Directors spend the bulk of their time every quarter reviewing financial results and receive updates on enterprise risk. However, very little time is spent reviewing talent development and succession planning. Compensation committee agendas and metrics tend to be dominated by executive compensation discussions, and relatively little focus is given to measuring and tracking talent development and retention across the leadership suite.
From Left: Steve Newton, Barbara Duganier, Eileen Campbell, and Doug Foshee
Panelists at a recent event hosted by NACD Texas TriCities’ Chapter, all leaders in the field of executive management and human resources (HR), discussed board-level talent oversight. Barbara Duganier, director, Buckeye Partners, served as moderator of a panel including Eileen Campbell, former vice president of human resources for Marathon Oil; Doug Foshee, former chair and CEO of El Paso Corp.; and Steve Newton, partner, Russell Reynolds Associates. The conversation confronted the fact that while the vast majority of CEOs are promoted from within, boards spend very little time on executive leadership development—and even less time on talent development beyond the chief executive.
The development of executive HR talent in an organization seems often to be left to chance. Whether it’s because the CEO and board don’t place critical importance on the position, or the HR leader views their role less as a strategic asset and more as compensation or benefits cost center, development of HR talent—and others in the executive pipeline—deserves more board-level attention.
Below are several challenges that were discussed, as well as some solutions to developing talent and value from your company’s HR leadership.
Challenge 1:People think they’re good at recognizing talent, but biases and lack of process might lead to missing out on promising people. Ask any executive to identify high potential employees, and they can always name a few promising people. However, because the ability to recognize a talented person is considered a soft skill, it doesn’t get measured or tracked on a regular basis. Interestingly, most people will identify people in their own image—just younger. Therefore, if the leadership team is not diverse, promising people may go overlooked that do not meet preconceived notions of what leadership looks like.
A Solution: Measure and track. HR leadership and the board should insist on tracking talent development-specific metrics with the same level of importance as financial metrics. Measuring also allows boards and executives to notice unconscious biases in recruitment and talent development.
Challenge 2: People are protective of their highest performers. Lateral moves and broadening development positions are imperative in order to assess and build talent across the organization. But as Campbell pointed out, managers are often reluctant to recommend their highest performers to other divisions.
A Solution: Once people are identified as high-potential employees, they should be considered “group resources” rather than belonging to a department or division. By operating across departments, leaders outside of the individual’s direct supervisors can take part in nurturing the long-term development of employees’ talents.
Challenge 3: People are reluctant to put high performers in certain roles due to a fear of failure that could result in career derailment. As a result, sometimes leaders are not “tested” outside their comfort zone, and can remain unproven until they’ve ascended to the role of CEO.
A Solution: Develop a program similar to General Electric Co.’s “popcorn stand,” a concept shared by Doug Foshee. This concept provides a future leader with significant responsibility outside his or her comfort zone in a part of the business where commercial impact on the overall organization is less relevant. In smaller organizations, these could be roles that require managing through ambiguity or necessitating cross-functional skills. In larger organizations, these could be special projects or small profit and loss businesses whose bottom line is minimal or negligible.
Challenge 4: Boards are not comfortable addressing CEO succession if they have just named a new CEO. Steve Newton remarked that given the average tenure of a CEO is four to five years, it’s never too soon to begin assessing readiness of internal candidates if you believe they have gaps between current and desired capabilities.
A Solution: Identify a wide candidate slate within an organization early in a CEO’s tenure and begin developmental plans to grow a leadership team that has both breadth and depth of understanding.
Regardless of which party is in the White House, the National Association of Corporate Directors’ (NACD) more than 17,000 members will have a significant impact on both our economy and the country’s social fabric. The importance of strong corporate leadership was one of many topics discussed when the NACD Atlanta Chapter hosted a discussion about the Trump administration’s new world order.
Despite different party allegiances, six-term Vermont Governor Howard Dean and Republican strategist Ron Kaufman shared their optimism about the country and the global economy. Moderator Eric Tanenblatt led an informative and insightful discussion in which each panelist shared his perspective on topics relevant to business leaders.
President Trump’s Victory
From Left: Eric McCarthey, NACD Atlanta Chapter chair; Governor Howard Dean; Renee Glover, NACD Atlanta Chapter board member and event organizer; Ron Kaufman; and Eric Tanenblatt
Governor Dean, former chairman of the Democratic National Committee and six term-governor, opined that despite some of the unpleasant overtones of the Trump campaign, President Trump’s victory can at a high level be attributed to discontent with the economy, and specifically to the impacts of automation and the Internet. The perception that jobs have been lost to overseas manufacturing is more likely due to workforce reductions resulting from automation. At the same time, the Internet has changed both how people receive information, and the quality of the information they receive.
