Chairperson Succession Planning

Abstract

Chapter 4 introduces succession planning, competences, moderators, and disclosure.

The previous chapters aimed at providing a theoretical and regulatory background (Figure 4.1). First, the regulatory background section described the determinants around board nomination and the inalienable duties of a chairperson (Chapter 2). Second, the theoretical background provided served as a systematic basis for greater contextual integration and understanding of where the chairperson is embedded (Chapter 3). Third, a succession planning framework will be introduced in Section 4.1 that focuses on substantiating and guiding the development of strategic succession principles.

Figure 4.1

(Source: own illustration)

Overview of Theoretical Relationships.

After an introduction to succession planning in Section 4.1, the following chapter addresses the three constituents of succession planning for chairs, namely competences (Section 4.2), moderators (Section 4.3), and disclosure (Section 4.4). That structure not only allows for reviewing all the information and drawing a first conclusion for the subsequent analysis (research questions), but also provides an in-depth overview of the theoretical context of the study.

4.1 Introduction to Succession Planning

Before delving deeper into succession activities of a chairperson, it is of utmost importance to understand what succession planning means (following Section 1.4.4). This part of the study strives to contextualise the term as it forms the cornerstone for the further course of this study (Section 4.2 ff.).

In the ideal case, succession planning is oriented towards best practice standards. An ideal succession plan entails selecting a qualified person through a transparent and structured process “on merit and not through any form of patronage” (Cadbury, 1992, p. 23). However, process studies so far “are preoccupied with describing, analysing and explaining” (Pettigrew, 1997, p. 338), yet they fail to recognise that social reality is dynamic rather than static. Consequently, according to Watson et al. (2020, p. 214), succession planning requires context and needs to follow a certain set of principles. It is therefore necessary to institutionalise succession in a framework (Finkelstein et al., 2009, p. 166).

Theory-driven succession entails defining the role and competences of the incoming chair, developing a strategic plan, and communicating it to relevant stakeholders (Carbo & Storm, 2018, p. 214). Encouraged by board governance researchers such as Aberg et al. (2019), Banerjee et al. (2020), and Nicholson and Kiel (2004b), this study employs a conceptual input-process-output model to depict succession planning (Figure 4.2).

Figure 4.2

(Source: own illustration)

Conceptual Succession Planning Framework.

In more detail, the input section sheds light on task and role conditions that shape competences. The process section builds upon competence requirements and examines succession process practices to understand the potential influence of moderators. The output section links succession to outcome by identifying how the choice of the candidate can be justified by disclosure to the external environment. Applying this three-step model has three advantages. First, it allows to apprehend the rational and social dynamics of persons and organisations. Second, it enables to structurally integrate the wealth of studies that serve as a basis for answering the research questions. And finally, it allows for stakeholder orientation to be incorporated into the actions of the boards. The literature review is followed by a thematic analysis (input-process-output).

4.1.1 Succession Input

With the increasing importance of the board in the public eye, the chairperson’s position has also gained traction (van den Berghe & Levrau, 2004, p. 462). This puts the focus on the actual behaviour of each board member and the multiple roles and tasks to be performed (Winter & van de Loo, 2012, p. 235). As it will be explained in the following paragraphs, there is a significant relationship between board theory, board role, board task/activity, and board competence in succession planning (Nicholson & Kiel, 2003, p. 12).¹ It is thus essential to recognise that succession planning is context-oriented and action-driven. Besides insights on board theory (Section 3.1) and board role (Section 3.2), the Board GPS (for board tasks) and the Competence Model (for board competences) are two other concepts that address the dynamic relationships within the succession planning sphere.

Board GPS is a relatively new concept in board governance research. The concept focuses on board tasks and builds upon the role perception of Organisational Role Analysis (Section 3.2). In more detail, the Board GPS framework is based on the understanding of ‘being on task’, which means doing the right things right (van den Berghe & Levrau, 2004, p. 462). To explore board task interactions, the Board GPS concept addresses three distinct lenses (Winter & van de Loo, 2012, pp. 236–237): the group lens (G) centres on group task dynamics (leadership style, cohesion/conflict, information sharing); the personal lens (P) concentrates on person-related task dynamics (style, empathy, bias); and the system lens (S) focuses on organisational task dynamics (board structure/board size, board committee). Subsequently, while board roles offer the applicants an idea about their field of tasks (and thus represent an overreaching concept), board tasks can be understood as activities that underpin the specific roles within a particular environment/setting that a position entails (Machold & Farquhar, 2013, p. 149). Simply put, tasks are observable actions in everyday business life.

The Competence Model is a strategic tool to identify a unique set of competences that are necessary to meet an explicit set of board tasks (Lee & Phan, 2000, p. 206).² Viitala (2005) recognised the Competence Model as an invaluable governance tool for succession, as it provides organisations with a “common language” (p. 438). For the classification of competences, the model thereby follows Garavan and McGuire’s (2001, pp. 151–152) and Spencer and Spencer’s (1993, p. 11) iceberg analogy. Within the iceberg analogy, competences, on the one hand, are capabilities that are tangible and easily identifiable (e.g. expert knowledge) but, on the other hand, are also basic characteristics of a person that are invisible, hard to detect, and even harder to teach (e.g. self-cognition, motivation, attitudes, and values). To be a useful instrument, the Competence Model “should be bespoke and tailored to the company’s businesses and strategy” and to the personality dimensions required for the position (Spencer Stuart, 2018, p. 2). This way, it is possible to adapt the selection and to “proceed beyond the simple approach of replacement” (Beheshtifar & Nekoie, 2011, p. 116).

In principle, the Competence Model can be applied to all corporate segments. Scholars who attempted to integrate the model in board studies distinguished types of board members according to their effective or dysfunctional behaviour (e.g. Watson et al., 2020) or with focus on the functional skills these people need to bring (e.g. Conger & Lawler, 2001; Mumford et al., 2000), allowing to establish competence classifications accordingly (e.g. Hilb, 2016; Hogan & Warrenfeltz, 2003). For critics, however, “there exists considerable doubt surrounding whether competencies can be extensively categorized and labelled as they often overlap, and thus commonly suffer from ambiguity” (Viitala, 2005, p. 439). Authors like van der Klink et al. (2007, p. 224) thus see competence as a fuzzy concept. To counteract the criticism, it is important to recognise that distinct cultural contexts affect the global understanding of competences (Le Deist & Winterton, 2005, p. 30).³

To conclude, as highlighted at the beginning of the chapter, it is important to recognise that competences are driven by theory, roles, and tasks. Addressing the relationships adequately allows to identify the right competences and helps the chair meet expectations to his or her best ability (Lee & Phan, 2000, p. 207). Modelling competences in succession planning in a strategic manner has five main advantages (Beheshtifar & Nekoie, 2011, p. 121; Rothwell, 2005, p. 85): (1) it presents an accurate way to clearly define what competences are required for a specific position; (2) it creates a basis for an effective board performance environment; (3) it enables a 360-degree assessment; (4) it transparently defines the requirement criteria; and (5) it highlights the gap between required and existing board capabilities.

4.1.2 Succession Process

Board chair succession is not a simple process-cum-task, as it represents the intersection between supply (candidate) and demand (organisation) (Withers et al., 2012, p. 244). It is therefore important to provide a holistic explanation of the plan and the process and to highlight the understanding of events over time (Watson et al., 2020, p. 114).⁴ As a holistic understanding “must include accountability, evaluation, and follow up measures” (Weisblat, 2018, p. 17), prior literature identified rational economic vs. social embeddedness, role vs. group fit, organic vs. mechanistic selection, and internal vs. external origins as important parameters in succession processing. They are explained in the following.

In terms of rational economic vs. social embeddedness, Withers et al. (2012) were among the first scholars to analyse the two diametrically opposed phenomena in an integrated manner. On the one hand, the rational economic view represents “an attempt to meet the governance and resources needs of the firm and its shareholders” (Withers et al., 2012, p. 244). This view concerns the competences needed to properly execute a chair mandate. The proper execution of a chair mandate can be ensured by having persons on the board who have relevant monitoring capabilities (agency theory), who bring a functional and experiential fit to the organisation (resource dependency theory), and who focus attention on means and legitimacy (institutional theory) (Elms et al., 2015, p. 1314; Luoma & Goodstein, 1999, p. 555).The social embeddedness standpoint, on the other hand, “examines both the social context and the alternative motives that may drive director nominations” (Withers et al., 2012, p. 256). Motives are factors that people can identify with and relate to, such as prestige, reputation, and ingratiation (Eminet & Guedri, 2010, p. 559; Zajac & Westphal, 1996a, p. 509). If they occur, less emphasis is placed on corporate governance principles (Withers et al., 2012, p. 247). One such paradigm is the old boys network, which can result in similarity attraction, director ingratiation, and quid pro quo relationship patterns (Campbell et al., 2012, p. 1436). Together, these social ties increase the risk of an inappropriate appointment. However, appropriate appointment is essential for increasing professionalism on boards, as even “one bad apple can blow up an entire board” (Clune et al., 2014, p. 780).

Role vs. group fit is an in-depth perspective of the rational economic/social embeddedness approach.⁵ Whilst role fit expresses the “need to be able to contribute skills and experience complementary to those possessed by current directors” (Elms et al., 2015, p. 1317), group fit implies teamwork and compatibility between directors to find common ground and a connection to debate “the chunky things” (Elms et al., 2015, p. 1319). Especially group fit, with chemistry and board culture as the “tipping point that causes the candidate to be selected over other qualified candidates” (Clune et al., 2014, p. 762), attracted attention. In this context, the aspects of sympathy and reciprocity in particular affect the perception of the board’s social group fit (Judge & Ferris, 1992, p. 56; Main et al., 1995, p. 307). However, betting it all on one card does not come without risk. The obvious risk of group fit is having too many agreeable characters on the board who lack value-adding skills (Elms et al., 2015, p. 1321). This may lead to board cohesiveness with a lack of critical thinking patterns (Forbes & Milliken, 1999, p. 493). In contrast, the role fit perspective assumes a strict rational and standardised process, allowing to select “the individual judged most able to execute the role” (Elms et al., 2015, p. 1314). This approach is in line with regulators who frequently promote independence and skill set as critical components for nomination (Chapter 2).

