If organisations make world-class appointments, a lot of other things will follow.Footnote 1 If not, no other governance aspects will resolve the damage that occurred (Nachemson-Ekwall & Mayer, 2018, p. 1). With the belief that “a rigorous, fair and open appointments process is essential to promote meritocracy in the boardroom” (p. 5), Sir Derek Alan Higgs (2003), prime father of good governance, was one of the first to recognise the essence of best practice in board appointments. But what is a rigorous, fair, and open process?

A rigorous, fair, and open succession plan and appointment process is the ideal. In principle, so the tenor of the Financial Reporting Council (FRC) (2018), responsible for the UK Corporate Governance Code, it is the pursuit of planning and processing that “should be based on merit and objective criteria and […] should promote diversity of gender, social and ethnic backgrounds, cognitive and personal strengths” (p. 8). It allows for a board to function effectively for the benefit of the organisation and its members (Maharaj, 2009, p. 107). In particular, rigour and fairness apply to the election of the chairperson, also with significant consequences for the future structure of the board of directors. After the Annual General Meeting of Shareholders (AGM), the board of directors—and subsequently the chairperson, who is part of the board—is the highest formal statutory body of an organisation. Because of the overreaching leadership role, the chairperson is often the source of visionary and organisational direction and influences the organisation’s overall business strategy, culture, and legitimacy (Elms & Nicholson, 2013; Goodman et al., 2021). It is therefore imperative to place a person at the top who is capable of taking on that challenge (Kakabadse & Kakabadse, 2007, p. 179).

However, contrary to academics’ and practitioners’ understanding of the importance of board composition, there are succession-related shortcomings that have led to ‘wrong choices’: the lack of transparency (Elms & Nicholson, 2013), the influence of social networks (Withers et al., 2012), the lack of rational election criteria (Clune et al., 2014), and the absence of a formal, objective-based process (Elms et al., 2015). Drastic business value destructions were the consequence (Wendee et al., 2018, p. 223). From that perspective, Elms et al. (2015) acknowledged that “while we know much of who sits on boards, we know relatively little of the processes driving their selection” (p. 1313).

In Switzerland, as part of the Swiss Corporate Law Reform with effect from 1 January 2023, the AGM of listed organisations elects one of the board members as chairperson of the board (Article 712 para. 1 revCO).Footnote 2 To meet the new reform policy, this thesis will investigate the succession of the board chair within the context of competences, process moderators, and voluntary disclosures schemes. To familiarise the reader with the topic, Chapter 1 serves to highlight the motivation, research background, research objective, and structure of the dissertation, and to clarify its central concepts.

1.1 Motivation and Relevance

What is a succession process at chairperson level all about? Which competences must a board chair have? Who determines the necessary competences and which basis is used for their determination? Which parties are involved and why? What do shareholders, as voting parties, need to know about the person who is to become chair? Which factors are decisive for the decision to propose the candidate for the chair position? Or more generally, how can a thorough and formally applied process be used to find the best fit for the organisation and its key stakeholders?

In order to theoretically address the issue of board chair succession in more detail, two points are worth highlighting. First, one needs to understand why organisations need a thorough strategic allocation of human resources at board level. Second, one needs to understand the extent to which laws and regulations guide the board.

On the one hand, why is there great need for a strategic and adequate chair succession? As it is essential for securing future resources and key competences at the top of the organisation, the chair, together with the board members, is responsible for defining the organisation’s overall management and business strategy (Section 2.1.2; Forbes & Milliken, 1999, p. 489). Since economic and environmental conditions are constantly changing, this is a dynamic rather than a static act (Pearce & Zahra, 1992, p. 433). It is therefore an inherently complex task. As such, it requires a person at the top of the organisation who has appropriate rational economic and socio-emotional skills (Withers et al., 2012, p. 244). But how is one to find and define an individual with such key competences? In view to past election practices (e.g. personal network orientation, favour-for-favour mentality), Kim and Cannella (2008) urge moving beyond the “usual suspects” (p. 283). It is time to change director selection “from one of cronyism and good-old-boy networks to one of selection based on expertise” (O’Neal & Thomas, 1995, p. 84).

