Welcome to the NED Capital Podcast. Today we are looking at an important aspect of board governance that is often left until too late: succession planning for non-executive directors.

Boards spend considerable time thinking about executive succession. They consider who might eventually replace the CEO, CFO or other senior executives and what skills the organisation will need in the future.

But the same discipline needs to be applied to the board itself.

A NED may have a fixed term, decide to retire, take on other commitments or simply reach the point where a fresh perspective would benefit the organisation. If the board only starts thinking about the replacement once the vacancy exists, it may already be behind schedule.

Effective NED succession planning is about looking ahead.

Why boards need to plan for NED succession

Non-executive directors provide continuity, independence and institutional knowledge.

That experience is valuable, but boards also need to evolve as the business changes.

The skills that were essential when a NED was appointed may not be the skills the organisation needs five years later.

A company may have expanded internationally. It may have undergone a digital transformation, entered a regulated market, completed an acquisition or moved towards a different ownership structure.

The board therefore needs to ask a simple question regularly:

What will this board need to look like in the future?

That question is more useful than simply asking who is due to leave.

Succession is about skills, not just vacancies

A common mistake is to treat succession planning as a replacement exercise.

If one NED leaves, the board looks for another person with broadly the same background.

That can preserve continuity, but it can also miss an opportunity.

The departure of a NED provides an opportunity to reassess the board's overall composition.

Perhaps the board already has considerable financial expertise but lacks technology experience. Perhaps there are several directors with similar sector backgrounds but insufficient international experience.

Perhaps the organisation now needs someone with private equity experience, regulatory expertise or a track record of managing significant transformation.

Succession planning should therefore start with the board's future requirements rather than the outgoing director's CV.

The importance of a board skills matrix

A useful starting point is a board skills assessment or matrix.

This should consider the experience and expertise already represented around the table and compare it with what the organisation expects to need over the coming years.

Areas might include:

• Finance and accounting
• Strategy
• Sector experience
• Technology and AI
• Cybersecurity
• Risk and regulation
• International markets
• M&A
• People and remuneration
• Marketing and customers
• ESG and sustainability
• Private equity or investor experience

The exact categories will depend on the business.

The objective is to identify genuine strengths and gaps.

That makes future recruitment considerably more precise.

Independence and board tenure matter too

Succession planning should not focus exclusively on skills.

The board also needs to consider independence, tenure and relationships between directors.

A director may be highly capable and have extensive institutional knowledge, but there comes a point when boards need to consider whether a fresh perspective would be beneficial.

Equally, losing several experienced directors at the same time could result in an unnecessary loss of corporate knowledge.

Good succession planning therefore balances continuity with renewal.

The objective is not constant change.

It is ensuring that the board remains effective as circumstances evolve.

Why the chair has an important role

The chair is central to effective NED succession planning.

A strong chair should understand the board's current strengths and weaknesses and be prepared to discuss future changes before they become urgent.

That can include conversations with individual NEDs about their expected tenure, future availability and development.

It can also involve regularly reviewing the board's composition with the nomination committee or other appropriate governance structure.

These conversations are much easier when succession planning is treated as normal board governance rather than as an indication that someone's position is under threat.

Don't wait until the vacancy occurs

One of the biggest advantages of planning early is access to a much wider candidate market.

The strongest potential NEDs may not be actively looking for a new appointment.

They may already be sitting on other boards, running businesses or working in senior executive positions.

Finding the right person can therefore take time.

A rushed search can result in a board choosing from whoever happens to be available rather than finding the individual who is genuinely the best fit.

Planning six, twelve or even eighteen months ahead can give the board much greater flexibility.

It allows time to define the role properly, identify potential candidates, conduct a thorough search and manage the transition without unnecessary pressure.

Succession planning and diversity

Future board composition should also consider diversity.

But, as we discussed in an earlier episode, diversity should not mean appointing someone simply to satisfy a target.

The objective is to build a board with a broader range of relevant perspectives while maintaining the expertise, independence and judgement required for effective governance.

Succession planning provides a natural opportunity to consider whether the board is becoming too similar in terms of professional background, experience or perspective.

It allows the board to define what it genuinely needs before entering the market.

When should a board consider a new chair?

Chair succession deserves particular attention.

The chair has a different role from other NEDs. They are responsible for leading the board, managing its effectiveness and creating the conditions for constructive challenge.

Replacing a chair can therefore have a significant impact on board dynamics.

A chair succession process should ideally begin well before the existing chair's departure.

The board needs to consider what type of leadership it will require next.

Is the business entering a period of growth? Is it facing a major transaction? Is there a significant regulatory or governance challenge? Does it need a chair with particular sector or transformation experience?

NED Capital provides specialist non-executive chair recruitment for organisations looking to appoint experienced board leaders who can provide the appropriate level of governance, challenge and strategic oversight.

What happens when succession planning is ignored?

When succession is left until the last minute, several problems can arise.

The board may have to accept a compromise appointment. Existing directors may become overloaded while the vacancy remains open. Important institutional knowledge may be lost without a proper handover.

There can also be an impact on investor or stakeholder confidence if the board appears to be reacting rather than planning.

Perhaps most importantly, a rushed appointment can result in a person being selected because they are available rather than because they are the right person for the organisation.

That is rarely the best basis for a board appointment.

A succession plan should be a living document

Succession planning should not be something the board completes once and then files away.

It should be reviewed regularly.

Business strategy changes. Directors' circumstances change. New risks emerge. Technology evolves. Regulation develops. The board's skills requirements therefore change too.

Our guide, Succession Planning for NEDs: Why Boards Must Plan Ahead, looks in more detail at how boards can take a proactive approach to NED succession and build a pipeline for future appointments.

The best time to plan is before you need someone

Ultimately, good NED succession planning is about preparation.

The board should know which skills it currently has, where the gaps are likely to emerge and what sort of director it may need in the future.

That does not mean having a named replacement sitting on a shelf.

It means having a clear understanding of the board's future requirements and enough time to conduct a proper search when an appointment becomes necessary.

For chairs and boards, that can make the difference between a rushed recruitment exercise and a genuinely strategic appointment.

The best boards do not wait for a vacancy to tell them what they need.

They anticipate what the organisation will require next.

Thank you for listening to the NED Capital Podcast. If your organisation is considering its future board composition or preparing for a forthcoming chair or NED transition, explore our non-executive chair recruitment service. And for a deeper look at the subject, read our guide to NED succession planning.