Organic vs. mechanistic search differs in how decision-making responsibility is divided, coordinated, and planned in advance of the process (Gendron, 2001, p. 288). Organic search (also informal search) relies on one’s own or a related personal network (Barth, 2013, p. 42). Organisations in that category behave adaptively, flexibly, and rely on informal considerations and needs (Clune et al., 2014, p. 754). Contrarily, the mechanistic search (also formal search) is keen to adhere to legitimised conditions (Gendron, 2001, p. 288). With the institutionalisation of frameworks, the mechanistic approach strives to formally implement “decision priorities, the performance of scanning, documenting, and evaluating decision alternatives, and the analysis of risks and benefits of potential successors” (Walther, Calabrò, & Morner, 2017, p. 2203). Advocates of the mechanistic approach see advantages in reducing adverse selection, increasing efficiency, overcoming planning fallacy and confirmation biases, ignoring conflicting evidence, enriching the candidate pool, smooth transition and onboarding, and openness to feedback (Giambatista et al., 2005, p. 965; Metz, 1998, p. 36; Pye, 2002, p. 913; Schepker et al., 2018, pp. 526–527).

Internal vs. external origin refers to the aspect of whether the chairperson is an insider or an outsider. An inside chair is a person who is most likely promoted from a board or senior management position (McNulty et al., 2011, p. 96). Internal candidates are most often selected for their organisation-specific knowledge. An outsider, on the contrary, is an independent person without prior employment or business relationships (Finkelstein et al., 2009, p. 197). The choice of origin is normally contextual and can be an advantage or disadvantage. Research has shown that when selecting an internal candidate, in-depth knowledge and bonding/bridging relationships are particularly relevant for strategic decision-making (Adler & Kwon, 2002, p. 19), that the choice of the CEO as the new chair may restrict the successor’s scope of strategy and service provision (Quigley & Hambrick, 2012, p. 853), and that appointed chairs tend to be older (Davidson et al., 2008, p. 398). Choosing an outsider, however, leads to drastic strategy changes and cultural transformation (Zhang & Rajagopalan, 2010, p. 342), higher pay but also higher risk of dismissal (Bidwell, 2011, p. 401), and a loss of organisation-specific social intellectual capital (Kim & Cannella, 2008, p. 284).

Against that background, how should the nomination committee structure the succession process? In essence, emphasis should be placed on a multi-stakeholder view that takes into account regulatory (rational economic embeddedness, role fit, mechanistic selection) and social dynamics (social embeddedness, group fit, organic selection) (Withers et al., 2012, p. 266). Luoma and Goodstein (1999, p. 554) thereby argue in favour of moral legitimacy in assessing whether an activity/structure is right. In line with institutional theory, organisations are thus eager to validate normative commitments, provided that they uphold due diligence, loyalty, and good business judgement. This can be clearly seen in the historical development of succession process planning. In the past, board selection corresponded to a “repertoire of action possibilities” (Ocasio, 1999, p. 391). With the introduction of formalised procedures, organisations shifted from the primary randomness of a traditional or spontaneous selection to a competence-, experience-, and personality-based selection (Werder & Wieczorek, 2007, p. 307).

Whilst there has been progress in professionalising succession processes, more than one third of contemporary nomination committees still do not have written charters (Elms et al., 2015, p. 1320; O’Neal & Thomas, 1995, p. 83). This is why Egon Zehnder (in Leube, 2012, p. 215) reasoned that too many organisations are still using an approach that is ad hoc and lacks a systematic pattern. Weber et al. (1978) therefore described successor selection as a “routinization of charisma” (p. 249), referred to as a depersonalised and bureaucratic routine process.

4.1.3 Succession Output

In succession, as highlighted in the previous chapter, it is essential to have an effective process that is not solely based on rational thinking, but also on behaviour and robust social systems (Sonnenfeld, 2002, p. 1; Walther & Morner, 2014, p. 140). Given this two-dimensionality, it is important to “link process to outcomes, while recognising that this outcome is not an end point but is itself caught up in the ebb and flow of process” (Watson et al., 2020, p. 114). In that context, providing outcomes enables the identification and control of “scarce resources needed by the organisation” (Provan, 1980, p. 223). To monitor the organisation and to “play a positive role in encouraging better board succession planning” (ICGN, 2018, p. 3), outsiders thus request timely and adequate information for ex post understanding of the inner workings of appointing chairpersons.

To date, hard and soft law governance codices have not yet examined disclosure succession principles in detail (Chapter 2). They are more concerned “with what constituted good or acceptable practice than with disclosures about those practices” (Collett & Hrasky, 2005, p. 189). In the absence of universally accepted principles, organisations have the freedom of choice in terms of disclosure (Ghio & Verona, 2020, p. 56). However, with the belief that “board members need to reflect on the values the company creates” (Huse, 2018, p. 30), communication is an integral tool for external stakeholders to review board activities. When it comes to chairperson succession, this requires justifying the choice of a candidate with central arguments.

Given the social and institutional aspects, organisations are hence eager to have a selection process in place that is deemed legitimate (Section 4.1.2). One way to achieve that is to strengthen the link between normative arguments (what should happen) and empirical validation (what happens and why it happens) (Luoma & Goodstein, 1999, p. 559). From Jackson and Carter’s (1995, p. 879) perspective, voluntary disclosure can be a spotlight to address selective governance topics (analogy to chiaroscuro, managing light and shadow). In doing so, it permits taking on a stakeholder value approach with the basic idea to “build a bridge between the focal firm and its external elements through communication channels and networks” (Walther & Morner, 2014, p. 139). Yet, for this to happen, succession planning must create a substantial need for necessity (Collett & Hrasky, 2005, p. 189).

In the context of creating necessity, the favourite metaphor relates to transparency (Bujaki & McConomy, 2002, p. 110). Transparency is the widespread access to organisation-specific information for outside stakeholders. Bushman et al. (2004) refer to transparency as “the output from a system of interrelated information mechanisms” (p. 210). Transparency enables outsiders to verify the enforceability of their contracts with the organisation. It helps the organisation to demonstrate “that it is acting on collectively valued purposes in a proper and adequate manner” (Meyer & Rowan, 1977, p. 349).

In light of what has been said, it is worth noting the two most conclusive assumptions with regard to transparency. First, listed and large organisations will be more accurate in disclosing information (Mallin & Ow-Yong, 2012, pp. 521, 529). This is because they face greater public scrutiny and have more personnel resources. Second, shareholders and stakeholders collectively benefit from a higher level of information disclosure (Berndt & Leibfried, 2007, p. 397; Gul & Leung, 2004, p. 353). Placing more emphasis on transparency reduces the information asymmetry between parties. This enables stakeholders to acquire more knowledge that they can take into account in decision-making and organisations to legitimise their actions (Deegan et al., 2002, p. 332).

In principle, linking chairperson succession and (voluntary) disclosure addresses two output perspectives. The first perspective relates to the level of work output driven by the inalienable duties the chairperson and the board face (Section 2.1.2). Work output has a direct impact on performance with consequences for organisational change (organisational-level output), a direct effect on board composition that indirectly impacts the dynamics and behaviour of the board (group-level output), and is a direct stimulus provided by the leadership style that indirectly develops and that shapes internal board culture (personal-level output) (Korn Ferry, 2009, p. 3; Maharaj, 2009, p. 110; Nicholson & Kiel, 2004b, p. 448). The second perspective is determined by the level of organisational know-how. This output perspective addresses corporate (strategic), business (financial), and non-business (non-financial) information. In the context of succession planning, it is mainly the non-financial information of the second stream that is addressed, with emphasis on “procedure and process of appointment and election” (Cotter et al., 2011, p. 79).

4.1.4 Review

Section 4.1 was intended to conceptually integrate the thesis into the realm of succession planning. The aim was to introduce a framework that supports the author in working on the topic of the thesis and in systematically structuring the corresponding literature review and qualitative/quantitative results. Consequently, the thesis follows an input-process-output model to depict succession planning:

• Competences (input) are driven by board theory, board role, and board tasks/activities. Before the competences can be analysed, it is necessary to put the functional duties of the chair into context, using classical board theory, Organisational Role Analysis, Board GPS, and the Competence Model as conceptual strategic tools.

• Moderators (process) drive board succession and need to be controlled. Succession planning therefore varies, depending on rational economic vs. social embeddedness, role vs. group fit, organic vs. mechanistic selection, and internal vs. external origin parameters.

• Disclosure (output) Aims at legitimising the two prior succession stages (input and process) and the respective decisions/activities to outsiders. In this regard, voluntary disclosure mechanisms are addressed, with an emphasis on board chair selection procedures.

4.2 Competences

Section 4.2 addresses the first stage of the input-process-output model. The aim is to identify the essential roles and tasks of the chairpersons and to discuss the board theories in order to then determine the competences of the chair.

4.2.1 Roles and Tasks

How time is spent on board work depends on the style of the chairperson and the dynamics of the organisation (Owen & Kirchmaier, 2008, p. 203). Historically, board role and task definitions go back to Zhara and Pearce (1989). As described in the introductory part of Chapter 3, applying a multiple perspective in board theories allows to grasp the full complexity of a chairperson’s tasks. Consequently, as summarised in Table 4.1, the role and task descriptions rely on board theories (Section 3.1), leadership theories (Section 3.2), and prior chair research (e.g. Banerjee et al., 2020; Lorenz Koller, 2010).

Table 4.1 Chair Roles and Task Examples

The classical agency theory and the stewardship theory require the chairperson and the full board to supervise the performance of the senior management (control and monitoring role), determine an appropriate business strategy (strategy role), represent the organisation to the external environment, and coach the senior management in a sparring partner and mentor function (service role) (Zahra & Pearce, 1989, p. 294). The three roles include tasks that closely examine senior management discipline in decision-making, critically question strategic proposals to enable a continued organisational success, and actively promote the personal development of the senior management team and the organisation as a whole through guidance and counselling (Forbes & Milliken, 1999, p. 492; Kakabadse & Kakabadse, 2001, p. 25).

Stakeholder theory assumes the chair to take on a coordinating responsibility (coordinating role). That implies generating long-term and sustainable values for external suppliers, customers, and own employees (Gabrielsson et al., 2007, p. 24; Huse, 2018, p. 22). The stakeholders thereby have conflicting expectations which need to be met. Handling such a pluralistic approach with its complex relationship structure requires tasks that involve team building, conflict resolution, negotiating, and disturbance handling (Hilb, 2019, p. 36; Smith, 2019, p. 24; van Ees et al., 2009, p. 316).

The theory of resource dependency postulates a distinct networking ability (linking role). That enables the development of a sustainable relationship with stakeholders and access to relevant information and needs (Hillman et al., 2000, p. 239; Hillman & Dalziel, 2003, p. 383). The chair thus acts internally as figurehead between the senior management and the board of directors as a whole and externally as a spokesperson for the organisation to its stakeholders (Johnson et al., 1996, p. 419; Lorsch & Zelleke, 2005, p. 72). Another important task of the chair’s office is information allocation and dissemination. A regular and well-articulated flow of information in the organisation enables essential decision-making in the board and the senior management (Bezemer et al., 2018, p. 224).

