insight magazine

Director's Cut | Spring 2022

The Board’s Responsibility for Post-Pandemic Succession Planning

As the business landscape changes, and the talent market grows ever more competitive, board members must take a more active role in leading diverse and robust succession planning efforts.
Kristie P. Paskvan, CPA, MBA Board Director and Leadership Fellow

Over the past two years, business leaders have had to accelerate or adjust components of their strategies. The pandemic hastened digital technology adoption, challenged our ability to create culture outside of physical gathering spaces, focused us on the intentionality of diversity, equity, and inclusion (DEI), and highlighted the power shift to employees as they push for purpose-driven workplaces and hybrid work environments. Each of these changes creates short and long-term financial impacts, but what’s less clearly reflected in the financials is the future effect of the talent war, as the high costs of employee turnover and its effect on succession planning can be obscured.

Consider how many real estate leases have been revisited as building owners and managers struggle to maintain tenant cash flows to satisfy financing valuations. In one of the more visible changes, both leased and owner-occupied buildings have been reconfigured to be more culturally attractive to workforces by creating expanded spaces for collaboration, connection, celebration, and education. If we expect employees to travel for the purpose of gathering, the reason should be compelling and exponentially productive. Many older, underutilized office locations will need to be completely repurposed.

When reviewing the pandemic’s impact on people, it also becomes clearer why capital has flowed to technology as companies recognize the need for digital transformation to accelerate their strategy and meet the needs of clients, vendors, and employees. In the future, collaboration and client interactions will change as AI seeps deeper into our work processes. Companies looking to get ahead in the talent war are evaluating whether new technology can replace operational roles in the workplace, allowing time for employees to provide necessary advisory support for business decisions, a change that will require upskilling in new technologies and analytics reporting.

As a board director, and frequently the audit committee chair, I’ve watched these developments with great interest. These shifts mean that asset and liability categories on balance sheets will see revisions. Reserve estimates and critical audit matters will be closely scrutinized based on the heightened, long-term pandemic disruptions that span industries (especially retail, hospitality, and manufacturing) and impact the global economy.

Many companies already track key performance indicators (KPIs) and key risk indicators (KRIs), but that practice is only becoming more important. KPIs can be any data point that gives a business leader a look into the future. A KPI can be as simple as a sales pipeline report with revenues by employee or by geographic region, or a more complex analysis developed with operational data. KRIs help manage and mitigate risks. Risks generally fall into the categories of strategy, market, regulatory, technology, operational, liquidity, reputational, and talent. Since the pandemic, one of the KRIs that has turned red on many organizations’ dashboards is talent, as employers face high turnover, an empty pipeline, and weak succession planning.

Succession planning is an important oversight area for any board of directors, with the CEO role and the next level of senior management a top priority for planning. However, with the Bureau of Labor Statistics reporting an average of 3.95 million people quitting their jobs each month during 2021, many boards have been pushed to delve deeper into wider-reaching DEI initiatives, employee mental health resources, reasons for turnover, and hiring practices. Data on talent has become critical for tracking succession opportunities within an organization’s talent pool and understanding key motivations for staying or leaving.

There are some continuing trends that will make it difficult to align organizational values and DEI goals with achievable succession plans. You can’t have diverse succession planning if your pool of candidates narrows or homogenizes over time. And that’s exactly what’s happening: According to the 2021 Women in the Workplace report by McKinsey and Lean In, for every 100 men promoted to manager, only 86 women are promoted. While women hold 47 percent of entry-level roles, that number drops to 24 percent of roles at the C-suite level. For women of color, the numbers are worse, going from 17 percent of entry-level roles to just 4 percent of C-suite roles. Men on the other hand hold 52 percent of entry-level roles and 75 percent of C-suite roles. Additionally, many employees are going out on their own as contracted talent, so they aren’t on anyone’s succession radar.

Of further concern is the fact that the number of women leaving the workforce has greatly exceeded that of men throughout the pandemic, with the Bureau of Labor Statistics noting the rate for women leaving was still trending at double the rate of men leaving as recently as October 2021.

This makes the board’s involvement in succession planning even more critical. The technology and real estate decisions discussed earlier should be aligned with strategies for attracting and retaining diverse and talented employees. Further, succession planning should be an ongoing discussion as roles are vacated. High potential employees can be identified at the middle management level and given a chance to work on “tiger teams” engaged in education, coaching, and capstone projects determined by the board to advance their development. And instead of looking for someone with the exact same experience as the exiting talent, boards should evaluate whether the top roles still need the same skill sets.

Overall, there’s data available at every company about their ability to attract, retain, and promote great talent. As talent struggles continue and the representation of diverse leaders remains low, board oversight will continue to evolve to encompass a deeper role in the succession planning process. If an organization’s C-suite and board can come together to prioritize effective and diverse succession planning efforts, they’re likely to see a much more robust pipeline of promising leaders in the years to come.

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