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FCPA Compliance Report

Tom Fox has practiced law in Houston for 30 years and now brings you the FCPA Compliance and Ethics Report. Learn the latest in anti-corruption and anti-bribery compliance and international transaction issues, as well as business solutions to compliance problems.
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Feb 22, 2017

Yesterday, I considered the Board of Director’s role in hiring of senior executives and in other key positions and corporate positions and corporate relationships. Today I want to consider the Board’s role in succession planning. In an article entitled, “Advancing Board Refreshment Through the Director Succession Planning Process” authors William Libit and Todd Freier posited that a Board’s ability to “refresh itself on a regular basis can help ensure it maintains a proper mix of experience and expertise to meet the organization’s current and long term needs.”

While noting that there is no ‘one-size-fits-all-approach’ to succession planning, the authors believe there are some key traits you should consider in succession planning. To facilitate this theorem, the authors laid out a seven-step approach for Director succession planning.

  1. Examine the Key Corporate Documents-this includes Board review of all relevant corporate governance documents, including guidelines, the Charter for Board Governance, the Director Nomination Policy and any relevant policies setting out the appropriate protocols and procedures.
  2. Use an Assessment Framework-here the authors have a four step self-assessment which suggests you consider including (a) the current strengths and weaknesses of the board and each board committee; (b) the short-­ and long-­term skills needs of the board; (c) evaluating how the board’s assessment changes regarding retiring directors; and (d) “shifting the board’s approach of automatically re-­nominating existing directors to one that bases a director’s re-­nomination on a number of criteria, such as the board’s evolving needs and director performance.”
  3. Conduct Due Diligence-as noted in Day 15, you should conduct an executive level due diligence background investigation, not simply a background check.
  4. Maintain a Pipeline-every Board should maintain a pipeline of qualified candidates as “Significant changes in director employment, health concerns or other unexpected personal or professional events may necessitate quick director succession. Having potential qualified candidates already identified will greatly assist with the effectiveness and efficiency of the succession process.”
  5. Assess Board Policies-just as a company should periodically assess and reassess its policies and procedures, the Board “should incorporate periodic (at least annual) assessments of its board leadership, committee membership, rotation and mandatory retirement policies.” From this exercise, a Board can identify current and future leadership and committee needs and the specific subject matter expertise required going forward.
  6. Disclose Your Succession Strategy-both a large number of institutional investors and good corporate governance advocates suggest that companies disclose their Board of Director succession strategies. The authors noted, “Although not currently mandated by rule or regulation, boards should consider disclosing their director succession strategy to provide greater transparency to shareholders and other stakeholders.”
  7. Benchmark Your Succession Strategy-the authors conclude by noting that a Board should benchmark its succession strategy with industry peers around the use of the steps outlined in this piece and to stay aligned with the evolving policies and positions of large institutional shareholders and good corporate governance advocates. 

Three Key Takeaways

  1. Board ‘refreshment’ is a hot topic in corporate governance.
  2. Review your Board policies to understand what subject matter expertise a Board will need going forward.
  3. Transparency in Board succession planning.
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