delegates specific responsibility for succession planning to a committee, such as the Governance and Nominating Committee or the Executive Committee.

November18,2010GreatBoardsNewsletter

3. Skillsmatrixandgapanalysis.Atleastannually,the governancecommitteeshouldidentifynearandlong termrecruitmentneedsbyanalyzingamatrixthat displaystheboardscompetencies,currentmembers whofilleachcompetency,andgapsbasedanticipated vacanciesandemergingsubjectareaneeds. 4. Continuouslyupdatedpipeline.Thecommitteeshould maintainarunninglistofprospectivemembersand theirbackgrounds.Allboardmembersshouldbeinvited tosubmitsuggestions.Theboardandcommitteechairs andtheCEOshouldconnectwithvariouscommunity leaderstoidentifyprospectiveboardmembers, includingthosewhomightbroadentheboardsdiversity andnotbeidentifiedtraditionalrecruitmentchannels. 5. Shortlistinterviews.Focusingongaps,the committeeshouldagreeonashortlistofprospective directorstobeinterviewed.Usually,thechairofthe boardand/orgovernancecommitteeinterviews prospectivedirectors.Theinterviewsshouldincludean explanationofaboardmembersresponsibilities,a discussionoftheprospectsbackground,andacandid explorationoftheprospectsinterestandabilityto devotethetimerequiredforboardwork. 6. Recommendation.Thecommitteeshouldfinalizea recommendedslateofcandidatesforelectiontofill boardvacancies.

Interviews with prospective directors should include an explanation of a board members responsibilities, a discussion of the prospects background, and a candid exploration of the prospects interest and ability to devote the time required.

November18,2010GreatBoardsNewsletter

7. Performancebasedreelection.Directorswhoare eligibleforelectiontoanadditionaltermshouldnotbe automaticallyreappointed.Theyshouldbeaskedto confirmtheirinterestinreelectionandundergoaclearly defined,performancebasedreelectionprocess.The governancecommitteeshouldreviewaperformance profilethatsummarizesthedirectorsattendance record,participationineducationandcommunity events,noteworthycontributions,andevaluationsfrom committeechairsandtheboardchair. 8. Boardleaders.Thegovernancecommitteeshouldalso ensurethereisalineofsuccessionforfutureboard chairsandcommitteechairs. 9. Termlimits.Reasonabletermlimits,suchasa maximumofthreeorfourconsecutivethreeyearterms, encouragetheboardtokeepitspipelinefueledwith prospectivenewmembersandboardleaders.Although termlimitshavethedisadvantageofforcingretirement ofsomehighlyproductivedirectors,theiradvantageis encouragingacontinuingflowoffreshthinking, objectivity,andcommunityconnectednessintothework oftheboard. 10. Selfrenewal.Likeallgovernanceelements,the successionplanningprocessshouldbeevaluatedaspart ofongoingboardselfassessment.Thegovernance committeeshouldupdateitscompetencybased recruitmentcriteriaeveryoneortwoyearstoensure currency.

Directors who are eligible for election to an additional term should not be automatically reappointed.

Reasonable term limits, such as a maximum of three or four consecutive three-year terms, encourage the board to keep its pipeline fueled with prospective new members and board leaders.

November18,2010GreatBoardsNewsletter

Competencies + Diversity + Culture

Professionalskillsandexperiencebythemselvesdonot ensuregovernanceeffectiveness.Twoothercomponents areneeded:diversityandculture. Diversity.Whencoupledwithsubjectmattercompetencies, adiversityofbackgroundsenhancesaboardscredibility withitscommunityandbringsdifferentlifeexperiencesand waysofthinkingtogroupinteractions.Manyboardsbelieve thattheadditionofwomenandethnicminoritiestothe boardtablemakesthembetterasdeliberativeanddecision makingbodies.Diversitydoesnthappenbyitself.Boards needtobroadentheirconnectionswithorganizationsand individualswhocanconnectthemtowomen,minorities, andrisingstarsinbusiness,academia,andcommunitylife. Culture.Thefinalingredienttorealizingthefullvalueof boardmembersindividualcompetenciesistheboards culture.Doestheboardsculture,itswayofdoingthings, allowdirectorstomaketheirvoicefelt?Doestheboard chairencouragememberstoengageandraisechallenging questions?Willnewdirectorsfindtheirquestionsand insightswelcomeorresistedbythecurrentleadership? Itsalsoimportanttochoosedirectorswhoareagoodfit withaboardscorevalues.Mostboardsvaluecollegiality. Thus,whilechallengingconventionalwisdomcanbeagood thing,boardswithacollegialcultureshouldrecruit directorswhodontpersonalizecriticismandknowtoframe toughquestionsinanonconfrontationalmanner.Similarly, Catholichospitalboardsneeddirectorswhoarebringhard

