November18,2010

Competency-Based Succession Planning

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

November18,2010GreatBoardsNewsletter
2
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.

Succession Planning Process

Ironically,hospitalsandhealthsystemshaveformalskills
requirementsandhiringpracticesforeveryotherjob,fromthe
lowestleveltechniciantotheCEOandmedicalstaff,butnotfor
theirhighestposition:theboard.Thesamerigorthatgoesinto
choosingmanagersandclinicianscertainlyoughttobeapplied
togovernance.

Anexplicit,competencybasedsuccessionplanningprocessis
thebestguaranteeaboardhasforrecruitinganddeveloping
directorswhobringarangeofneededprofessionalskills,
The same rigor
that goes into
choosing
managers and
clinicians
certainty ought
to be applied to
governance.

November18,2010GreatBoardsNewsletter
3
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
4
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
5

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
6
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
7
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 trans-
formational
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
8

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
personality-
driven
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