Institutional theory believes the chair to function as an administrator (institutional role). To incorporate values and legitimacy standards in the organisation and its culture, organisations are required to adapt their structure to best practice principles (Stiles & Taylor, 2002, p. 6). That allows for meeting society-specific requirements. Beyond this, the chairperson should adopt an initiatory and innovative attitude to meet the ever-evolving societal and economic landscape (Yar Hamidi & Gabrielsson, 2014a, p. 10).

Leadership theories implicitly expect the board chair to assume a leadership function (leadership role). It requires leaders to be able to “broaden and elevate the interests of their employees, when they generate awareness and acceptance of the purposes and mission of the group, and when they stir their employees to look beyond their own self-interest for the good of the group” (Bass, 1990, p. 21). To accomplish all that, the chairperson should be a visionary and an ethicist who changes the course of action, infects others with enthusiasm, guides the corporate mission, builds strong morale, and inspires people to spark their motivation and inner fire (Guerrero et al., 2015, p. 97; Parker, 1990, p. 38). Additionally, the chair determines the board’s agenda, organises the board’s work, and performs annual board assessments (Aberg & Shen, 2020, p. 170; Cadbury, 1990, p. 14).

4.2.2 Key Competences

Against the theoretical background of Section 4.1.1, this thesis builds primarily on three pillars to appropriately define chairperson competences (summarised in the following): First, it uses theoretically tested hierarchical models (Garavan & McGuire, 2001, p. 152; Rifkin et al., 1999, p. 54). Analogous to a pyramid structure, the model assumes that the competences at the bottom (personal traits) form the basis for the competences at the top (function-related traits) and are thus at the heart of a person’s performance (Viitala, 2005, p. 440). Second, it adapts to acknowledged competence typologies (e.g. Hogan & Warrenfeltz, 2003, pp. 78–79; Le Deist & Winterton, 2005, p. 39; Nordhaug, 1998, p. 13; Viitala, 2005, p. 440). The typology frameworks allow for the scaling of competences from person- to organisational/work-related categories. Third, to keep specific focus on the chairperson, views from acknowledged board research studies are integrated (e.g. Gabrielsson et al., 2007; Hilb, 2019; Leube, 2012; Lorenz Koller, 2010).

Combining all these dimensions, competences can be categorised into the elements illustrated in Figure 4.3. Consequently, they will be explained in detail in the following sub-chapters.

Figure 4.3

(Source: own illustration)

Model for Chairperson Competences.

4.2.2.1 Personal Competences

Personal competence (also intrapersonal competence) is closely connected to personality and human behaviour (Nordhaug, 1998, p. 10). These traits embrace attitudes towards emotions (self-esteem), rules (authority), and detrimental impulses (self-control), are developed at a young age, and are the basis for career development (Hogan & Warrenfeltz, 2003, p. 78). Intrapersonal characteristics describe a person’s “social role, self-image, motives, and values” (Viitala, 2005, p. 411). For the chairperson, personal competences encompass four dimensions:

Authenticity: Chairing board meetings means leveraging the best out of every single board member (Roberts et al., 2005, p. 6). Exercising the tasks requires an authentic mentor, a person that is self-aware (know who they are), self-regulatory (know what they believe and value), and stands up for his or her own cause and ethics despite external social pressure (act upon values) (Avolio et al., 2004, p. 3; Gardner et al., 2005, p. 6). Authentic individuals “set an example for their followers who strongly identify with them” (Guerrero et al., 2015, p. 89).

Curiosity: To keep pace with economic and technical developments, the chair should “either have the right levels of all those capabilities or, more likely, the potential to develop them” (Fernandez-Araoz et al., 2021, p. 10). Curious people at the top allow to obtain appropriate and complete information in order to facilitate and master “the collective learning process in the boardroom” (Morais & Kakabadse, 2013, p. 76). The board chair should thus have the competence and willingness to learn from experience and be eager to constantly develop and question the existing on business (reshaping) and personal level (reflecting) (McIntyre et al., 2012, p. 661; Senquiz-Diaz & Ortiz-Soto, 2019, p. 91).

Engagement: The chairperson should be competent to contribute (Forbes & Milliken, 1999, p. 493), be confident to take action (Lee & Phan, 2000, p. 208), establish rules and norms for the full board (Huse et al., 2005, p. 292), and ask questions and request more details if the subject is not yet fully understood (Gabrielsson et al., 2007, p. 27). In one sentence: The chair should go the famous extra mile. Chair engagement thus allows to “contribute to focal firm resources” (Hillman et al., 2008, p. 449).

Integrity: Members at the top of an organisation must behave with ethical prudence (Baches, 2021; Fischer, 2021). Integrity is a virtue associated with a morally good character (Audi & Murphy, 2006, p. 11). A chairperson’s integrity encompasses acting in the best interest of the company (shareholder), team commitment (peers), career support (subordinate), and contract adherence (organisation) (Palanski & Yammarino, 2009, p. 409). In a study by Fitzsimmons and Callan (2016), integrity of chairpersons was thus defined as “honesty, transparency and the degree of trust” (p. 778). Hence, the chair should use the information advantage vis-à-vis the other members of the board for fostering a critical discussion rather than for manipulation purposes (Leube, 2012, p. 213). Also, suitable chairs “take pleasure in ensuring the success of others, while taking no public credit” (Spencer Stuart, 2020a, p. 6).

4.2.2.2 Social Competences

Social competence (also interpersonal competence) concerns managing relations (Viitala, 2005, p. 441). It expresses the behavioural ability and attitude of a board chair to build and maintain relationships with several stakeholders (Hogan & Warrenfeltz, 2003, p. 79). Interpersonal traits incorporate certain qualities in human and social behaviour: understanding, collaboration, and interaction (Nordhaug, 1998, p. 10). For the chairperson, social competences incorporate four dimensions:

Cognitive empathy: For an organisation to succeed in its environment, the chair and leaders at the top should be “empathic to feel, understand, respond to and address emotional needs” (Tzouramani, 2017, p. 198). If people succeeded in integrating emotional- (self-awareness), social- (team awareness), and cognitive intelligence (system awareness), they became high-performers (Boyatzis, 2008, p. 7). Moreover, a leader’s empathy positively enabled to mediate interpersonal and task relationships (Kellett et al., 2006, p. 148). In that sense, the consistent effort to ensure a real dialogue enables positive mediation in interpersonal and task relationships and creates win-win situations (Mahsud et al., 2010, p. 570).

Cultural awareness: The board chair significantly shapes board room culture, influenced by global economic challenges and sensitive local conditions (Higgs, 2003, p. 23; Lee & Phan, 2000, p. 205). Cultural characteristics such as pragmatism, consensus, quality, and punctuality are believed to be widely recognised in Switzerland. It is thus postulated that “the timeliness, quality and reliability associated with the craftsmanship of Swiss watchmaking would also be expected from and by the chairs” (Frey, 2019, p. 81). Therefore, a Swiss chair should have a connection to Swiss culture and be able to partake in company visits (internal) and events (external) (Roberts et al., 2005, p. 13).

Networking: A board chair should be well networked and able to actively interact and expand connections over time (Krause et al., 2016, p. 197). Given the chair’s representative functions (Section 1.4.5), an extensive network is beneficial for bridging and establishing connections at board, management, and extra-organisational levels (Adler & Kwon, 2002, p. 19; Nicholson & Kiel, 2004a, p. 11). Networking competence promotes access to resources (Kim & Cannella, 2008), reputation (Nicholson & Kiel, 2004a), legitimacy (Withers & Fitza, 2017), partnerships (Zahra & Pearce, 1989), and third-party support (Westphal & Zajac, 2013).

Verbal eloquence: The chairperson faces complex and interactive tasks (Williams & O’Reilly, 1998, p. 89). Performing these tasks requires the chair to be a “sophisticated and expert communicator” (Korn Ferry, 2009, p. 5), with a “certain minimum level of interpersonal attraction” (Forbes & Milliken, 1999, p. 496). A chair who is able to foster open discussions in formal (e.g. board meetings) and informal settings (e.g. bilateral discussions) can promote trust and confidence, new ideas, and a fruitful exchange of expectations and opinions throughout the organisation (Petrovic, 2008, p. 1384).

4.2.2.3 Leadership Competences

Leadership competence implies exercising authority to lead people.⁶ It focuses on relationships between supervisors and subordinates (an individual or a group of individuals) and involves recruiting, retaining, motivating, promoting, and being persistent (Hogan & Warrenfeltz, 2003, p. 79; Kirkpatick & Locke, 1991, p. 52). This means that leadership is the ability of a member to act either alone or in unison with others for a common cause (Viitala, 2005, p. 441). For the chairperson, leadership competences include four dimensions:

Stamina: For managing the trade-off between coaching (advise) and supervising (monitor), the chair must adopt a critical and questioning attitude and withstand third-party pressure (Gabrielsson et al., 2007, p. 27). However, the chairperson should be neither an obstacle nor a devil’s advocate to the senior management and board members (Higgs, 2003, p. 24; Petrovic, 2008, p. 1384). Maitlis and Christianson (2014) describe this as sensebreaking, “challenge viability of status quo”, and sensegiving, “shape members’ understanding in a positive way forward” (p. 76). The chairperson must therefore have the stamina to simultaneously address challenging situations but also to deal with them by giving constructive feedback (Hinsz et al., 1997, p. 52).

Stewardship: Despite the board being a “collegium of equals” and a body of strong non-executive directors (Korn Ferry, 2009, p. 2), the board chair “handle[s] the granular work” and moves into directive mode when things go wrong (Spencer Stuart, 2010, Chapter 2). As “the head of a board” (Kanadli et al., 2020, p. 586), it is up to the board chair to facilitate that the members perform during the relatively short board meetings (Kakabadse et al., 2015, p. 274). Consequently, the chairperson must keep the goal in mind to create an output (Frey, 2019, p. 82). This means to put collaborative and inclusive stewardship competences into action and “unleash the board’s value-creating potential” (Gabrielsson et al., 2007, p. 22).

Team play: The chair must be a team player who seeks collaboration and consensus in often complex and sensitive relationships (Kakabadse & Kakabadse, 2007, p. 172). Special attention should be paid to the leadership of cross-functional, cross-divisional, and cross-company dimensions (Leube, 2012, p. 213). In principle, the ‘know-it-all’ and ‘know-better’ type of person got the wrong end of the stick (Frey, 2019, p. 85). Necessarily, the chairperson should include other ideas in the board’s decision-making practices by reconciling latent disagreements between members at an early stage (Walther, Calabrò, & Morner, 2017, p. 2210). Seeking consensus and collaboration, yet, does obviously neither mean sinking into group-think nor abandoning critical evaluation (Coles et al. 2015, pp. 2–3; FRC, 2015, p. 5).⁷

Visionary thinking: A leader is only as good as his or her acceptance (Strange & Mumford, 2002, p. 374). This is why a chairperson should feel able to create a vision for the board and the organisation (Lee & Phan, 2000, p. 208). Highly capable visionaries inspire, stimulate, give meaning, and get people to follow them, yet without the carrot and stick (Jackson et al., 2003, p. 204; Olson & Adams, 2004, p. 424). This requires “first and foremost a deep understanding of and concern for others as well as oneself” (Quinn et al., 2015, p. 17). Khatri et al. (2012, p. 40) and Strange and Mumford (2002, p. 347) thus characterised that vision is a matter of the heart (charisma) and the head (intellectual task).

