According to a recent article by Lee Udelsman in the New York Law Journal , shareholders of public companies have recently introduced proposals requiring companies to adopt and disclose succession plans. In addition, they are asking companies to have assessment processes to identify and assess internal candidates as part of the succession planning process. Many companies are opposed to these proposals because it would allow competitors to know the identity of their top legal talent.

There is a growing trend for succession plans to be more openly discussed, pushed from both sides by shareholders and regulators. According to the article, the SEC has “updated the legal definitions of ‘risk’ and redefined succession planning as fair game for shareholders who want greater transparency”. Per the SEC (Legal Bulletin 14E, Oct. 27, 2009): “One of the Board’s key functions is to provide for succession planning so the company is not adversely affected due to a vacancy in leadership. Recent events have underscored the importance of this function to the governance of the corporation.”

Consequently, the succession discussion has been forced into the limelight, and not just for GCs but for lower level in-house attorneys as well. But where does this process start? According to Udelsman, it has to begin with the current GC, particularly if he/she is within 2 years of retirement. GCs know their legal departments better than anyone, and thus can identify early on if there are internal candidates that fit the bill, or if the search needs to pursue external options as well.

Udelsman notes that if there is an attractive internal candidate, the GC must ensure the candidate has had “meaningful interactions with the board, dealt with new corporate governance and securities requirements if it is a public company, contributed to the company’s future growth plans, and possessed the ability to think as a strategic business partner.”

Even though the search must start with the GC, it is also important to get feedback from the rest of the executive team. The CEO and company board both need to be comfortable and confident with the successor, as they will be the ones working with him/her.

However, Udelsman goes on to note that even if you have an internal succession candidate, companies should still consider conducting an external search. It is often helpful to have someone come into with new and innovative ideas developed elsewhere, or with previous experience as a GC.

Regardless of which route companies go in the search process, those involved must define the skill set, core competencies, qualities, and leadership abilities desired. Remember to focus on what your company will need in the years ahead, and not necessarily what it needs right now. This list of requirements should be updated regularly, which “will enable you to continually reassess the legal department’s needs and polish position descriptions so you can recruit candidates who will be able to guide it in the future”. For instance, international companies might benefit from having a candidate that is multicultural, who has either lived or worked in international settings in the past.

Above all, succession planning needs to be viewed as an ongoing process. The criteria list for the successor should be updated regularly.  Internal candidates should be assessed frequently to make sure their capabilities are in line with the company’s needs, and development plans should be reviewed regularly make sure that he/she is getting the exposure and experiences required.