As a result, many people voted for Trump because he represented change in a time when the “haves” and the “have nots” are at odds. A similar sentiment has been seen in England with the Brexit vote, and in current political tides elsewhere in Europe.
Mr. Kaufman, a senior advisor to US presidents, governors, and members of congress, concurred that the appetite for change was a significant factor in Trump’s election. He shared that during his work on behalf of candidate Jeb Bush and then candidate Trump, many of the voters he met were attempting to decide between Trump and Senator Bernie Sanders.
Trade and Foreign Policy
Despite both political parties having adopted anti-trade rhetoric, both panelists emphasized the ongoing importance of global trade. Dean noted that global trade has lifted billions out of poverty, and Kaufman added that in the new world order, the economy continues to be global. Misunderstanding this fact, he added, could be disastrous.
While both panelists were optimistic in general, Dean cautioned that the Trump administration’s foreign policy ultimately could have a significant impact on the domestic economy.
Given Congress’ intent to make sweeping changes to the Affordable Care Act, our panelists turned to healthcare. Both Dean and Kaufman agreed the issue is extremely complex and that buying insurance across state lines is trickier than it might seem. State insurance regulators would likely take steps to fight a system under which its citizens could buy policies from other states. States, Kaufman said, built programs based on their specific problems, like those Governor Mitt Romney addressed in Massachusetts. Other states have different challenges and concerns, which make a national plan difficult.
Dean suggested that the ACA could be modified, including the fee-for-service model, which is a major driver in the increasing cost of healthcare. He also suggested that the individual mandate should be repealed, given how much Americans dislike government mandates.
Role of Millennials
In speaking about the Democratic Party, Dean emphasized how important millennials are to the future of the party and the future of the country. This demographic doesn’t like institutions, and millennials know that they can take part in changing societal behavior using nothing more than a smart phone. Millennials also tend to be libertarian on fiscal issues and progressive on social issues. Young people are impatient for change and have the energy to make it happen. According to Dean, the Democratic Party should ensure its next leader resonates with this group.
Dean believes key issues the nation must address include:
Election reform – have an independent commission determine voting districts
National debt – bring the debt under control
Income inequality – change the tax code to allow people to get rich by helping others (ex., building affordable housing)
Kaufman added his key issues:
Term limits – impose de facto term limits by means such as taking away retirement plans for government officials and their staffers
Education – deploy resources to this, our biggest challenge
Opiate addiction – declare war on opiates, especially in rural areas
Defense – reorganize defense and use the savings for education
Both speakers stressed the importance of education in terms of growing tomorrow’s workforce.
Kaufman believes that charter schools and vouchers can play an important role. Dean agreed on charter schools; however, he expressed concern about vouchers creating a more segregated society, where parents send their children to school with those of a similar background. Dean feels that such segregation would be problematic for the country in the long term. He shared that Republican school board members in rural areas are sometimes the biggest opponents to vouchers, as they would allow parents to move their children to larger school systems with more benefits.
Dean warned that student loan debt is a simmering issue that is impacting incentives in the workforce and could provoke a crisis in the years to come. He pointed to the fact that some communities are suffering from a physician shortage because many medical students are choosing specialties more lucrative than primary care in order to repay staggering student loan debt.
Kaufman suggested that, while we must change the education system, the answer may not lie in Washington, DC, and a variety of approaches may need to be deployed. In any case, he suggested that the older generation “should get out of the way and let the kids be in charge.”
This intelligent and respectful discussion of the issues came to an end with both speakers agreeing that America is an exceptionally strong country in which leadership—including the kind provided by American corporations—matters.
Dean and Kaufman are both Senior Advisors in the Public Policy and Regulation practice at Dentons, and Tanenblatt is chair of Dentons’ US Public Policy practice and a leader of the global Government sector team and global Public Policy and Regulation practice, focusing on governmental affairs at the federal, state, and local levels.
Note: The views and opinions expressed in this blog are those of the speakers at this event and do not necessarily reflect the views or opinions of NACD or the NACD Atlanta Chapter.