When coupled with subject matter competencies, a diversity of backgrounds enhances a boards credibility with its community and brings different life experiences and ways of thinking to group interactions.

Its also important to choose directors who are a good fit with a boards core values.

November18,2010GreatBoardsNewsletter

skillssuchasfinanceandbusinessbutarenttonedeaftothe mission.Theinterviewandconversationswithexecutivesand directorsoforganizationswheretheprospecthasservedare goodwaystoassessanindividualsculturalfitwiththeboard.

Power of Succession Planning

Asitevaluatespotentialnewdirectors,thegovernance committeeshouldconsiderallthreecomponentsprofessional competence,diversity,andculturalfittofindandnominate individualswhowillblendintoastrongworkingteam. Compositioncanbetransformational.Thisyearsclassofnew directorswillbetheboardsleadersinthefuture. Organizationsthatneedgovernancetobemorevisionary, strategic,accountable,andactionorientedratherthanrisk aversecanlooktosuccessionplanningtoestablishafoundation forlongtermchange.Theycanlookfornewdirectorsamong executivesfromotherindustriesthathaveundergone transformationalchange,suchasbankingandairlines.Systems thatwanttomovefromrepresentationalgovernancetosystem thinkingcanseekmemberswhounderstandcomplexsystems. Successionplanning,likeboardorientationandeducation,isa goodgovernancepracticethatpayslongrundividends. BarryS.BaderisthePublisheroftheGreatBoardsnewsletter andthePresidentofBader&Associates,governance consultants.

Composition can be a transformational strategy.

Great Boards
The Online Governance Newsletter www.GreatBoards.org

Published by : Bader & Associates 10050 East Calle de Cielo Scottsdale, Arizona 85258

Phone: 480-614-0422 GreatBoards@gmail.com

November18,2010GreatBoardsNewsletter

Resources for Competency-Based Composition

AmericanHospitalAssociationsCenterforHealthcare Governance,CompetencybasedGovernance:AFoundationfor BoardandOrganizationalEffectiveness Availablefor$45ordownloadfreeat http://www.americangovernance.com/americangovern ance/BRP/BRPmain.html) TheGovernanceInstitute,BoardRecruitment(Elementsof Governanceseries) AvailabletoGovernanceInstitutemembersonlyat http://www.governanceinstitute.com/ GreatBoardsnewsletterandresources DiversityandCompetence:RecruitingforBoth,May 2002 RecruitingaMoreDiverseBoard,Winter2007/2008 SamplePolicyonBoardComposition,includingSample CompetencyGuidelinesforBoardSelection Availablefreeatwww.GreatBoards.org Trusteemagazine WhyBoardDiversityMatters:Practicalwaystomeet communityneeds,September2010 Availablefordownloadat http://www.trusteemag.com/trusteemag_app/index.jsp ModernHealthcare Raisingthebarforboards,March2,2009 Availableathttp://www.modernhealthcare.com/

Boards need to move beyond personalitydriven governance to leadership based on the knowledge, skills, and behaviors best suited to helping organizations achieve their mission and goals. AHA Report

Great Boards
The Online Governance Newsletter www.GreatBoards.org

Published by : Bader & Associates 10050 East Calle de Cielo Scottsdale, Arizona 85258

Phone: 480-614-0422 GreatBoards@gmail.com

November18,2010GreatBoardsNewsletter