4.2.2.4 Business Competences

Business competence (also intra-organisational competence) is expert knowledge about the tasks of the board.⁸ It reflects the current and future knowledge of board members and is typically presented in (non-)executive education programmes (Viitala, 2005, p. 440). Basically, business competence refers to the ability to make decisions and “to think in terms of systems and knowing how to lead systems” (Viitala, 2005, p. 440). Such decision-making ability depends on crucial meta-cognitive skills rather than interpersonal abilities (Nordhaug, 1998, p. 11). It is therefore the reason why business knowledge is considered important for performance (Hogan & Warrenfeltz, 2003, p. 79). Specifically for the board chair, business competences include four dimensions:

Analytical thinking: Despite great uncertainties (Section 3.1), the leader at the top must have the (conceptual) flexibility, ability, and capacity to make judgements and to act upon them (Bauen & Venturi, 2009, p. 10; Lee & Phan, 2000, p. 208). In that context, the chairperson must be someone who wants to understand “novel, unexpected, or confusing events” (Maitlis & Christianson, 2014, p. 58). In that sense, the chair must be someone who is able to identify, interpret, and steer the flow of information to make rational decisions with moral and business judgement (duty of care, duty of loyalty).

Board literacy: Becoming a leader entails expertise, wisdom, and intelligence (Khatri et al., 2012, p. 40; Yar Hamidi & Gabrielsson, 2018, p. 89). A chairperson accordingly needs to be able to govern and manage a board, whereby industry expertise with a proven track record in running an organisation is key (Banerjee et al., 2020, p. 382; Korn Ferry, 2009, pp. 5–6; Withers, 2011, p. 39). People with vast transactional know-how, including previous board and senior management practice, often have advanced knowledge in offering advice and a sense of what stakeholders care for (Elms et al., 2015, p. 1314). A chairperson with long-standing experience can help to tackle new and complex issues more effectively by drawing on his or her wealth of experience (Adner & Helfat, 2003, p. 1022; Helfat & Martin, 2015, p. 1286).

Disturbance handling: For the chairperson, being at the centre of inter-organisational tasks, a well thought-out conflict and solution management is necessary (Huse, 2018, p. 11; Marks et al., 2001, p. 368). This means managing unexpected situations by quickly working towards an optimal solution (van Ees et al., 2009, p. 312). Quinn et al. (2015, p. 17) described disturbance handling by the example of financial and operational staff with initially completely different views, who, through the moderating function of the chair, came to an agreeable solution in the end. In other words, disturbance handling describes a person who facilitates and creates win-win situations (Lee & Phan, 2000, p. 208).

Strategic thinking: To constantly adapt the organisation’s strategic raison d’être (Withers & Fitza, 2017, p. 1346), the board chair in particular, together with the CEO, must have a thorough understanding of the organisation’s macro perspective (Krause et al., 2016, p. 194). Hence, as “the board chair acts a strategic advisor and board leader” (Langan et al., 2022, p. 25), the chairperson ought to have the ability to sense (identify), seize (respond), and reconfigure (modify) strategic opportunities and threats (Aberg & Shen, 2020, pp. 181–182; Teece, 2007, p. 1342). That means to be competent to recognise “patterns, trends, and cause/effect relations” at an early stage (Lee & Phan, 2000, p. 207). Being able to identify them early on enables a chairperson to generate value and maintain competitive advantage (Gabrielsson et al., 2007, p. 28).

4.2.2.5 Technical Competences

Technical competence (also inter-organisational competence) is functional expertise. It denotes competences where the person knows “tools, procedures, and techniques” in a field of knowledge by heart (Viitala, 2005, p. 440). Hillman et al. (2000, p. 240) hereby used the term support specialist to group this together. Technical competences are usually required beyond one specific organisation or industry (Nordhaug, 1998, p. 10). Usually, persons with such inter-organisational competences have either studied or demonstrated them while serving on other boards (Viitala, 2005, p. 440). Technical competences may encompass (Hilb, 2016, p. 133): (1) audit and finance; (2) environmental, social, and governance (ESG); (3) human resources; (4) legal; (5) marketing; and (6) technology.⁹

Leube (2012, p. 214) stated that is important to recognise that no chair can be an expert in all technical areas. Rather, it is important that the technical competence of a chair covers a clearly identifiable field relevant to the company (Kirkpatick & Locke, 1991, p. 55). It also applies to the chair that he or she must not only be knowledgeable in one specific technical field, but that he or she must have an equally strong general knowledge. Only then will the person be able to challenge the board and senior management.

4.2.3 Review

Bearing in mind Hung’s (1998, p. 105) theoretical frame of reference and Huse’s (2018, p. 31) value-creating approach, a thorough review of the relevant roles, tasks, and competences shows that the expectations a chairperson faces are enormous. The chairperson must therefore overcome and meet multiple challenges. It is thereby essential to keep the following in mind:

• Roles describe activities that enable the applicant to fulfil the tasks assigned to him or her. Board governance theories serve as the basis for determining the role of the chairperson. As underlined, the theories should be applied in a multiple, holistic view to meet various shareholder and stakeholder expectations.

• Tasks relate to activities of the chairperson to meet the role expectations that the position entails. Depending on the characteristics and focus of the role structure, tasks may also change.

• Competences are the personal abilities to meet role and task expectations. For the chair position, a focus on key competences is necessary, as no applicant will be able to meet them fully. Finding a candidate who meets the specific competences of a chairperson increases the personal value contribution.

4.3 Moderators

Section 4.3 addresses the second phase of the input-process-output model. By introducing a framework, the extensive literature review tackles the single process steps. Once explained, the focus is placed on the moderators: the key stakeholders and the key contingencies.

4.3.1 Succession Process Framework

The nomination committee’s objective is to thoroughly plan succession (Kesner & Sebora, 1994, p. 344). According to Johannisson and Huse (2000), a thoughtful succession process in theory consist of “(a) an explicit definition of needs, (b) a systematic director search process, [and] (c) that the final choice of directors is based on the needs and set of evoked candidates” (p. 356). In practice, however, there is a disagreement on the number of process steps, the people involved, and the starting and ending point of the process (Conger & Fulmer, 2003, p. 75).

This dissertation applies an integrative approach and follows the research path of Clune et al. (2014) and Elms et al. (2015). The scholars were among the first to consider the selection process from a social and behavioural perspective. To meet the structural requirements, the thesis follows a four-stage framework (Figure 4.4). Figure 4.4 extends Barth’s (2013, p. 40) framework to integrate key stakeholders and key contingencies that influence the succession process.

Figure 4.4

(Source: modified from Barth, 2013, p. 40)

Four-stage Succession Process.

As highlighted in Figure 4.4, succession starts with the decision for a change at the chair level. The timing of succession should be planned in advance based on mandate duration, expectations, and strategic outlook (Spencer Stuart, 2020a, p. 13). Two important remarks should be noted. First, the primary focus is not on the trigger points that lead to succession planning (catalyst, Section 2.5.2), nor on the final shareholder vote to elect the person as chair (AGM, Section 2.1.1). Focusing makes it possible to clarify the depth of the research under study. However, it does not intend to diminish its importance (e.g. onboarding). Second, the four process stages in Figure 4.4 are not set in stone. They may vary since they follow “both the formally codified standards and the informal routines and norms that structure conduct in organizations” (Ocasio, 1999, pp. 385–386). The use of a framework yet allows context- and organisation-specific backgrounds to be implemented.

4.3.1.1 Assessment and Profiling

The nomination process starts with a competence assessment (Clune et al., 2014, p. 761).As chairing the board requires going beyond the control, strategy, and service roles (Section 4.2.1), “boards need to evaluate existing abilities and future tasks” to live up to the expectations (Ruigrok et al., 2006, p. 124). Such an assessment on board level is a systematic analysis to form an overview of the competences present and the ones necessary for the further course of action. Along that process, it is essential to look at the current, but also at the expected changes on macro and micro level (Leube, 2012, pp. 216–217).

Once board aspects are assessed, the second step is to specifically formulate a candidate profile for the chair. Profiling is “the activity of collecting important and useful details about someone.”¹⁰ It allows to identify necessary competence criteria to preselect candidates in the further course of the process (Schepker et al., 2018, p. 524). In general, the qualification profile required is based on the particular input the chair is expected to contribute, the overall constellation of the board, and the respective corporate strategy followed (Leube, 2012, pp. 216–217). In view of the complexity of tasks (Lee & Phan, 2000, p. 210), no chairperson can be expected to be an expert in all areas relevant to the company. In this respect, it is more important that the person concerned covers at least a clearly identifiable field in their professional competence. Therefore, the board as a group must ensure complementarity of competences in all relevant aspects in which the organisation is embedded (Owen & Kirchmaier, 2008, p. 206). In that context, it should be noted that a board chair’s qualification profile per se is no evergreen. As is the case with business cycles, the competences required may change over time. They are thus by no means static in nature but need to be adapted dynamically (Werder & Wieczorek, 2007, p. 298).

4.3.1.2 Identification

Systematic candidate search is the second step and refers to “the act or process of looking carefully in order to find someone” to match the requirement profile.¹¹ For finding a fitting personality, organisations often extend their search to unfamiliar sectors such as cross-industry or international environments (Leube, 2012, p. 217). It is important to distinguish between the assessment/profiling and the identification stage, since, for the first time in the succession process, external parties may be involved (Walther, Morner, & Calabrò, 2017, p. 352).¹² The process consequently becomes a joint effort left to a few individuals.

The process of identifying candidates is done on a case-by-case basis (Barth, 2013, p. 42). For external candidates, the typical identification process starts with screening the market for potential candidates. Once the market is screened, a list of 15 to 25 persons on average is established. If internal candidates are qualified for the chair position, they may also be part of the pooling process. Due to the current cooling-off and independency discussion, however, this is less likely to happen (Krause et al., 2016, p. 1991).¹³ Once the nomination committee and its partners have determined the 15 to 25 candidates, the personalities are vetted. In that context, vetting refers to the process of contrasting the candidates’ competences with the requirement profile and then benchmarking them to the candidate pool. That discussion takes place in nomination committee meetings (Leube, 2012, p. 217). The outcome is a short list of ten respectively three candidates (Olson & Adams, 2004, p. 449).

