High-performing executives are not being helped to find non-executive roles in enough numbers, according to a discussion paper from the UK financial watchdog.
The Financial Reporting Council’s (FRC) consultation on succession planning says the body’s initial evidence suggests a non-executive role is a “valuable development opportunity”, but it doesn’t happen enough.
“There are some good examples of such programmes, but insufficient evidence from our research that this is taking place on any scale,” the paper says.
“It has also been suggested, however, that such schemes have limitations in terms of the time available to executives and that selecting directors for such appointments needs to be done carefully.”
The FRC’s consultation on succession planning comes after the issue has repeatedly made headlines in the press. High-profile criticism has included barbs aimed at WPP, the advertising and marketing giant, for its over-reliance on long-standing chief executive Martin Sorrell.
David Styles, director of corporate governance at the FRC, said boards that prepared for succession increased their chances of maintaining success.
“Boards which plan effectively for both executive and non-executive positions are more likely to achieve the right mix of diverse skills and experience needed for future prosperity and growth. Feedback on this discussion paper will offer us further valuable insights into issues around board succession,” said Styles.
The consultation looks at how important succession planning is to business strategy; the role of the nominations committee; board evaluation and its role in succession; how companies identify the internal and external succession pipeline for both executive and non-executive roles; how diversity is ensured and the role played by institutional investors.
The discussion paper says: “…an effective board must take the lead in shaping and embedding a sustainable corporate culture and this is central to its purpose. It is clear from our research that the absence of strategic, thoughtful and practical succession planning can be a substantial risk to long-term success.”
It adds: “There continue to be well-publicised examples where the lack—or inadequate implementation—of planning has led to a range of negative consequences for companies, including share price movement, profitability, customer retention and market share, all of which contribute to their ability to sustain and deliver the business model.
“It goes without saying that in terms of delivering the business strategy and maintaining or enhancing investor confidence, the board carries most responsibility, and without effective succession planning the risks to the company are increased.”
The consultation closes in January 2016.