Tag Archive: Board Oversight

Board Oversight of Talent Strategy

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Jim DeLoach

Jim DeLoach

The “war for talent” may be a trite phrase to some, but battles to find and keep the right people rage on nonetheless. In a study of the top risks for 2016, more than 500 participating C-level executives and directors rated succession challenges and the inability to attract and retain top talent as the fourth-highest risk—holding its position as a top five issue in surveys Protiviti have conducted in prior years. Simply stated, talented people with the requisite knowledge, skills, and core values are needed to execute challenging growth strategies in a rapidly changing world.

An organization’s talent is an aspect of the overall corporate strategy that management cannot afford to fumble. Below are questions to spark productive boardroom conversations about effective oversight of talent strategy that draw from our experience (including roundtables conducted with more than 65 active directors last year).

  1. How does our overall business strategy shape our talent strategy? Does our business strategy articulate the performance expectations and core competencies required to execute it successfully? Is the business strategy used to drive how we define the leadership capabilities, functional and operational expertise, and specialized knowledge targeted by the talent strategy? Are the significant human capital risks reduced to an acceptable level by the talent strategy?
  2. Does our company have a comprehensive, longer-term talent strategy for sustaining our leadership and talent pipeline? As anticipated changes in the workforce will impact the available talent pool outside of our company in the foreseeable future, what’s the long-term plan for growing the company? Do we have an effective plan for accessing talent—internally and externally—when we need it? Are our retention policies and practices sufficient to achieve our established attrition targets? How well are we developing and mentoring our talent internally?
  3. How strong is our executive team two to three levels below the C-suite? What is the health of our bench of top performers and rising stars? How has it changed in recent years, and why? Is our bench strength strong enough to engender the board’s confidence in our succession plan?
  4. How will global market forces impact the talent pools available to us and the steps we must take to secure the best talent? What are the largest demographic risks to executing our talent strategy, and how are we managing these risks—particularly with respect to attracting and retaining millennials? What reports should be made to the board over time regarding the organization’s response to talent challenges?
  5. How effective is our retention of “A-players?” Do we know who our top performers and rising stars are? Are we capturing their “hearts and minds?” If so, how? Why do they leave, and do we use the lessons learned from their departure to improve our retention processes?
  6. What are the critical capabilities among senior leaders that will drive our organization’s growth? Is the company systematically supporting the development of those capabilities?Does the CEO provide a candid assessment to the board of each senior leader’s contributions to the company and demonstration of our core values? Do we conduct high-quality assessments of our current leadership linked back to performance expectations underlying our strategy? Do we assign responsibility to close any gaps that are identified?
  7. How effective is our onboarding process at integrating external hires and preparing them to contribute? How do we ensure a smooth transition? Do we measure the success of our onboarding strategy for experienced hires? For example, what is our 90-day experienced hire failure rate for key positions and first-year voluntary termination rate for experienced hires?
  8. Does board reporting focus sufficient attention on talent strategy? What talent key performance indicators (KPIs) should we be monitoring at the board level? Do our human capital KPIs connect to our business strategy? The NACD Blue Ribbon Commission Report on the Board and Long-Term Value Creation provides examples of possible metrics.
  9. Is our organization agile and resilient in the face of significant change? How effectively do we adapt to changing markets? How ready are our employees to help us transform our organization in the face of innovative and disruptive change? How well do we handle unexpected changes? How well do we realize the promised value of mergers and acquisitions, given the integration challenges and cultural differences among the acquiring and acquired entities?  Are we paying attention to the generational imperative as millennials fill out key roles in the workplace? Are we sensitive to cultural diversity across the global marketplace and its potential influence on organizational behavior and decision-making? Conversely, as a multinational organization, do we “think globally, act locally” regardless of the geography to ensure sensitivity to our core values and build a global brand?
  10. Is our compensation structure competitive and effective in delivering appropriate rewards?Is our reward system (base pay, incentive compensation, and benefits) fair when performance goals are achieved and adjusted for the risks undertaken to achieve them? How do we assess compensation across the enterprise?