To learn more about each candidate, the nomination committee/the process owner conducts background and reference checks (Gaughan, 2013, p. 153). This can be done by organic or mechanistic means (Section 4.1.2). The informal, network-oriented information approach allows for ad hoc and direct feedback from candidates (no euphemism) (Biehler & Ortmann, 1985, p. 14). In more formal and compelling formats, organisations may enlist the help of search consultants/board advisors (Clune et al., 2014, p. 770).

4.3.1.3 Evaluation

Once a short list is generated, the chair of the nomination committee or the board advisory consultant, if present, usually contacts the candidate(s) (Roberts, 2002, p. 499). The purpose of the first contact is to explore the general interest in the chair’s role and to get to know each other better. If candidates refuse to be interviewed or did not perform as expected in the interview (for whatever reason), other candidates are approached. Candidates who left a positive impression are invited to a second, third, or further follow-up interview.

In the evaluation stage (and the following stages too), interviews should pursue a vigorous strategy. There, ideally, other nomination committee members should also talk to the candidate(s): “To best understand a candidate’s skills, style, and potential fit in the boardroom, multiple directors should spend time with candidates, and if possible, interviews should take place in a variety of settings or formats” (Spencer Stuart, 2018, p. 2). That allows for deeper conversations and more substance.

One additional option to add informational substance is an assessment centre (not to be mistaken with the board assessment for the competences in the profiling phase, Section 4.3.1.1). An assessment centre aims at evaluating the strengths and weaknesses of the candidates. Supported by professional business psychologists, the candidates face interviews, basket and stress exercises, presentations, strategy speeches, and role plays to test their personal and cognitive abilities in strategic perspective, business sense, communication, and leadership (Lee & Phan, 2000, p. 212).¹⁴

Overall, the evaluation process is the least researched of the four stages (Barth, 2013, p. 44). Boards are highly selective, which is why little information is publicly available. Discretion reinforces the poor information level (Campbell et al., 2012, p. 1438). In this context, the literature speaks of a closed process with low process visibility (O’Neal & Thomas, 1995, p. 85).

4.3.1.4 Selection and Recruitment

If candidates have proven to be successful in the interview cycle, the nomination committee members propose the most suitable candidate(s) to the full board (Hilb, 2016, p. 88). In fact, the full board votes on the final election proposal for the AGM (Section 2.1.2). To have a critical discussion, it seems thus appropriate that the board also interviews the candidates (Werder & Wieczorek, 2007, p. 303).

Whether the current chairperson and/or the CEO should also conduct an interview is controversially discussed from a best governance perspective (Walther, Morner, & Calabrò, 2017, p. 358). In general, the main purpose of the second interview round is to check social and personality competences (group fit) of the individual members (Section 4.1.2). The professional know-how and leadership competences (role fit) have already been addressed by the candidacy profile (Olson & Adams, 2004, p. 422). Yet, as the relationship between the chair, the board members, and the CEO “can provide the tipping point that causes the candidate to be selected over other qualified candidates” (Clune et al., 2014, p. 762), interview participation is rather likely.

Ultimately, once all interviews are conducted, the full board makes its final vote.¹⁵ If the majority of votes are in favour, the candidate will be contacted and asked to accept the application to the AGM (Müller et al., 2021, p. 32). If the candidate refuses and/or does not fully meet the requirements (unlikely and rare at this stage of the process), the background checks and the interview rounds would start again (see circulars in Figure 4.4, Section 4.3.1). Overall, it is important to keep in mind that the process described relates to a mechanistic process. In an organic process, a single decision-maker, either the former chair, the vice-chair, or the lead independent director, is likely to decide on the succession (Doldor et al., 2012, p. 23; Elms et al., 2015, pp. 1320–1321).

4.3.2 Key Stakeholders

Lately, various players have been pushing for greater influence and insights on chair selection. According to Hambrick et al. (2008), as demands go “beyond the obvious roles of regulatory authorities and stock exchanges, we are witnessing an increasing influence from […] watchdog groups” (pp. 382 − 383). In the quest for transparency, the basic attitude is to communicate with the relevant reference groups in a confidence-building manner (Leube, 2012, p. 210). Section 4.3.2 describes the relevant key stakeholders.¹⁶

4.3.2.1 Board Advisory

Board advisory consultants (also executive search or head hunter) “facilitate the transaction between hiring firms and candidates that entails bridging gaps between unconnected parties and managing the flow of activity and information between them” (Simmons, 2019, p. 815). The power that board advisors exercise today is evident. An analysis of annual reports in the UK revealed that 73% of FTSE 100 and 60% of FTSE 250 organisations claimed they received support from board advisors in succession (Doldor et al., 2012, p. 26). The situation is similar for S&P 1500 organisations. Between 2004 and 2008, a third of the 4,963 independent directors elected were identified by search consultants (Akyol & Cohen, 2013, pp. 46–47).

Seeking advice from board advisors has two major advantages. First, search consultants work as gatekeepers (Doldor et al., 2012, p. 27). By using their vast pool of candidates, they amplify the chance to find the perfect fit to the candidacy profile (Fernandez-Araoz et al., 2021, p. 20). Second, advisor involvement adds objectivity and transparency to the process (Schepker et al., 2018, p. 529). With their help, organisations are able to implement a systematically and formally structured process more adequately.

Yet these services come at a cost. Since it is a lucrative business (average fee for a listed board mandate: CHF 200,000−300,000), board advisors have incentives to steer the succession process in their favour. Besides critics argue that board advisors generate “the same old lists” and “the same old names” (Main, 1994, p. 166), they can potentially influence selection by encouraging the process owner to propose only candidates from their long/short list, thus indirectly taking control (Garman & Glawe, 2004, p. 126; Steuer et al., 2015, p. 8). This has led to board appointment processes with the “inability to assess candidates’ fit and chemistry” (Clune et al., 2014, p. 773).

4.3.2.2 Company Secretary

The company secretary (also board secretary) supports the board of directors in legal and administrative functions (Cadbury, 1992, p. 15). The activities do not include executive functions. Aydin (2013) sees the organisational position of the secretary therefore as “accountable to the board of directors and responsible to the Chairperson” (p. 273). In principle, the company secretary performs three fundamental tasks (Müller et al., 2021, pp. 91–92): (1) organising board meetings and meeting records (board agenda, board documentation, meeting minutes); (2) signing of company-related documents (share register, AGM invitation); and (3) representing the organisation at various levels towards internal and external stakeholders (press release, stakeholder meetings).

In his or her function, the company secretary is strongly aligned with the board (Hilb, 2016, p. 43). To perform the role adequately, the board secretary is eager to establish a good relationship with the board. However, within the boundary spanner function, the company secretary can also exert influence. For example, the administrative function can control the flow and volume of information shared (McNulty & Stewart, 2015, p. 522). Another example is the preparatory work for board scheduling. The bilateral meetings with the chairperson and/or head of the nomination committee enable views on certain matters to prevail and can thereby influence their perceptions and opinions (Kakabadse et al., 2017, p. 246). As the company secretary collaborates closely with the chairperson, he or she can influence the outcome in succession planning.

4.3.2.3 Senior Management/CEO

The senior (executive) management is a group of individuals tasked with the day-to-day operational activities within an organisation (Jackson et al., 2003, p. 238). Focusing on succession planning, the primary influence stems from the CEO. Given the role of the chairperson as a supervisor and sparring partner on business level (Section 4.2.1), the CEO is willing to have a board chair who is likely to be compliant with operational strategies (Withers et al., 2012, p. 247). On a personal level, the CEO seeks to maintain good chemistry and trust in the relationship with the chairperson (Kakabadse et al., 2006, p. 144; Kakabadse et al., 2010, p. 290). Ideally, taking into account regulatory principles, the CEO has minimal, but by no means dominant, interference in succession planning (Olson & Adams, 2004, p. 449; Pirzada et al., 2017, p. 104).

As a matter of fact, the CEO’s intention is to guide the candidate selection process in his or her favour with “ways to counteract, delay, or even sabotage succession activities” as the ultimate means (Berns & Klarner, 2017, p. 91). It is best for CEOs to attract candidates who are part of their network (similarity attraction), who tend to share and accept their intellectual ideas (ingratiatory behaviour), and who empower their personal inner elite circle (managerial hegemony) (Clune et al., 2014, p. 754; Walther, Morner, & Calabrò, 2017, p. 358).

4.3.2.4 Shareholder (Activist)

Shareholders are individuals, business organisations, or states that own stocks of organisations (Shekshnia & Zagieva, 2021, p. 21). Arguably, the two most important shareholders of listed organisations are family shareholders and institutional (activist) investors.

Family shareholders can be an individual (founder) or the founder’s descendants (family members). Listed organisations with more than 25% family ownership are considered family businesses (Lantelme et al., 2021, p. 5). A lot of influence usually comes from the older family generation, especially from those who used to hold a management position themselves (Allert, 2019). Often, family members are considered to make long-term, sustainable investments by exerting influence via management or board position (Sacristán-Navarro et al., 2011, p. 102).

Institutional shareholders are asset managers, banks, private equity funds, hedge funds, or sovereign wealth funds (Klein & Zur, 2009, pp. 190–191). Particularly private equity and hedge funds take a strong activist role. Activists often voice their dissatisfaction and suggest changes in the organisation to “maximise both returns and social good through corporate governance” (Musa, 2012, p. 3110). In succession, activist behaviour is typically reflected in changes to board composition (Watter & Roth Pellanda, 2015, p. 396). Activists want to understand how selection practises proceed and vary (Elms et al., 2015, p. 1315). Therefore, they seek to understand how boards are composed “beyond director independence” (Spencer Stuart, 2018, p. 2). In Switzerland, where large organisations such as Roche and Swatch are controlled by families, activist behaviour still has a much smaller impact than, for example, in the US and the UK (Hofstetter, 2002, p. 8; Tuch, 2019, p. 1474).

4.3.3 Key Contingencies

In theory, succession processing is smooth and straightforward. In practice, however, the process is arduous to manage (Barth, 2013, pp. 44–45; Olson & Adams, 2004, p. 43). As the chairperson is involved in a complex environment and his or her position carries a great deal of responsibility (Maitlis, 2004, p. 1280), there are contingencies across the succession process that simultaneously hinder and promote (Gabrielsson & Huse, 2004, p. 19; Huse, 2005, p. 67).¹⁷ To fully understand the dynamics and context around the chair, it is crucial to address them.

For the most part, organisations adapt their search to micro- and macro-level characteristics (Section 4.3.1.1). Reviewing the literature shows that scholars have attempted to address disruptive contingencies within the sphere of succession planning (e.g. Leube, 2012; Luoma & Goodstein, 1999; Pearce & Zahra, 1992; Walther et al., 2015). The attempts, however, were predominantly unstructured and done in a cherry-picking manner. To address them systematically, after a thorough literature review, the following sub-chapters summarise and cluster the respective contingencies into four dimensions: business contingencies, environmental contingencies, governance contingencies, and political contingencies (Figure 4.5).