On the other hand, in what way does the law guide the selection process in organisations? “Remarkably, most state corporate laws as well as the federal proxy rules are silent on this issue, leaving the gap to be filled by non-binding sources of guidance” (Molitor, 2010, p. 104). Although standard setters (Swiss Federal Council), stock market regulators (SIX Swiss Exchange), and industry associations (economiesuisse) have expanded their principles and standards on corporate governance, formal legal formulations or good governance principles on succession planning are still rare or abstract and lack specificity (how to and what for). In principle, the law is only “concerned with the need for there to be a chairman, but board members are concerned with finding the most competent chairman they can, for the good of the company and to ensure that the time which they spend at the meetings should be as productive as possible” (Cadbury, 1990, p. 69). Consequently, organisations use this leeway to structure and design their own work processes that are often not sufficiently reflected upon (Shekshnia, 2021, p. 54).

Stressing the practical significance of succession planning and composition, many contemporary studies have examined the existence and influence of human capital value (e.g. INSEAD, 2015; PWC, 2021). Specifically in relation to the chairperson, Korn Ferry’s (2009, p. 2) survey deemed the board chair’s leadership as ‘very important’ when it comes to overall board effectiveness (83% of respondents). Surprisingly, however, only 52% of the respondents believed that the appropriate level of attention and diligence was given to the chairperson succession planning. Another approach to address the practical relevance of succession planning involves the topics shareholders asked to discuss when they met with board representatives. There, the majority (54%) preferred to discuss board composition and diversity (Deloitte, 2019, p. 26). The examples are probably the reason why the issue of “developing a boardroom succession strategy” continues to be one of the three most important activities of governance/nomination committees to this day (Spencer Stuart, 2021, p. 1).

Overall, according to Banerjee et al. (2020), “a succession plan can play a vital role in guiding board actions” (p. 388). Considering the reasons that have led to board succession in the past, Figure 1.1 clearly demonstrates the need for an appropriate succession strategy. It is, on the one hand, important to discuss the topic in the short term to react to the unpredictable (death or medical urgency) and, on the other hand, it is necessary to approach succession with an adequate long-term strategy (retirement, resignation, and M&A, spin-off, IPO, or new company) (Stadler, 2011, p. 265).Footnote 3 Hereby, particularly the examples of long-term succession make it clear that the process must be approached with foresight, as 70% of people retire due to age (Korn Ferry, 2017, p. 19).

Figure 1.1
figure 1

(Source: Korn Ferry, 2017, p. 19)

Reasons for Succession (S&P 500).

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However, what are the financial consequences of inadequate succession planning? Fernandez-Araoz et al. (2021, p. 6) estimated the cost of poor selection to USD 1 trillion per year. In their view, improved succession planning at the executive level for US large-caps could add a full percentage point to the 4% to 5% annual gains projected by Wall Street. “In other words, company valuations and investor returns would be 20 to 25% higher” (Fernandez-Araoz et al., 2021, p. 6). In view of these numbers, outsiders question whether, firstly, members are generally selected with too little care and, secondly, sufficient attention is paid to professional competence and human factors such as integrity, prudence, and the courage to criticise (Baches, 2021). As a result, “investors want to understand why directors are the best fit […] and they want evidence that the board has robust processes and strategies for optimizing the board composition” (Spencer Stuart, 2019, p. 2).

There is little empirical research on Swiss chairpersons in particular. When examining the appointments made by the twenty largest organisations since the year 2000 (by market capitalisation, as of the submission of the dissertation), three striking observations can be made: (1) the position of the chairperson is a male domain, as there is only one female person chairing the board of the organisations mentioned (Wendy Becker, Logitech); (2) in the past, it was common for the Chief Executive Officer (CEO) to become chair, whereby few individuals even exercised a dual role at the same time (e.g. Daniel Vasella, Novartis; Jürgen Dormann, ABB); and (3) historically, there are either only Swiss (e.g. Givaudan, Sika) or predominantly foreigners (e.g. Zurich) who chair the board, with those classified as foreigners there often being of German or Austrian origin (reinforcing the strong German-speaking anchorage).Footnote 4