By attending to the answers to these questions, directors can ensure management is focused on developing a comprehensive talent strategy that can be acted upon, measured, and adjusted to fulfill the organization’s talent requirements.

Forum Covers Managing Risk ‘Before It Manages You’

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While the Internet initially was a communication tool between the U.S. Department of Defense and multiple academic organizations, it has become the backbone of a global economy and government operations, the Hon. Tom Ridge told a rapt audience of more than 200 directors at the NACD Strategy & Risk Forum in San Diego. The first secretary of the U.S. Department of Homeland Security, Ridge currently serves as president and CEO of the strategic consulting firm Ridge Global and is a director for the Hershey Co. Ridge delivered the opening keynote to directors convened for the two-day forum co-hosted by the National Association of Corporate Directors (NACD) and its sponsors.

“We’ve come a long way from a simple communication tool,” Ridge said. “What’s really remarkable is the tool is designed to be an open platform.… It wasn’t designed to be secure. It wasn’t designed to be global. The ubiquity of the Internet is its strength, and the ubiquity of the Internet is its weakness. For every promise of connectivity, there’s a potential vulnerability.”

A report released last year by McKinsey & Co. and the World Economic Forum found that more than half of all respondents surveyed—and 70 percent of executives from financial institutions—view cybersecurity as a strategic risk to their companies. The report was based on interviews with more than 200 chief information officers, chief information security officers, law enforcement officials, and other practitioners in the United States and around the world.

“In this world, you’ve got to manage the risk before it manages you,” Ridge advised the audience.

Support for the forum was provided by BDO USA, the Center for Audit Quality, Dechert, Dentons, ­Diligent, Heidrick & Struggles, KPMG’s Audit Committee Institute, Latham & Watkins, Pearl Meyer & Partners, Rapid7, and Vinson & Elkins.

The Chattering Class

Risks to reputation are nuanced and numerous. Jonathan Blum, senior vice president and chief public affairs and global nutrition officer for Yum! Brands Inc., which operates 41,000 KFC, Pizza Hut, and Taco Bell restaurants worldwide, has seen firsthand the damage that can be done to a company’s reputation. He recounted an incident that hit the brand’s reputation and bottom line, and ultimately spurred substantial changes in the company’s supply chain.

In December 2012, a state-owned television network in China reported that some local poultry suppliers were putting unlawful amounts of antibiotics in chicken. One of the many suppliers investigated happened to be one of KFC’s suppliers, albeit one of the restaurant chain’s smallest. “But, because we’re the largest brand in China, not just the largest restaurant, we obviously bore the brunt of the publicity,” Blum said.

The most damaging aspect of the negative attention, according to Blum, was not the investigative report that aired on television, but rather the chatter on social media in the wake of the report. The fallout was a tarnished reputation, a sharp downturn in sales, and some decisive action.

“Consumer trust plummeted. Belief in our brand plummeted. Our sales plummeted. We saw a huge drop in our stock,” Blum said. “Now, this was at the end of 2012, so the impact on our financial results that year was negligible. Up until 2013, we had had a 10-year run of at least 10 percent [earnings per share] growth year over year, which is pretty unusual. In 2013, given the ditch we were in in China, our earnings per share dropped 9 percent. We lost $270 million in profit as a result of this incident, and it took about a year to rebound.” In the aftermath of the negative publicity, Yum! Brands learned that its stakeholders wanted answers to three questions:

  1. What happened?
  2. What was being done about it?
  3. How would the company would prevent it from happening again?

Yum! Brands apologized to the public, fired about 1,000 small poultry suppliers, and worked with the Chinese government to upgrade the quality of the poultry supply.

“Over time, that rebuilt consumer trust,” Blum said.

The company also took a significant step toward managing its reputation on social media.  “As a result of this incident, around the globe, 24/7, we monitor what consumers are saying about us and we immediately respond,” Blum said.

More information on managing reputation risk is available in the publication Board Oversight of Reputation Risk, part of the Director Dialogue series by NACD and global consulting firm Protiviti.

Additional coverage of the forum is available in the July/August 2015 issue of NACD Directorship magazine.