Figure 4.5

(Source: own illustration)

Succession Contingencies.

4.3.3.1 Business Contingencies

Subject to business-level characteristics, Board structure (or structural board capital) is the first driver that impacts succession (Kim et al., 2009, p. 738). Board structure facilitates the processing of succession planning as noted in the section on the assessment and profiling phase (Section 4.3.1.1) and in several prior studies (e.g. Finkelstein & Mooney, 2003; Knockaert et al., 2015; Roberts et al., 2005). Referring to “routines, processes, procedures and policies that facilitate the board’s use of its human and social capital” (Nicholson & Kiel, 2003, p. 17), board attributes that drive board capital relate to composition (Li & Hambrick, 2005, p. 796), culture (Spencer Stuart, 2018, p. 3), size (Banerjee et al., 2020, p. 389), hierarchy/status (Mathieu et al., 2008, p. 440), and dynamics (Petrovic, 2008, p. 1382). Depending on the structural conceptualisation of the attributes, board processes vary accordingly between organisations. For example, Walther et al. (2017, p. 352) and McNulty et al. (2011, p. 109) distinguished that the search process in nomination committees changes based on task-related interactions, chair leadership, timing and extent of information exchange, (non-)availability of qualified people, and individual director behaviour.

Moreover, unique and different contexts apply depending on the life cycle (Lynall et al., 2003, p. 416; Quinn & Cameron, 1983, p. 34). Depending on past success (or failure), the nomination committee and the board face either greater immediacy (slack search) or risk-taking behaviour (problematic search) during a change at the top (Walther et al., 2015, pp. 14–17).¹⁸ Hence, performance allows boards to invest either less or more time on the search for the chair (Knell, 2006, p. 89; Ruigrok et al., 2006, p. 143). Subsequently, “a company in crisis will demand something different from the board chairperson compared to a company experiencing high growth” (Gabrielsson et al., 2007, p. 26). In addition, organisations become more complex and tend to put more emphasis on their legitimacy once they have made the transition to a more mature business stage (Perrault & McHugh, 2015, p. 631) and grow with size (Boone et al., 2007, p. 2004). Mature and large organisations are thought to be more inclined to adapt governance principles (Lynall et al., 2003, p. 428).

Another factor relates to ownership (Brunzell & Peltomäki, 2015, p. 413; Windolf & Beyer, 1996, p. 226). Contrary to dispersed shareholdings, organisations with a dominating shareholder, state-controlled enterprises, or family businesses create practices that are specific (INSEAD, 2016, p. 9). So, for instance, large and long-term family investors continue to have an influence on the election: Block holders “can and do put immense pressure on boards and directors, with significant consequences for both how they work and judgements made about their effectiveness” (Pye & Pettigrew, 2005, p. 32). Consequently, a lot of backstage work is needed to get all anchor shareholders on board. In the worst case, their influence can go so far as to marginalise the say of the process owner, most likely the chair of the nomination committee, when it comes to candidacy pooling (Barth, 2013, p. 45). In principle, such shareholders expect to be informed about the candidacy before a public nomination is made (Olson & Adams, 2004, p. 427). Therefore, Spencer Stuart (2011) concluded that it “is obviously unwise to run an appointment process that disregards the view of the investors who own the company” (Chapter 3).

Furthermore, for an “effective succession plan” (Weisblat, 2018, p. 17), it is central to closely link planning and profiling to the organisation’s well-articulated strategy (Pearce & Zahra, 1992, pp. 415–416). That means that it is important to recognise not merely the current but primarily the future needs of the board (see Section 4.3.1.1). One element of choice, for example, is whether to have a chair who is a collaborative leader for wicked problems (internal-relation/external-hostile) or a vigilant monitor for tame problems (transformational-internal/industry-external) (Morais et al., 2020, pp. 2–3). In that sense, a person with a radical or conservative mindset (Fernandez-Araoz et al., 2021, p. 10). For this reason, a suitable choice is a question of human resources that focuses more on the constitution of the organisation’s future than on the past raison d’être (Cadbury, 1990, p. 170).

4.3.3.2 Environmental Contingencies

Subject to environmental-level characteristics, specific industries have higher accountability than others (Hillman et al., 2000, p. 236). Banks, insurers, and pharmaceuticals are subject to stricter regulation and create greater public salience (Leube, 2012, p. 204). In that context, since those organisations are “more visible and hence subject to greater attention” (Luoma & Goodstein, 1999, p. 556), they are more concerned to apply recognised norms and standards and are more open to stakeholder demands (Pfeffer & Salancik, 1978, p. 168). Particularly financial services face stricter policies and greater public scrutiny than other organisations in other industries (Section 2.3).

The development of succession principles may also be moderated through market dynamics (Pye & Camm, 2003, pp. 54–55). Market dynamics can have multiple causes. They, however, create market expectations that need to be met. Business and societal trends are one example. For Huse (2018, pp. 18–19), the stricter use of ESG principles or the focus on board value creation are the current trends that apply to the board chair. Another example is competition. If organisations face a high competitive environment, there is greater “need for governing boards to be informed, engaged, and effective” (Brown, 2007, p. 301). That drives the need for high-quality board personalities who have proven themselves in business under public pressure. Market dynamics can be manifold, but they are a dynamic rather than static act, since social and economic conditions are constantly changing (Huse, 2005, p. 7).

Proxy advisors are business organisations offering analytical services to institutional investors for “develop[ping] voting guidelines, handling the mechanics of the voting process, and offering recommendations on each issue on a company’s agenda” (Choi et al., 2010, pp. 870–871). With 90% market share, 40,000 shareholder meetings annually, and more than USD 26 trillion in global assets, Institutional Shareholder Services (ISS) and Glass Lewis are the two dominant proxy players (Dent, 2014, p. 1291; Sauerwald et al., 2018, p. 3368). Their power is demonstrated by Choi et al. (2010, p. 906), who conservatively estimated that a proxy recommendation shifts 6−10% of shareholder votes (other studies speak of 20−30%). Consequently, subject to succession, if organisations fail to persuade proxy advisors to vote for the appointee, this could have consequences for the approval rate at the AGM (Calluzzo & Dudley, 2019, p. 927). Proxy advisors are therefore also often criticised, as their tick-the-box approach neglects to involve contextual explanations (Reutter, 2015). However, as their monitoring relies on disclosure transparency − also with the effect to have a greater say in director nominations − it is in the interest of the nomination committee to communicate early and proactively (Cappucci, 2019, p. 582).¹⁹

Regulation is a societal and institutional influencer (Luoma & Goodstein, 1999, pp. 555–556).²⁰ It guides the organisation to act alongside barriers with incentives and penalties (Olson & Adams, 2004, p. 437). More importantly, it recasts law into an institutional isomorphism with a “broad cultural framework that influences organisations both mimetically and normatively” (Suchman & Edelman, 1996, p. 920). As regulatory parties are multiplying, their range and scope vary “from traditionally more adversarial through to collaborative relationships” (Pye & Camm, 2003, p. 54). In succession, the most obvious influence by regulation is the institutionalisation of the AGM, where the chairperson is elected by shareholder majority (Section 2.1.1). The regulatory outcomes that affected succession are manifold, but related to new (industry-related) regulatory intrusion (Baysinger & Zardkoohi, 1986; Luoma & Goodstein, 1999) or regulatory adaptive changes (Hillman et al., 2000; Lang & Lockhart, 1990).

4.3.3.3 Governance Contingencies

Subject to governance-level characteristics, it is important that the process leader pays attention to confidentiality and aims at restricted but fair communication (Egon Zehnder, 2021, Chapter 6; Walther, Calabrò, & Morner, 2017, p. 2206). “Good candidates have professional options, including other board opportunities” (Spencer Stuart, 2018, p. 3), which is why it is important to maintain momentum and to remember that it is a two-way street. Under no circumstances should there be an impression of “keeping the candidate warm” or using information for public purposes (Spencer Stuart, 2018, p. 3). Confidential and partnership-based communication helps to overcome barriers of information asymmetry towards the board and external advisors (Eminet & Guedri, 2010, p. 559; Watson et al., 2020, p. 107). More importantly, however, maintaining confidentiality complies with stock market principles, enhances trust, and promotes engagement (Sonnenfeld, 2002, p. 5).

With regard to diversity, the talk is booming (Trautman, 2015, p. 234).²¹ Many best practice codes around the world stipulate an adequate diversity ratio (Clune et al., 2014, p. 760). Particularly, female presence on boards is a pressing phenomenon (Doldor et al., 2012, p. 111). Beyond this, organisations are also striving to bring a breath of fresh air to boards in terms of demography, cultural, and socio-economic backgrounds (Akyol & Cohen, 2013, pp. 47–48). According to Li and Hambrick (2005, p. 796), different mindsets and approaches help to overcome routinisation and to adapt to the changing environment. This leads to these aspects influencing candidacy and serving as a fulcrum for the AGM proposal (Cai et al., 2013, p. 121).

An additional facet is independence (Campbell et al., 2012, p. 1434). It is assumed that the control and monitoring function will be exercised to a lower extent if the chairperson used to occupy a management position and/or had significant business relations with the organisation (Lahlou, 2018, p. 4). Applicable listing requirements and soft law standards thus stipulate to appoint a non-executive or a cooled-off chair in hybrid governance systems (Section 2.5.1). The independence mechanism is intended to overcome conflicts of interests and emphasise a critical mindset (Walther & Morner, 2014, p. 145). Generally speaking, independence is the ability and “willingness to behave in particular ways and display certain qualities” (Petrovic, 2008, p. 1382). Hence, in the spirit of a concert director, the chair should not simply align, but lead critical board discussions. For that, an independent and open way of thinking is indispensable.

In the same vein, overboarding is also discussed (Harris & Shimizu, 2004, p. 777). Chairpersons are expected to have the necessary time commitment to be able to meet the multiple roles that the position entails (Olson & Adams, 2004, p. 450). Scholars often refer to the term busyness when discussing overboarding (e.g. Ferris et al., 2003, p. 1088). Overboarding principles thus limit the maximum number of directorships (Fich & Shivdasani, 2006, p. 692). Especially proxy advisors focus on that subject (Section 4.3.3.2).²² Organisations are aware of the constraints and therefore limit the amount of board mandates for their own members in their corporate by-laws (Section 2.5.1).

