Succession planning for positions on the management board is an effective instrument for implementing company strategy. hkp.com spoke to hkp/// group experts Michael H. Kramarsch and Frank Gierschmann about succession planning for management board positions.
Mr. Kramarsch, Mr. Gierschmann, why do companies carry out succession planning?
Frank Gierschmann: Succession planning for top management positions and seats on the management board is a way of managing risk. The company identifies a number of potential successors for each function, typically distinguishing between immediate, short-term and long-term successors. Immediate successors are people who can take over the position at short notice if required, maybe on a temporary basis. Short-term successors are those who should take over according to the planned schedule. Long-term successors are people who can potentially move into the job after one or two further career steps.
Michael H. Kramarsch: Companies that don't do any succession planning and just look around for a successor when the need arises miss out on the opportunity to identify prospective candidates and prepare properly for their appointment. That leads to internal and external difficulties that could have been avoided.
But why is succession planning necessary for seats on the management board? After all, we're only talking about a few positions …
Michael H. Kramarsch: It's true that with succession planning for board seats you're dealing with fewer people and positions than for top management. But it's an area that's particularly important for the business because of the board's role in implementing strategy. For that reason it is right that appointing new members to the management board is considered the primary task of the supervisory board.
Frank Gierschmann: Also these days people are staying in office less and less time, which makes long-term succession planning all the more important.
Is that the main reason succession planning for board seats is becoming more popular?
Michael H. Kramarsch: Shorter tenure is certainly part of it. But above all it's because of the requirements of the German Corporate Governance Code and the Stock Corporation Act. The regulations state that the supervisory board must ensure long-term, sustainable, transparent succession planning, working together with the management board. The Banking Act and Insurance Supervision Act also set out special requirements for the appointment of board members at financial service providers, such as banks and insurance companies.
What does meeting the regulatory requirements involve?
Michael H. Kramarsch: The German Corporate Governance Code and Stock Corporation Act require long-term succession planning to take place; there are no further specifications. To ensure succession planning is effective, companies – in particular supervisory boards – need a certain amount of experience in design and implementation.
Frank Gierschmann: Generally they need to make the proper preparations, including identifying the requirements for board seats and drawing up "requirement profiles". They also need to regularly screen potential candidates, internal and external, irrespective of whether there is an immediate post that needs filling. And if a post does come up, they need suitable procedures and instruments for evaluating and selecting candidates.
What is the main challenge in your view?
Michael H. Kramarsch: Clearly it's the lack of contact between supervisory boards and potential successors within the company. That makes it vital for supervisory boards to work together with the management board and HR.
Frank Gierschmann: Not only that, the processes and outcomes of succession planning need to be transparent. After all, this is an area that is subject to closer public scrutiny than succession planning at levels below top management. Succession planning needs to meet both internal and external expectations – the expectations of the market and investors.
That sounds like a major challenge. Do the supervisory and management boards bear the whole responsibility?
Michael H. Kramarsch: The supervisory board has most of the responsibility. But successful succession planning is only possible by cooperating with the management board. There are also committees that share responsibility for parts of the process – the personnel committee, for example.
Who is responsible for checking whether proper succession planning for board positions actually takes place?
Michael H. Kramarsch: Ideally, the chairman of the supervisory board. After all, succession planning is a major factor in company's success or otherwise, irrespective of the regulatory requirements.
Frank Gierschmann: In our experience it's a good idea to monitor both the process of succession planning and its results. Target values are good risk indicators. Monitoring also provides you with an ongoing picture of who is available short-term and what action is needed with regard to specific posts.
What are the most important aspects of successful succession planning for board positions?
Frank Gierschmann: First of all, the process needs to be linked to the overall staffing process. Second, in order for the process to be sustainable, you need a clear link between succession planning for top management positions and succession planning for the management board. After all, today's top executives are tomorrow's board members.
Michael H. Kramarsch: And finally, as the internal successors need to be prepared for their new positions and their success needs to be evaluated, it is important to view succession planning as a continuous process.
Mr. Kramarsch, Mr. Gierschmann, thanks so much talking to us!
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