In general, current research has shown that chair succession planning “is not widely discussed in most boardrooms because there are few formal mechanism for addressing the issue beyond the chairman’s annual review with the senior independent director” (Spencer Stuart, 2011, Chapter 1). Consequently, providing a framework for addressing chairperson succession would allow to “formalize the board recruitment process by defining each step and establishing a timeline” (Spencer Stuart, 2018, p. 2). Once a formal process is established and its necessary/influencing variables are known, all members of the nomination committee and the board can agree on the predefined search process (sequence of events, timing and location of interviews and meetings, communication strategy, etc.). The selected views thus convincingly demonstrate that it makes sense to empirically study board chair succession by reflecting on the question every organisation must ask itself: Is the succession planning for the board chair in line with the strategic direction and challenges that the board and the organisation are facing?

1.2 Research Background on Succession

Empirical research on board selection is widespread and spans several disciplines, such as accounting (Elms et al., 2015), economics (Hermalin & Weisbach, 1988), finance (Shivdasani & Yermack, 1999), law (Olson & Adams, 2004), management (Westphal & Zajac, 2013), and sociology (Mizruchi & Stearns, 2006). However, despite covering a multitude of disciplines, current research neglects reflecting on the actual succession planning activity. According to Withers et al. (2012, pp. 246–247), most of the past studies focused either on trying to satisfy governance-related resource needs (rational economic perspective) or on the influence that social networks and biases have on director selection (socio-cultural perspective). A more reflective approach to board appointments would focus on the succession planning activity and its success story: competences (Aberg & Shen, 2020), process (Clune et al., 2014), and disclosure (Leblanc, 2007). Taking planning activity into account would allow for a clearer picture of board decision-making in chairperson succession planning (Bezemer et al., 2018, p. 220).

Following Pettigrew (1997), Nicholson et al. (2000), and Nicholson and Kiel (2003), considering board behaviour and integrative process-related research is crucial. It allows, on the one hand, to sort out the plethora of studies and, on the other hand, to capture the context and dynamics of the person and the organisation. Following the study structure of Berns and Klarner (2017) and Kesner and Sebora (1994), previous literature on board succession planning can be divided into three research streams (Figure 1.2): The first stream of research focused on the context of the board’s role (before selection); the second on the board’s working style (during selection); and the third stream of research examined the underlying effectiveness of the board in selection results (after selection).

Figure 1.2
figure 2

(Source: own illustration)

Succession Planning Literature Stream.

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First, the definitions of the board’s role that are prominent in academia go back to Zahra and Pearce (1989, p. 294), who assign the board control, strategy, and service roles. However, the three roles are too limited to the agency and stewardship perspective (Nicholson & Kiel, 2003, p. 6). They do not fully grasp the complexity of a board’s position (Bezemer et al., 2018, pp. 219–220). For Huse (2018, p. 4), applying a holistic/multi-layered perspective to board and leadership theories is thus essential. By considering the contextual factors with regard to the board, it allows for grasping the overall picture in which the chairperson is embedded. Up to this point, academic papers such as Morais et al. (2018), Parker (1990), and Owen and Kirchmaier (2008) have addressed role/task expectations but not the associated competences.

Second, the purpose of succession research is to examine factors/conditions that (may) have led to a selection in the decision-making process (Hillman et al., 2008, p. 445). Well-known factors in that respect are senior management and shareholder influence (Barth, 2013), board interdependencies and corporate relations (Westphal & Zajac, 2013), and changes in the business environment (Pearce & Zahra, 1992). However, to the authors’ knowledge, research on how the succession process unfolds, which stakeholder(s) should be addressed, and which specific influencing factors are related to board/chairperson succession have not yet been investigated in detail in academic papers. According to O’Neal and Thomas (1995), “a profusion of literature […] examines in great detail how boards are supposed to work, but provides very little information on how board processes actually function” (pp. 79−80). As a consequence, it is unknown “how social dynamics among nominating committees, CEOs, [board members,] and board chairs affect the different stages” of the succession process (Walther, Morner, & Calabrò, 2017, p. 351).