Another, more country-specific factor is Swissness (also localness). In recent years, a trend towards national/local anchoring of the chairperson has emerged (Schütz, 2020, p. 35), also on the level of the full board (guidoschilling, 2021, p. 10). On the one hand, a chairperson with a cultural and local connection can connect more easily with stakeholders (Knyazeva et al., 2013, pp. 1571–1572). On the other hand, board chairs can engage more actively in political and social discussions (e.g. Coalition for Corporate Justice initiative, CO2 initiative). However, this requires a chairperson with political understanding and a broad social network. This is something that cannot be built overnight. Nationality and understanding of the cultural context can play an important role in chair selection (Ruigrok et al., 2007, p. 555).

4.3.3.4 Political Contingencies

Subject to political-level characteristics, the former chairperson can play a crucial role by assuming responsibility and thereby influencing the process (Roberts, 2002, p. 500). Spencer Stuart (2011) related this to the analogy of pilots handing over control of their aircraft, with “no room for ambiguity at this moment” (Chapter 3). There are two perspectives to the inclusion of the former board chair in succession. On the one hand, negatively, it is a matter of strengthening the position of power and social status (Finkelstein et al., 2009, p. 195). Acting as a process owner can lead to a reference point for stipulating the new evaluation criteria (Elms et al., 2015, p. 1321; Withers et al., 2012, p. 246). Similarity attraction (Zajac & Westphal, 1996b), ingratiatory behaviour (Stern & Westphal, 2010; Westphal & Shani, 2016), friendship ties (Westphal, 1999; Westphal & Stern, 2006), loyalty (Zander, 1979), and persuasion practices (Samra-Fredericks, 2000) can be the consequences. On the other hand, positively, it is about guiding succession in the desired direction. With the experience and wisdom gained, the chairperson can advise the nomination committee and support the process for a positive outcome (Owen & Kirchmaier, 2008, p. 203).

Candidate recommendations, for example by the chairperson, the full board, and the CEO, can go through existing personal network relations (Cai et al., 2022, p. 15; Clune et al., 2014, p. 760). The personal network usually results from previous business relationships that were seen “necessary for successful personal and organizational gains” (Ferris et al., 2007, p. 292). Knowing the candidate can be an advantage in proactively defining role fit and group fit and voting in favour/against the candidate (Kim & Cannella, 2008, p. 287). Personal relations, however, can also undermine the formal criteria established by the requirement profile (Olson & Adams, 2004, pp. 449–450; O’Neal & Thomas, 1995, p. 84). The old boy’s network is the best-known effect here (Section 4.1.2).

In the search for a successor, the succession process may be power-biased (Pettigrew & McNulty, 1995, p. 857). Behavioural theory argued that the search for directors does not maximise its potential because it is shaped by social qualifications and personality traits (Bazerman & Schoorman, 1983, p. 212; Stenling et al., 2020, p. 637). Therefore, board chair selection is shaped by needs where people act with a strong sense of power and/or political skills (Ferris et al., 2007, p. 292). Consequently, there are people who control the succession process (omitting steps), who decide on the type and amount of information shared (give direction), and who favour personal interest over rational and logical motives (political games) (Walther, Morner, & Calabrò, 2017, p. 353; Wunderer, 1995, p. 173). Ingratiatory behaviour is possibly the best-known consequence (Westphal & Shani, 2016, p. 479; Westphal & Stern, 2006, p. 173). If one of the examples can be observed in a succession process, it can be assumed that the process is informal rather than formal (Section 4.1.2).

4.3.4 Review

Section 4.3 emphasised that succession processing is dynamic and complex. The insights provided have shown that the issue of chair succession goes beyond a pure shareholder voting perspective. To fully understand the process, there is a need to adopt a multiple stakeholder perspective and to recognise the impact of internal and external influences on the dynamics of succession. The analysis brought forward the following learnings:

• Ideally, there is a clear process structure. However, as board chair succession is context-dependent, the process may deviate from the ideal structure and requires more time and effort than the search for an ordinary board member (Korn Ferry, 2009, p. 5). The long timeline is certainly a consequence of the multi-step succession approach. The process is also a manifestation of the assumptions of behavioural theory. It is the reason why there is no single solution and why the individual stages may not merge smoothly but repeat from time to time (indicated by the review cycles in Figure 4.4, Section 4.3.1).²³

• There are key stakeholders involved in the succession. Due to their prospective high impact, they can have far-reaching effects on market and AGM decisions. Stakeholders are involved as they are important for extending the pool of candidates (board advisory), for fulfilling the board’s strategic duties (company secretary), for succedding in business activities (senior management), and for meeting expectations early on (family, institutional shareholders, state).

• The process adapts to business contingencies, environmental contingencies, governance contingencies, and political contingencies. Their influence can be decisive when it comes to the final vote in favour of or against a candidate. To plan the process adequately, it is integral to keep such internal and external influences in mind and to address them proactively and in advance.

4.4 Disclosure

Section 4.4 addresses the third phase of the input-process-output model. It has three objectives. First, it highlights the added value of voluntary disclosure in chair succession. Second, it examines to what extent organisations could better assess nominees in chairperson election through more specific disclosure. Lastly, it analyses the patterns of board succession disclosure. The three objectives combined allow to determine the willingness of organisations to take responsibility for accountability and to raise concerns about accountability, as well as their openness to voluntary disclosure on succession (Roberts et al., 2005, p. 18; Weiss & Schwartz, 1977, p. 86).

4.4.1 Disclosure Framework

Voluntary disclosure has a broad spectrum and can be very diverse. Dependent on the stakeholder(s) addressed, disclosure content is an indefinite argument referred to as “disclosure jungle” (Ghio & Verona, 2020, p. 58). In order to keep creating necessity, it is essential to stick to “the eyes of the beholder, i.e., the receiver and not the sender” (Nielsen & Madsen, 2009, p. 848). Therefore, organisations must keep in mind their intention as to what to disclose to whom (Ferramosca & Ghio, 2018, p. 189).

Subject to board accountability and creating accountability in disclosure (Section 1.4.7), stakeholders do not expect organisations to meet all dimensions (Huse, 2005, p. 67). More emphasis is placed on the quality of actual practices than on “boiler-plate language” (Leblanc, 2007, p. 168). To focus attention equally on qualitative and quantitative criteria, this chapter of the study uses a framework that is in line with Miller and Skinner’s (2015) and Ferramosca and Ghio’s (2018) discretionary analysis (Figure 4.6). On the one hand, it seeks to understand the dissemination principles on board succession disclosure (why). The research here addresses the motives that provide the impetus for information release. On the other hand, it examines the organisation’s voluntary discretion in terms of scope and content (how much and what), channel (where and by which means), and time/timing (when). That procedure permits collecting the information needed. It also allows for taking into account dissemination by stakeholders who may have further content (e.g. reports, data analysis) and impact (e.g. stock price, public salience) on the information provided.²⁴

Figure 4.6

(Source: modified from Ferramosca and Ghio, 2018, p. 192)

Voluntary Disclosure Framework.

4.4.1.1 Motive

Principally, the choice to disclose information is a strategic decision (Bujaki & McConomy, 2002, p. 110). There are basically three motives why the market expects organisations to increase their disclosure: coercive isomorphism, mimetic isomorphism, and professionalisation.²⁵

First, coercive isomorphism anticipates that informal and formal outside pressure will force organisations to disclose information to the public (Xiao et al., 2004, p. 197). In that sense, powerful stakeholders leave organisations with no other choice than to adhere. If they refuse, following institutional theory, their organisational functioning would be in danger. In principle, business members and regulators call for greater transparency (Gul & Leung, 2004, p. 352). Especially (activist) investors watch disclosures closely to see how boards engage (Spencer Stuart, 2020b, p. 1). The world’s largest asset manager BlackRock (2022), for example, stated that they “will not support the election of directors whose names and biographical details have not been disclosed sufficiently in advance of the general meeting” (p. 6). Organisations obviously try to avoid contesting elections. That encourages them to reveal part of the information, also against the backdrop of other unfavourable consequences (Verrecchia, 2001, p. 141).

Second, mimetic isomorphism entails organisations imitating or benchmarking others (DiMaggio & Powell, 1983, p. 151). “For example, when firms are uncertain about the appropriate level of disclosure they may review disclosures of other firms in their industry” (Bujaki & McConomy, 2002, pp. 109–110). That perspective allows responding to uncertainty and ambiguity in order to appear legitimate in view of emergent norms (Xiao et al., 2004, p. 198). Organisations then “contribute to the public image and this in turn may lead to greater public acceptance” (Trotman, 1979, as cited in Deegan & Carroll, 1993, p. 222). As indicated in Section 4.1.3, larger organisations are thereby expected to disclose more extensively as “they are assumed to produce this information already for internal purpose” (Raffournier, 1995, p. 262). That allows small(er) competitors to match the practices of listed organisations (Gallego Alvarez et al., 2008, p. 606).

Third, following the latest argument, professionalisation is the process in which norms instituted by professions create homogenous organisational practices (DiMaggio & Powell, 1983, p. 148). In principle, yet, professionalism is hardly ever accomplished with complete success, as organisations agree on third-party compromises (Section 3.1). While they “make voluntary disclosure that goes beyond minimum disclosure requirements in response to market demand” (OECD, 2015, p. 37), boards typically do more than they disclose. With respect to succession, investors thus wish to understand what skills and experiences a board member needs for successful future transitions. However, as they do not go to the maximum, organisations (too) often fail to provide persuasive rationales for the choice of candidates. According to the Council of Institutional Investors (CII) (2014), reflecting on their readiness for confidence-building communication, for meaningful disclosure, or for intelligent accountability would allow shedding “light on the board’s thinking about what each individual brings to the boardroom table” (p. 1).

All in all, when it comes to human capital disclosure, there seem to be reliance concerns on truthful reporting and proprietary costs (Section 3.4). Organisations withhold information because uncertainty exists about the intention the sensitive nature of the disclosure may have (Beyer et al., 2010, p. 310). “It may be understood wrongly to highlight any potential or perceived lack of skills or experience on the current board and could be seen as price sensitive information” (FRC, 2016, p. 5). The reasons why organisations are a bit secretive are the general accounting standards in mandatory reporting that disallow to recognise intellectual assets unless they can be reliably measured (Ghio & Verona, 2020, p. 80). But that is exactly where the motivation and value of voluntary disclosure lies: Most intellectual resources cannot be measured appropriately and in a conventional manner. Nonetheless, disclosing them as “intangible and intellectual resources is the limelight” (Ghio & Verona, 2020, p. 80). Organisations that avoid to disclose will a fortiori intensify information asymmetries, which is naturally unfavourable for the equity value (Verrecchia, 2001, p. 141). Thus, discretionary disclosure on board composition and succession works as a communication device for accompanying financial statements and to foreshadow trends in transnational reporting (Meek et al., 1995, p. 557). In addition, it also signals that the “board is willing to think critically about its own performance on a regular basis and tackle any weaknesses” (Spencer Stuart, 2020b, p. 6).

