FTSE 100 boards exposed by lack of future talent, research warns

Companies urged to nurture existing candidates and avoid a ‘hand to mouth’ approach to replacing senior directors

Britain’s biggest employers are failing to invest time and attention in their talent pipelines and facing significant skills gaps at board level, research has found.

An analysis of board evaluations from the annual reports of all FTSE 100 companies has revealed that more than two-thirds (68 per cent) have admitted to having problems with succession planning.

The study, by New Street Consulting Group (NSCG), found that almost three in 10 (29 per cent) firms admitted to having a skills gap on their boards – with technology roles the most commonly cited gap (13 per cent) followed by environment, social and governance (7 per cent).

Colin Mercer, director at NSCG, warned that failing to have a pipeline of talent left companies vulnerable. “In today's competitive environment a business can't afford to be rudderless. Strategic or operational drift caused by a lengthy interregnum between senior appointments can be damaging," he said.

“Having succession plans and programmes designed to develop the leadership skills of employees are the hallmarks of strong businesses. We find that businesses where HR has a voice at the top table are more likely to have more advanced succession plans.” 

Responding to the findings, Alan Price, chief executive of BrightHR, said the report highlighted the importance of offering clear opportunities for staff to develop and progress within the company. “Paving the pathway for future management can be invaluable when having to facilitate a quick changeover in boardrooms, particularly in times of crisis, as there will be strong, internal candidates that the company can look to in order to simplify the process,” he said.

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Professor Konstantinos Stathopoulos, corporate governance scholar at Alliance Manchester Business School, added that boards should aim to recruit members with diverse backgrounds that bring different skills. Firms should “exercise caution when bridging skills gaps and make sure they retain a healthy balance between generalist and specialist directors, since prior research indicates that both director types add value to firms”, he said.

“The lack of appropriate succession planning risks disrupting firms’ strategic direction and leaving them rudderless, especially in times of crises when executive turnover increases.”

The research follows a warning from Grant Thornton last month that 78 per cent of the FTSE 350 gave little or no insight into board succession, and 82 per cent failed to explain how they identified and developed people for senior management positions.

Scarlett Brown, policy consultant at the CIPD, said doing succession planning well meant more than just understanding the talent pipeline – it also required businesses to anticipate their future needs and invest in the development of future leaders. “This is only more important in 2021, when Covid recovery will put even more pressure on retaining and developing talent,” she said.

Companies needed to look at the bigger picture when tackling the talent pipeline, said Mercer, who warned that focusing on individual roles “risks a hand-to-mouth existence”. Instead, firms should be “developing a cadre of talented individuals in the business”.

The past year has seen some boards re-evaluating whether the skills they have at senior level match the new realities of their businesses, he said. “For example, the ability to drive digital transformation, and the ability to lead across a remote and virtual employee base have become important to a much wider range of businesses. Investing some time now analysing the skills required for tomorrow would be time well spent.”