Third, most scholars have focused on the outcome of director appointments (Nicholson & Kiel, 2004b, pp. 448–449). This was often done using individual input/output measures, for example, board composition and its effect on corporate performance (Krause et al., 2019), independence and its symbolism for strong governance (Kang et al., 2007), and regulation and its impact on board composition (Wintoki, 2007). Given the missing link to behavioural context (market-, organisation-, and person-related), board researchers began to consider the outcome of social identity (Elms et al., 2015), social capital (Nicholson et al., 2004), and director reputation (Eminet & Guedri, 2010). However, information on succession and board composition must be made publicly available and reported in a standardised way so that sufficient valuation patterns can be identified and analysed. For example, once information on corporate dynamics and life cycle stages is accessible, results become interrelated and holistic conclusions can be drawn (Withers et al., 2012, p. 262). Nonetheless, to this date, there have been few attempts to expand board composition and succession disclosure (e.g. Allegrini & Greco, 2013).

While recognising the importance of succession, the three research streams have failed to provide two fundamental insights. On the one hand, the observations are attributable to a limited geographical distribution. Most studies were conducted in the US (Clune et al., 2014; Withers, 2011; Withers et al., 2012), while only a few covered Germany (Barth, 2013), France (Eminet & Guedri, 2010), the UK (Kaczmarek et al., 2012), and Switzerland (Ruigrok et al., 2006). As board governance systems differ and national legal contexts vary, the possibility of comparisons is limited. On the other hand, and of greatest relevance for this doctoral thesis, studies have mainly focused on board member or CEO selection, but few on the chairperson (e.g. Dalton & Dalton, 2007; Dedman, 2016; Minichilli et al., 2014; Withers et al., 2012). Therefore, the research used “may not fully capture the contributing dimensions” that are important when addressing board chair succession (Leblanc & Schwartz, 2007, p. 844). Yet, to grasp the fully dynamics, it is necessary to examine the behavioural aspects of the chair in more detail. That includes “the use of methods that help us understand actors, their motivations and their interactions” (Huse, 2018, p. 4).

1.3 Research Objective and Structure of Dissertation

Given the discussion in the previous chapters, the primary objective of this dissertation is to promote the development of chairperson succession for listed organisations in terms of competences, moderators, and disclosure. Accordingly, the thesis focuses on a theoretical contribution through an in-depth literature review, an empirical contribution through a mixed-methods design, and implications for academia and practice for future chairperson succession planning.

The primary research question asks: How do listed organisations plan and accomplish chairperson succession? To address that, the research objectives were broken down into the following three research questions (RQ):

RQ1: What are the competences of a chairperson?

RQ2: What are influential moderators in chairperson succession?

RQ3: What are the principles of voluntary disclosure in chairperson succession?

First, RQ1 examines the competences necessary to fulfil the roles and tasks of a chairperson (Section 4.2). Second, RQ2 sheds light on the process and factors that determine the selection of chairpersons in organisations (Section 4.3). Third, RQ3 urges that the board’s proposals to the AGM be justified, thus making the chair succession process more comprehensible to outsiders and the choice of the candidate more understandable (Section 4.4).

To achieve the research objective, the dissertation shall be divided into eight sections (Figure 1.3). Chapter 2 provides the reader with the legal context governing board appointments, divided into hard and soft law. Chapter 3 provides insights into the theoretical background in which the chair is embedded and describes the relevant theory for board, role, process, and disclosure work. Building upon that, Chapter 4 introduces the study’s input-process-output model, which addresses chairperson succession planning and delves deeper into the respective competences (input), moderators (process), and disclosure (output) paradigms. Chapter 5 then summarises the research gaps identified in the literature review and addresses the respective research questions and the research strategy pursued. Chapter 6 (qualitative) and Chapter 7 (quantitative) focus on the research objectives after highlighting the findings from the literature review. Finally, Chapter 8 discusses the dissertation’s findings and outlines its academic and practical contribution.

Figure 1.3
figure 3

(Source: own illustration)

Overview Doctoral Study.

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1.4 Central Concepts

Before introducing further background on the topic of succession, it is useful to explain the central concepts underlying this thesis: Swiss governance system, publicly listed organisation, chairperson, competence, succession planning, and discretionary disclosure.

