How prepared is your Board for the future? Succession planning is often overlooked or delayed until it becomes critical. However, preparation itself is paramount to ensure continuity of leadership, smooth transition of knowledge and maintain stakeholder confidence. This article explores key regulatory expectations and the risks boards face when succession planning is ignored and also outlines best practices that BDO can support boards with to help them fulfil their duties and responsibilities effectively.
Regulatory Expectations
The Guernsey Financial Services Commission (GFSC) expects all regulated entities to demonstrate appropriate governance arrangements and succession planning is particularly important for key roles requiring regulatory approval, such as Executive and Non-Executive Directors, MLROs and Compliance Officers.
The regulatory framework in Guernsey that supports this objective is reflected in the following list, while not exhaustive, outlines the key components:
In addition, consideration should be made of any requirements in the company’s Articles of Association, any public documents that may reference the composition of the Board such as Scheme Particulars and stock exchange listing rules if relevant.
A failure to plan adequately for succession can expose the Board and the company to a range of strategic, operational and regulatory risks. These risks not only threaten business continuity but may also trigger regulatory intervention, reputational damage and potentially loss of regulatory licence.
In this respect, Principle 2.4. of the Finance Sector Code of Corporate Governance covers the appointment, induction and re-appointment of directors and requires that:
“Where appropriate, there should be a procedure for scrutinising nominations for the appointment of new directors to the Board and a suitable induction programme provided to new appointees. The Board should also satisfy itself that plans are in place for the orderly succession of its members”
"The Licensed Insurers’ Corporate Governance Code also requires boards to have “an appropriate number and mix of individuals to ensure there is an overall adequate level of knowledge, skills and expertise”.
Below are some examples of the key risks associated with poor succession planning:
It is important that Boards are proactive in designing a robust succession plan to mitigate the risks identified above. As such embedding succession planning into the board processes and considering it on a frequent basis will provide a framework to align to all stakeholders’ expectations. Some examples of best practice are as follows:
How can BDO help?
Boards should treat succession planning as high priority. If your board has not reviewed its succession planning approach recently, BDO can assist with initiating a governance review to develop a proportionate and practical succession plan aligned with the GFSC’s regulatory expectations and the strategy of your company.
Our Advisory team has thorough knowledge of all regulated sectors in Guernsey and can design and implement a succession framework which meets the needs of the Board structure, tenure and future needs whilst also aligning to the expectations of the GFSC and other stakeholders. We can also conduct independent board effectiveness reviews and training on the role and responsibilities of directors which can inform your succession planning process.