An internal candidate may be your best choice, but make sure you evaluate the individual carefully.

Faced with a CEO succession, many corporate directors hope an internal change agent will emerge as a viable candidate for the role. What specifically are boards looking for in these internal candidates? Our experience with CEO succession over the last several years tells us that four priorities increasingly rise to the top:

Go beyond the stats and accentuate the qualities that make you an ideal director.

Some cautionary notes for directors.

The definitive studies of Sam Bankman-Fried (FTX’s collapse), Elon Musk (Twitter’s apparent implosion), Jack Welch (GE’s legendary CEO’s regrets), Bob Iger (Disney’s troubled succession), Mark Zuckerberg (Facebook/Meta’s internal and external struggles) and Howard Schultz (Starbucks’ second reappointment of Schultz as CEO) will come. But, in the meantime, even a superficial read of the news prompts a few quick reminders of best practices.  

Reliable ERM processes and metrics are essential for protecting companies from excess risk.

Earlier this year, I served on the faculty for the 27th Annual Stanford Directors’ College. The program brought together CEOs, public company directors, investors, regulators and scholars to examine a broad range of corporate governance, risk management, macroeconomy, geopolitical and technology topics.
 
A common theme was board oversight of strategy and disruptive risks, including the following key trends:

A robust, thorough onboarding will set new directors up to provide value quickly.

Experienced board members may recall the common wisdom from prior decades: New directors should not speak during their first year on the board. Fortunately, this advice has gone the way of other outdated advice, such as recommendations to limit the search for new board members to one’s golf club, don’t ask about talent below the C-suite and limit discussions of strategy to the annual off-site.

Communication, coordination and connection are key to employees thriving away from the office.

Companies will maximize revenues when they value employees for their whole selves.

Consider this my plea to boards and business leaders to stop referring to their employees as “human capital” or “talent.” 

Today’s boards provide effective oversight of performance, people, planet and more. 

In a 2019 article entitled “The Future of the Compensation Committee,” we observed that compensation committee members were, organically and of their own accord, expanding their purview and areas of interest beyond executive compensation and into an increasing array of pay and people issues. 

Andrea Zopp

Director, Henry Ford Health System, Relativity, Federal Home Loan Bank of Chicago, Empowerment & Inclusion Capital I Corp. 

Good boards often make bad decisions. They make bad decisions about management and governance. They make bad decisions about people and process. They make bad decisions about strategy that have long-term consequences.

Why Does This Happen?

People serve on corporate boards for excellent reasons, including networking, enhancing their credentials and using their business knowledge in new ways. There is often compensation, averaging about $74,000 per year.