1.4.1 Swiss Governance System

Corporate governance is “the system by which companies are directed and controlled” (Cadbury, 1992, p. 5). They are thus principles for the sustainable long-term orientation of corporate interests at the highest organisational level. Referred to as hybrid system, Swiss board governance combines characteristics of the Anglo-Saxon one-tier system (unification of senior management and board) and the continental European two-tier system (separation of senior management and board).Footnote 5

The Swiss board of directors performs operational and supervisory functions, usually delegating operational activities to the senior management (permitted by law), yet without relinquishing its strategic responsibility (Hofstetter, 2002, p. 38). In theory, the board performs a supervisory function by distinguishing between non-executive and executive directors (Watter & Roth Pellanda, 2015, p. 371). In practice, since boards may be composed of executive and/or non-executive directors at the same time, they rather fulfil a strategic decision-making function as it applies to the Anglo-Saxon environment (Bauen & Venturi, 2009, pp. 4–5).

1.4.2 Publicly Listed Organisation

Publicly listed organisations are businesses whose ownership is dispersed and whose shares are openly traded on the stock exchange (Turnbull, 1997, p. 181).Footnote 6 The advantage of a listed organisation over a private, non-listed organisation is that the purchase/sale of stocks is carried out on a standardised platform; fast and at low transaction costs (Cuervo, 2002, p. 88). If there is no standardised market platform, as it is the case for most privately held organisations, the seller and buyer must exchange information independently, which is a costly and resource-intensive process (Raffournier, 1995, p. 263).

This thesis focuses on publicly listed stock corporations in the Swiss Performance Index (SPI) that are traded on the SIX Swiss Exchange (SIX). The SPI is the overall index of the Swiss stock market. All listed organisations domiciled in Switzerland and the Principality of Liechtenstein with a free float of 20% or more are included (SIX Swiss Exchange, 2018, p. 1). As of today, the index consists of 213 organisations.Footnote 7

This doctoral study focuses on SPI organisations because they are more visible and therefore receive more attention from key stakeholders (Luoma & Goodstein, 1999, p. 554). Also, these organisations represent an important part of national economic value creation and provide a high degree of comparability in terms of legal regulations, legal forms, and a chairperson’s roles and responsibilities. Moreover, the organisations are role models in the Swiss governance landscape and thus have a signalling effect for others.

1.4.3 Chairperson

The chairperson is a member of the board of directors. The person presides the board and is elected by the AGM in listed organisations (Article 698 para. 3 cipher 1 revCO).Footnote 8 The motivations for becoming a board chair are manyfold but include contributing to the flourishing of the organisation (purpose), passing on experience to the next generation of leaders (sharing wisdom), and seeking challenges in different contexts (leadership) (Spencer Stuart, 2020a, p. 6). In studying chairpersons, the key challenge is the “paradoxical nature of the position” (Bezemer et al., 2018, p. 219). On the one hand, the chairperson’s statutory power corresponds to the responsibilities of ordinary board members, on the other hand, the position as primus inter pares (Latin for the first among equals) entails an extraordinary formative function to ensure that the board fulfils its statutory duties (Meier, 2005, p. 283).

Doctrine and case law (in German: Lehre und Rechtsprechung) approve that the duties of the chairperson are not all-encompassing (Facincani, 2019). For this reason, most organisations further specify them in their organisational regulations:

Subject to legal duties (in writing), the chairperson exercises the casting vote in the event of a stalemate (Article 713 para. 1 CO), signs the minutes of board meetings (Article 713 para. 3 CO), convenes and decides on the form and order of the agenda items in board meetings (Article 715 CO; Articles 15 and 16 SCBP), authorises investigations at the request of another member to obtain information on the organisation’s business and on business-related transactions (Article 715a para. 4 CO), and ensures an intact and timely flow of information (Article 16 SCBP).

With regard to business duties (unwritten), the board chair ensures continuity and acts in a fiduciary capacity (puts own interests aside), makes binding decisions on urgent matters that cannot be postponed (on behalf of the board), heads the AGM (speaker), represents the organisation (as acting person in charge), assesses performance (control), and actively exchanges information with members of the board and the senior management (sparring) (Hungerbühler, 2003, pp. 122–132).

