Dutch companies need to plan CEO succession better

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What does a company do when the chief executive suddenly becomes unable to lead the company? Who succeeds them, and how does a company choose their new CEO, other directors or supervisory board members? Research by the International Center for Financial Law & Governance (ICFG) at Erasmus School of Law and search and leadership consultancy Spencer Stuart, shows that few companies have a clear job description of the nomination committee. The nomination committee is a body that focuses on a company's succession planning and interviews candidates for several management positions. The ICFG, affiliated with Erasmus School of Law, advocates for more precise terms of reference for the nomination committee. Since they started doing this, there has been increasing attention to this issue. Recently, the findings of research from ICFG were also presented to supervisory board members of mainly listed companies in a masterclass and published in an article in the Tijdschrift voor vennootschapsrecht, rechtspersonenrecht en ondernemingsbestuur.

More and more Dutch companies are using a nomination committee that does preparatory work in the context of the possible succession of the CEO, supervisory directors, board members or other management roles. Often created to support the supervisory board (SB), the nomination committee takes care of policy and strategy in the context of succession and lays the groundwork for the succession process. According to the ICFG and, in particular, Hélène Vletter-Van Dort, one of the researchers and Professor of Financial Law and Governance at Erasmus School of Law, the research shows that the nomination committee in the Netherlands needs improvement: "How the nomination committee operates now creates frustration and is risky." In their article, researchers Annika Galle and Aalt-Jan Smits indicate that the nomination committee should make more use of its potential and could take a leading role in issues around sustainability and diversity.   

In 2022, the ICFG published the study Duties and responsibilities of the Nomination Committee in collaboration with search and leadership consultancy Spencer Stuart. Three main conclusions and recommendations follow from the study. First, the terms of reference of the nomination committee are insufficiently specified, and at many listed companies, the chairman of the SB is also the chairman of the nomination committee. The question is whether this dual role is desirable.    

The second finding is that the nomination committee focuses heavily on the succession of positions within the upper tiers of management. In contrast, the succession of positions within lower management is only discussed by the committee for some positions and succession in the other positions is informal in nature. Also, the CEO often has a casting vote. Therefore, the research team recommends paying more attention to the lower management layers in the organisation and using pre-established profiles.    

Thirdly, according to the researchers, too little attention is paid to inclusion within listed companies. When it comes to diversity, the equal gender distribution is often discussed, while other aspects of diversity are not addressed. The researchers recommend that the nomination committee itself be composed diversely and that diversity be interpreted more broadly.   

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