4.4.1.2 Scope and Content

With regard to the scope and content, in general, succession disclosure is underreported, inconsistent, insufficient, and imprecise (Mercer, 2004, p. 191). CII (2014) stressed that “too many provide basic biographical information” instead of presenting the added-value of each board member (p. 1). For Davis and Robbins (2005), disclosure is scanty, leaving shareholders and stakeholders to assess “director qualifications based on the thumbnail sketches included in proxy statements” (p. 294). As a response, Holder-Webb et al. (2008, pp. 545–548) demonstrated among 50 US organisations that board committee charters were the most frequently disclosed and board structure and procedures the least frequently. As a consequence, the FRC (2016) urged that succession disclosure be more closely linked to the organisation’s strategy, as investors “wish to understand the nature of the skills and experience a board will need in the future and how the company intends to make this transition” (p. 2).

To exercise their voting rights adequately, shareholders need robust information (SEC, 2013, Chapter 1). Providing investors with more meaningful disclosure is the solution. It “will help them [the shareholders] to determine whether and why a director candidate is an appropriate choice for a particular company” (CII, 2014, p. 1). If that information is not shared with the public, a rational buyer interprets that as withheld information and may consider it as a critical input into how and why the organisation’s value changes (Bushee & Noe, 2000, pp. 175–176).

There have been attempts to understand the phenomenon of disclosure on succession planning in more detail. In the UK, the FRC (2015, 2016) offered market participants the opportunity to take part in a discussion paper on succession planning and disclosure. In reviewing the statements, they concluded that disclosing on succession objectively is a complex task. The sensitive nature of the information and the perception that it may be wrongly understood are the two major arguments why organisations exercised great care. Nevertheless, investors perceived disclosure as valuable and “wished to know that appropriate steps have been taken to find and appoint the right person for the job” (FRC, 2016, p. 5).

Moreover, succession disclosure must be understood and “combined with narratives and visualizations” (Ghio & Verona, 2020, p. 82). The principle tenor in the responses to the discussion paper were that many stakeholders addressed the desire to include information and context on how the selection process unfolds, on the search and selection criteria, on involving external advisers, on board biographies, and on how the candidates specifically contribute added-value to the board (FRC, 2016, p. 4). One participant indicated that a level of playing field across all investor classes and sizes should be reported, yet with relevance to “the company’s situation rather than repeating the UK Corporate Governance Code requirements” (Aviva Investors, 2016, p. 3).

Specifically for chair appointments (at the personal and structural level), there was considerable demand for insights on the process steps (single steps), on the source that recommended the nominee (internal vs. external), on the succession process leader (individual vs. group), on the extent of board involvement (decision-maker), on third-party contribution and compensation received (services performed and consulting fees), and on the candidate evaluation practices (evaluation patterns) (SEC, 2003, cipher 43−46; Spencer Stuart, 2020b). But there were also voices disagreeing with, for example, naming nominee sources as it could have a “chilling effect on the search process”, be immaterial, and might imply that a nominee was considered qualified only because of the position of the recommending person (SEC, 2003, cipher 64). In addition, in a succession process, there are often multiple sources for nominees, which would make a clear and accurate statement complicated.

The discussion paper also addressed public job advertising, a practice less widespread in board selection. In that procedure, the chair’s vacancy is advertised, and its role and requirement profile are made public. Candidates could then voluntarily apply for the chair position. Yet only few participants supported that idea. Even tough advertising might widen the application pool, it was considered as less cost-efficient and unproductive (FRC, 2016, p. 6). Spencer Stuart (2016) noted that “it is rare for advertising to bring credible candidates to the surface. What is more, some candidates simply will not engage in a process where advertising is involved” (p. 2). This is a statement that shows how closely reputation and prestige accompany election (McNulty et al., 2011, p. 95; Withers et al., 2012, p. 245).

Of all proposals, most participants prioritised disclosing competences highest. They indicated that they wanted information on what minimum requirements were necessary, what competences each candidate possessed, and whether attention was paid to personality, and how it ultimately effected the final AGM proposal (FRC, 2016, p. 6).²⁶ Beyond that, participants also stated that they wanted to have more information on diversity and independency (Section 4.3.3.3). That included how the board delineates the chair’s role and responsibility when it comes to leadership, contribution, and strategy (Leblanc, 2007, p. 174).

4.4.1.3 Channel and Time/Timing

Moving forward, the channel and time/timing of discretionary disclosure are closely related. Most often, the time/timing of disclosure influences the channel, and vice versa.

Subject to channel, voluntary disclosure occurs in numerous venues (Mercer, 2004, p. 191). Venue characteristics include formal vs. informal (Beyer et al., 2010, p. 303), verbal vs. non-verbal (Hinsz et al., 1997, p. 44), annual vs. semi-annual vs. ad hoc (Watter & Roth Pellanda, 2015, p. 384), and proactive vs. reactive (Bujaki & McConomy, 2002, p. 118). The annual report is the most commonly used source. In Holder-Webb et al.’s (2008, p. 552) survey study, over a third of respondents primarily used the annual report for voluntary disclosure. Yet, according to Ferramosca and Ghio (2018, p. 202), there is a variety of ways to disseminate information (e.g. press release, media, proxy statements, letter to shareholders, conference calls, meetings, employee reports, social network self-disclosure).

To date, research has been vague on what the best means for voluntary disclosure are. But there are three general streams. First, the choice for a disclosure channel will be ultimately influenced by the sender, the addressee, the scope, the analyst environment, and the ownership structure (Bushee et al., 2003, p. 160; Ferramosca & Ghio, 2018, p. 202). Second, using the annual report to address negative or unfavourable topics makes for a robust statement (Deegan et al., 2002, p. 318). Trust in the annual report is based on the assurance of the auditors that the information is appropriate, and it is in the media’s responsibility to respond to any irregularities (Cotter et al., 2011, p. 82). Moreover, publishing board appointment information in a separate section of the annual report, e.g. the governance report, will further emphasise perceived concerns (Kaczmarek & Nyuur, 2016, p. 7). Third, online reporting will further reduce information asymmetry between insiders and outsiders (Khlifi & Bouri, 2010, p. 63). Using technology in reporting enables a profound change in the way the internet and the organisations’ websites can be used to provide timely information to shareholders and stakeholders. The costs of staff, printing, and use of third-party channels will decrease and user trust will increase due to the democratisation of access (Gandia, 2008, pp. 739–794). Furthermore, the multi-directional nature of online reporting will speed up transmission and allow ex post access independent of the user’s location (Gallego Alvarez et al., 2008, p. 559).

Depending on the time/timing, there are episodic (occasional) or periodic (regular/irregular) intervals (Ferramosca & Ghio, 2018, p. 195). Essentially, the hard and soft law standards in the mandatory disclosure standards prescribe the time of disclosure (Chapter 2). However, organisations have much more control in voluntary disclosure; there are no cut-off dates and organisations “play harder, managing the timing of issuance” (Ferramosca & Ghio, 2018, p. 196). Yet, they can only do so to a limited extent. The disclosure timing is closely tied to the stakeholders addressed and the reactions expected McCombs (1977) provided an illustrative example: “Once an issue is highly salient and opinions are largely shaped, public relations may be limited to a defensive posture or a redundant ‘me too-ism’. Effective public relations require lead time, and opportunities to communicate before an issue is approaching its zenith” (p. 90).

With the invitation to the AGM, organisations officially inform the shareholders about who is standing for board chair election. At the latest before the AGM, shareholders expect the necessary background information on the candidate (OECD, 2015, p. 40). Two things need to be distinguished here. First, in a forthcoming primary election, organisations shall (if not must) provide information in advance; the earlier the better. That allows for further background checks on the person. Second, if it is a re-election, the time of disclosure may be moved closer to the AGM. Then, stakeholders can at least review the governance section in the latest periodical annual report. In practice, two observations can be made about chair succession. On the one hand, it has proven to be best practice to announce the chair’s successor at least one year before election day (e.g. Sergio Ermotti at Swiss Re). That allows them to serve as a board member for a year. During that time, they get to know the organisation’s board culture, allowing for a smooth succession transition (Shen & Cannella, 2003, p. 192). On the other hand, there are certain essential confidentiality boundaries when it comes to the timing of disclosure (FRC, 2015, p. 14). Therefore, Spencer Stuart (2011, Chapter 3) strongly advised against the premature release of names as it discourages potential candidates.

When it comes to discretionary disclosure practices, however, organisations often have the freedom of choice. There is a high degree of time/timing and channel adoption, which is why there is no “single optimum communication solution, [but rather] just a broadly acceptable range of solution or behaviours” (Holland, 1998, p. 258).

4.4.2 Review

The voluntary disclosure review has shown that communication “can be a catalyst for businesses […] to limiting information asymmetries, building trust, boosting corporate image, signalling transparency, and accompanying the organization itself at identifying the strategic path to success and sustainability” (Ghio & Verona, 2020, p. 85). There is a market demand for more rigorous and concise disclosure of chairperson succession. However, it has not yet been fully clarified how this should be done. Is chair succession discl-osure necessary? Yes and no. The structures of Swiss boards are self-constituting (Section 2.1.2). It is thus only appropriate for organisations to justify their compliance or provide arguments for non-compliance. Contrarily, “there does not appear to be any urgent need to disclose the organisational rules as these are unquestionably internal documents which in principle contain confidential information” (Hofstetter, 2002, p. 32). To summarise, the analysis brought forward the following learnings:

• With regard to motives (why), there are demands from shareholders and stakeholders for a higher level of disclosure of succession practices. The market views good governance practices in a positive light and considers systematic and truthful communication to enhance the credibility of decision-making. However, this requires a willingness to be transparent. At the same time, it means adherence to value standards and a courageous approach to third-party interests. Also, openness in communication makes it possible to move away from the former “tap on the shoulder” in succession (Metz, 1998, p. 33). However, for Ghio and Verona (2020), generally “more disclosure does not necessarily mean better disclosure and effective communication” (p. 86). The idea of disclosure transparency must be benevolent and of high quality. This is the only way to reduce information asymmetry and distribution costs, encourage shareholder involvement, and democratise access to corporate information.

• For scope and content (how much and what), disclosure practices may encompass describing the process of nomination (e.g. process steps), discussing motivations for change (e.g. strenghtening diversity, independency, experience), providing insights into how boards work and how internal and external stakeholders influence selection (e.g. board involvement), and providing more detailed board biographies (e.g. competence fit).

• In disclosing succession information, organisations have, to some extent, the freedom to choose the channel (where and by which means) and the time/timing (when). Yet, in order to meet stakeholder expectations, the target audience, the confidentiality level, and the technology used are decisive and should be well considered in advance.