1.4.4 Succession Planning

Succession planning is the preparatory work for the search process “designed to ensure the continued effective performance of an organization […] by making provision for the development, replacement, and strategic application of key people over time” (Rothwell, 2005, p. 10). Succession planning is thereby “proactive and works to address the need before it exists” (Atwood, 2020, p. 2). Bujaki and McConomy (2002, p. 107) thus see succession planning as the mature form of organisational recruitment. Once systematic staffing (solutions for current vacancies) and replacement planning (solutions for future vacancies) have proven to be successful, succession planning is the third logical step.

Each time succession occurs, it is important to consider what alternatives are available (Wendee et al., 2018, p. 234). Having said that, succession planning on board level is aimed at ensuring that the board is properly composed (Kaczmarek et al., 2012, p. 476). It is therefore seen as a multifaceted process “by which individuals are identified, screened, nominated, and elected” (Withers et al., 2012, p. 245). The focus is thus entirely on human capital (Sonnenfeld, 2002, p. 5). Succession planning is a matter of making the search for prospect candidates for a future director position systematic and coherent (Weisblat, 2018, p. 17).

1.4.5 Competence

Competence (also competency and competencies) “refers to the sum of experiences and knowledge, skills, traits, aspects of self-image or social role, values and attitudes” a person has acquired over the course of his or her career (Viitala, 2005, p. 437). In the interconnected business world, competences are personal attributes that meet the position-/job-specific requirements of organisations (Garavan & McGuire, 2001, p. 158). In that sense, competences can be understood as skills and principles that are required, expected, and needed to fulfil the roles and tasks that a position entails (Dulewicz et al., 1995, p. 14).

1.4.6 Moderators

Moderators are components that influence the strength and direction of the succession process. In line with Senquiz-Diaz and Ortiz-Soto (2019), process moderators take account of the task interdependencies between the competence (input) and the voluntary disclosure (output) scheme. By including them, the multitude of contexts that occur in succession planning can be integrated (Conger & Lawler, 2001, p. 13). When referring to moderators in this thesis, this relates to key stakeholders (board advisory, company secretary, senior management/CEO, shareholders) and key contingencies (business contingencies, environmental contingencies, governance contingencies, and political contingencies).

1.4.7 Voluntary Disclosure

Voluntary disclosure (also discretionary disclosure) is “any medium of expression or publication” that extends the scope of mandatory information disclosed to outsiders (Mayew, 2012, p. 838). For the organisation, it is an opportunity to provide transparency by linking the board principles of creating accountability (understanding actual behaviour) and board accountability (justifying value creation) (Huse, 2005, p. 67). As opposed to mandatory disclosure, the decision on the timing, information content, and information channel is up to the organisations (Healy et al., 1999, p. 508). Discretionary disclosure is typically unpredictable, but must nevertheless meet fundamental and generally accepted criteria, including materiality (relevance), completeness (report all material), accuracy (free from material error), balance (neutral), clarity (understandable and accessible), comparability (consistent), and reliability (quality) (Bassen et al., 2010, p. 66; CDP, 2019, p. 8).

Information can be disclosed by the organisation itself or by information intermediaries. Voluntary disclosures include strategy presentations, management forecasts, and govern-ance and sustainability reports (Healy & Palepu, 2001, p. 406). Thereby, disclosure often refers to corporate, financial, and non-financial information (Cotter et al., 2011, p. 79).

1.5 Review

Chapter 1 served to introduce the reader to the research phenomenon, motivation and relevance, research background, as well as the research objective and scope of the doctoral study. It also briefly explained the key concepts and underlying terminologies. In summary, the research methodology of this thesis concerns chair succession. The more explicit research objective is to analyse the related competences, process moderators, and disclosure of chair succession. By applying a literature review and a mixed-method design, it is expected to establish a fundamental knowledge base and to balance the respective strengths/weaknesses. The doctoral study follows the outlined structure and consists of eight chapters: introduction (Chapter 1), legal and theoretical background (Chapters 2 to 4), the methodological design (Chapter 5), empirical qualitative and quantitative dimension (Chapters 6 and 7), and research discussion, contribution, and conclusion (Chapter 8).