As the marketplace grows in complexity and turbulence, it is increasingly clear that true success depends on people. As boards face more disruptions, they will need to ensure the company has the right skills and agility in the talent pipeline to meet these challenges. This topic—talent development—was the subject of this year’s Blue Ribbon Commission (BRC) report. In the second session of Tuesday’s Board Leadership Conference, NACD’s Managing Director and CFO Peter Gleason was joined by the chairs of the 2013 Report of the NACD Blue Ribbon Commission on Talent Development: A Boardroom Imperative Gregory Lau, managing director of the board of directors practice at RSR Partners, and Mary Pat McCarthy, director of Mutual of Omaha and Tesoro, to discuss the commission’s findings and examine the “next” practices in executive talent development.
Why Talent Development?
The reasons for the board to prioritize talent development are obvious. Over 50 percent of a company’s expenses are related to talent and people. “With the right talent,” observed McCarthy, “you can take on more risk than you might otherwise be able to do.” And yet, for the first time in decades, the talent pool is shrinking. When companies do find themselves at an inflection point, they may not easily have the necessary talent on deck.
Both chairs observed that traditionally, the board has focused on CEO succession. One of the report’s recommendations, however, is to have a multi-level, multi-year talent pipeline overseen by the full board. “Directors,” according to McCarthy, “need to think beyond the CEO and the current year.”
Building vs. Buying Talent
Directors need to take a critical look at the organization’s hiring philosophy. Does the company develop and promote from within, or hire from outside? Although there are situations that may require a significant external recruitment strategy—for example, a turnaround situation—internal hires are often less expensive and on average more successful.
Further, oversight of the talent pipeline should not be a “start and stop” process. The chairs recommended that the board continuously monitor the talent pipeline. Directors should spend time as a board thinking about strategy and the skills the company is going to need, and actually allocate time to do a deep dive. Going beyond the company, Lau recommended looking at competitors’ talent to figure out how they are developing their pipeline. A red flag for directors should in fact be that their competitors are consistently recruiting talent from them.
Strategic Human Resources Function
At BRC meetings, a significant portion of the debate was where the authority of talent development should rest in the company. The commission came to the conclusion that the human resources function should serve as a “strategic architect” to the company. The chief human resources officer or equivalent position, in fact, should make sure that the talent development process is “constant, moving, with good results,” according to Lau. “That person should have time on the board agenda, throughout the year, talking to the directors on talent.”
The Report of the NACD Blue Ribbon Commission on Talent Development: A Boardroom Imperative is available at the NACD Bookstore and free to download for all NACD Full Board Members.
Lead directors play a significant role in the boardroom, enhancing board effectiveness by acting as independent figures in communicating the needs between the company’s management and board. Five years ago, only 39 percent of boards had lead directors. That number has almost doubled. Today, 66 percent of boards have a lead director.
NACD broadly defined the duties of the lead director in a 2004 Blue Ribbon Commission Report. Leveraging their years of experience, the NACD Blue Ribbon Commissioners will clarify the role of the lead director in order to enhance the effectiveness of the lead director in the boardroom. The 2011 report will expand the earlier recommendations by exploring how the lead director role can be used to the fullest extent. Specifically, the report will discuss the evolving roles and responsibilities of the lead director; the ideal profile of a lead director; and key relationships and communications of the lead director, including those between management and shareholders. The report will also offer recommendations for future challenges facing the role.
The 2011 Commissioners who contribute their views to the report are directors from leading companies and corporate governance experts. In addition to co-chairs Barbara Hackman Franklin and Irvine Hockaday, the panel includes:
The prime responsibility of directors who sit on the boards of public companies is to create shareowner value, but the efficiency and effectiveness of big business has an impact on communities far beyond those who have invested in company stock.
I am writing this at Dallas Fort Worth airport on my way home from NACD’s Director Professionalism course at Laguna Beach, CA. (I know, hell being me). Airlines have been in the news a lot in recent weeks with miraculous escapes from crashed aircraft, tragic deaths in Alaska, and of course the flight attendant who left his job via emergency chute.
These incidents were in the minds of more than 100 directors attending the Laguna Beach Director Professionalism course as Karen Hastie Williams spoke about the constituencies the board seeks to serve, advance and protect at Continental Airlines. Karen, who is also a director of NACD, has been a board member at Continental for 12 years and takes very seriously the board’s role in creating and advancing a strong corporate culture.
“It’s important for board members not to be in an ivory tower and to demonstrate that they value what operational people do in their day-to-day work to further the airline’s commitment to excellence,” she said. “For board members, talking to customers and employees is the best way of getting to know the business.”
Continental uses a series of metrics to track the performance of each part of the operational team, Karen says. “Employees receive checks in recognition of their commitment to the efficiency and effectiveness of the business. The board approved the CEO to go to our hubs in Houston, Newark and Cleveland to hand out the checks himself. It’s important to be visible. We incentivize and reward the behavior we want to see. Continental has an excellent safety record because we encourage collaboration. All our staff in the air, on the ground and in the back office want to do the best job they can, and they work together to keep our service safe, and to get our passengers to where they need to be.”
Karen believes that Continental’s culture of customer service and the value it places on its employees has contributed to the company’s bottom line.
“I make sure to speak with both pilot and the flight attendants when I fly Continental,” she said, explaining that she believes people work best when they know their skills and commitment are recognized and valued.
As Continental prepares for its merger with United this fall, Karen believes that the culture created at the smaller airline is one of Continental’s most important contributions to the deal. “Together, the two companies can produce cost efficiencies, and provide the most comprehensive schedule for travelers. Led by the principles and practices that have delivered excellent customer service at Continental, the new company can create the kind of frequent flyer loyalty that will create long-term shareowner value” she said.
Mary Pat McCarthy, Executive Director of KPMG’s Audit Committee Institute, an Alliance partner of NACD, also believes that board members should closely monitor the interests of not only shareowners but stakeholders. KPMG is the exclusive sponsor of NACD’s How to Be(come) A Director, a multi-media distance learning product which will launch later this year. Mary Pat is a key contributor. Click below to find out why Mary Pat thinks that a concern for the interests of employees, customers and communities is vital to the long-term sustainability of companies.
Mary Pat McCarthy (Click Image to Play Video)
The next Director Professionalism course will be held at the Sandpearl Resort, Tampa, FL on December 6 and 7, 2010. How to Be(come) A Director will be available later this year. For more details of 2011 NACD director education, click here.