Kimberly Simpson is NACD’s regional director for the Southeast, providing strategic support to NACD chapters in the Capital Area, Atlanta, Florida, the Carolinas, and the Research Triangle. Simpson, a former general counsel, was a U.S. Marshall Memorial Fellow to Europe in 2005.
A company’s human capital can be a complicated area of oversight for any board, especially when attentions must be turned to the top spot in the C-suite. Here, directors must ensure that the company is attracting and retaining the next generation of leading talent that will realize the company’s future success while setting a tone that promotes integrity throughout the organization.
A daunting task, yes, but one that’s not insurmountable.
The National Association of Corporate Directors (NACD) invited Blair Jones, a managing director at Semler Brossy Consulting Group, and Craig Woodfield, a partner at Grant Thornton and leader of the firm’s audit services practice, to offer their insights on these issues as part of a larger panel discussion at the Leading Minds of Governance–Southwest event.
Highlights from their conversation with NACD Directorship Publisher Christopher Y. Clark follow.
What is the compensation committee’s role in succession planning and talent development?
Blair Jones: While responsibility for succession planning ultimately rests with the full board, there are a number of things the compensation committee can do from a process perspective to support this objective.
First, the committee can look at leadership competencies and the overall leadership development process. The succession plan needs to be supported by a pipeline of talent throughout the organization. And the committee needs to know how that pipeline is developed—be it on-the-job mentoring, developmental role assignments, action learning programs, individual coaching, or relationships with business schools. Consider bringing in a leader who has been involved in these leadership development programs to speak about their experiences.
Second, the compensation committee can spend time with high potential candidates at board dinners and through individual meetings. When the committee is determining end-of-year pay decisions, the CEO typically reviews people. Having met some of these individuals, it’s easier to participate in a discussion of what’s being done to take them to the next level. The committee can also make sure that the pay decisions actually fit the directions coming out of the succession planning process.
Compensation committees should also consider following results from employee engagement surveys. Ask: What do these results say about our ability to motivate talent and to retain them in the organization? This will help you get a better feel for the tone and culture of the company.
Look at diversity and inclusion initiatives. Understand the statistics and how those are changing over time throughout the organization. Also, spend time with talent management and succession planning the next level down. The board primarily works with the senior level, but the company’s future leaders are going to come from another level in the organization and the compensation committee can help with succession planning by taking an initial look at the next generation.
What are the best practices for the board to make sure the company has the right tone at the top?
Craig Woodfield: I look at this from an auditor’s perspective, which defaults to the financial reporting side. The appropriate tone at the top deals with every risk of significance that could face a company.
Directors who are in a public company environment are probably familiar with the Committee of Sponsoring Organization of the Treadway Commission’s framework for internal controls and I would encourage private and nonprofit company directors to familiarize themselves with it. The revised framework from 2013 really is the gold standard and it applies to every company and every board. There are seventeen principles listed in that framework and the first five all deal with tone at the top issues. If you look at them, none of them are focused specifically on financial reporting.
As directors, we need to take these criteria seriously to ensure that there are structures in place that create a tone that promotes ethical values. The chief executive is the key here. As an auditor, I have a lot of exposure to public companies, and while most of them have a good tone, there are exceptions. The commonality among those exceptions is a chief executive who doesn’t have the right approach combined with a board that doesn’t have the right level of oversight.
Here are a couple warning signs: a chief executive who has a very domineering personality, that doesn’t take feedback well, or doesn’t respect the board’s responsibility to protect him or her. On the other side, if you have a weak leader and there’s a power vacuum at the top where there is no system of checks and balances, that’s an even greater warning sign because the board becomes dependent on each individual leader of each group within the organization. That situation is much more difficult to control.
We all want strong leadership in the companies we serve. One of the things that boards can do is help educate the chief executive about the nature of that relationship. And the role of the board is to help control that. A warning sign that that balance isn’t there is if we as board members don’t have access to the direct reports. And you want to empower the CEO—you don’t want to undermine or go around them. From an audit standpoint, it’s a real warning sign when the CEO or CFO tries to get in the way of the auditor or audit partner’s direct relationship with the board.
Want more? A panel of Fortune 500 company directors and subject matter experts will offer their insights on issues ranging from cyber resilience to the latest regulatory trends at Leading Minds of Governance–Southeast. Join us on March 16 in New Orleans, LA. Space is limited—register today.
Next week, coverage of the Leading Minds of Governance–Southwest event continues with highlights from a discussion on cyber risk and the legal liabilities of international companies.