Wednesday, 17 September 2014 00:30
In today’s challenging economy and hypercompetitive business environment, CEOs and senior executive teams are facing enormous challenges when it comes to achieving and sustaining breakthrough operating results.
The intensifying war for talent, globalisation, economic change, more stringent regulation and tougher governance make realising shareholder value increasingly difficult. But, there is a tougher challenge: identifying and developing new leaders which is critical for developing the sustainable competitive advantage for the organisation and its eventual success.
Talent management and retention is perennially at the top of a CEO’s most pressing worries. A company’s leadership pipeline is expected to deliver its ‘next generation’ of ready-now leaders. The key to ensuring an organisation has the leaders it needs when it needs them is to accelerate the performance of future leaders including high potential employees, so that their skills and leadership abilities are as strong as possible when they are needed, particularly as leaders transition from role to role.
According to Ram Charan in his article published in the 2005 Harvard Business Review, as CEO tenures continues to shrink, with two out of every five new CEOs failing in their first 18 months, it has become absolutely critical for companies to cultivate internal candidates for top positions. Yet corporations are beginning to realise that executive geographic and organisation culture succession pipelines are broken and will adversely affect the ability to identify and nurture future leaders.
This can be alleviated however by establishing on-going programs that correctly ascertain the high potential executives and provide them with meaningful and measurable development.
A company’s leadership pipeline is expected to deliver its ‘next generation’ of ready-now leaders. The payoff is a supply of leadership talent that simultaneously achieves targets, bolsters and protects ethical reputation and navigates transformational change in pursuit of a bright competitive future. Unfortunately, some Boards and CEOs neglect their talent management accountability and consequently their pipelines run dry. When this occurs, the downward spiral of competitive capability becomes discernible, the edge is lost, and the magic disappears. The competition begins to outwit, outflank and outperform these companies.
Board’s role in talent management
In most organisations, talent is the essential resource. In fact, your talent is the one thing that can distinguish you from your competitors. Without the right people to execute and deliver the organisation’s strategy and objectives at all levels, the business will fail to reach its full potential.
A board’s oversight responsibility is well understood in the areas of risk governance, ethics, and corporate responsibility, but less often mentioned with regard to talent. Yet, talent is an intrinsic part of the risk culture of an organisation.
Instances where talent is at the core of major organisational risk are increasingly prevalent. Talent is, however, an area of organisational risk where boards often fail to implement comprehensive controls.
Oversight of an organisation’s talent clearly falls within the board’s responsibilities. Traditionally, talent had been focused on hiring the Chief Executive Officer, determining executive compensation, planning senior executive succession, and recruiting and developing board members. Yet the Board’s responsibility for talent extends well beyond those duties. The ability to attract, develop, and retain talent, particularly at the leadership level, has become a major factor in all capital investments, business strategies, and organisational growth. As a result, it is an important consideration for Boards of multinational and owner-managed businesses alike.
How can the Board help the organisation attract, develop, and retain talent?
Boards play a key role in overseeing whether talent strategies are in place to execute on the overall business objectives as well as manage the talent-related risk inherent in the commercial world today. In this role, the Board should confirm that its organisation has an effective and robust talent management program capable of delivering value for shareholders. Talent is one of the five critical governance elements over which the Board provides active oversight. Executing active oversight with regard to the five elements- performance, strategy, governance, talent, and integrity- cannot be delegated to management.
The Board oversight of talent management in organisationsThe Talent-Intelligent Board
Risk oversight is the foundation for the Board and management to govern the organisation and make sound business decisions. Organisational risks include talent-related risks and are frequently identified by organisations as some of the most critical issues they face.
Talent-related risks traditionally include lack of succession planning; planned or sudden loss of key personnel; lack of return on leadership investment or senior external hires; and failure to attract, develop and retain talent. These risks can extend to poor talent planning to support capital investments and business strategy; for example, limited leadership bench strength reputational exposure, productivity risk and an inability to execute due to lack of workforce planning.
To more effectively oversee risks related to talent, Boards should periodically and proactively consider the following talent-related risks identified in a Deloitte report.
nReputational risks: Financial missteps, ethical breaches, legal problems, or even poor performance by executives can have an impact on a company’s revenue, profits, and market value for years to come, particularly when publicly reported in the media. This is particularly important because decisions are often made by one or more key individuals in an organisation.
nCrisis management: ‘Black swan’ events, low-probability events that have far-reaching impact, are increasingly common. Does senior management have a detailed crisis management plan that governs how the organisation addresses these issues? Risks include changes in economic and market trends, the sudden departure of business-critical talent, poaching of whole teams by external sources, and health and safety incidents.
nBusiness and regulatory risks: Boards should satisfy themselves that their talent strategies, compensation and incentive plans are aligned to create a culture that supports the pursuit of business goals within regulatory constraints.
nBroader HR risks: HR risks have expanded beyond compliance with labour regulations. While those remain important, companies now face a broad range of talent-related risks that can undermine organisational performance. These range from security, intellectual property, employee fraud and financial risks to the risks of incompetence, poor judgment and lack of loyalty.
Improving Board oversight of talent-related risks
Improving the oversight of talent risk begins with understanding those risks and management’s approach to addressing them. Here are five key steps for Boards to consider in their talent oversight role:
nReview talent-related risks: Many Boards have adopted a twice-a-year talent review in which the Chief Human Resources officer (CHRO) summarises the external talent trends, and workforce and talent strategy for the business, including a comprehensive review of talent, HR risks and the associated mitigation strategies.
nDevelop measurable outcomes: It is also wise to request a benchmark analysis that covers employee engagement, top performer and executive attrition, and other factors related to talent retention at the senior levels and for other critical positions. This can be accomplished by leveraging industry or HR data and/or using historical organisational data as comparisons.
nAssign the responsibility: More and more Boards designate a Director and/or members of the Remuneration Committee to address talent-related issues and risks (often a former or current CHRO), and ask for frequent ‘in camera’ sessions with the Board on talent-related risks. The head of HR could report to both the CEO and the Board. For the Board, this designated Director can help raise awareness of talent issues; moreover, this individual has the appropriate background to question management and inform the board about talent - related risks and how management is addressing them.
nMonitor the talent pipeline: Talent supply and demand data should be reviewed as part of capital investments and business strategy reviews at least annually, and ideally more frequently. In addition, the need to develop new products, enter new markets, or combat new competitors will dictate the demand for specific experience and skills. The board should ascertain that management and the HR team have plans in place to meet that demand.
nAlign the talent and business strategy: In reviews of strategy, the Board should ask management how it aligns the talent strategy with the business strategy. Forward-looking talent strategies maintain this alignment while helping target investments in talent development for optimal efficiency and effectiveness. The Board should also be aware of talent issues related to any initiative that comes up for its review or approval. For example, in merger and acquisition (M&A) situations, talent due diligence is often neglected and talent the organisation intended to acquire on Day 1 may be lost.
In general, sound talent management strategies and programs can greatly reduce risk, improve sustainable performance, and improve the organisation’s ability to attract external talent. Board oversight into this process can not only provide experienced insight, but help to identify and reduce the risks and take talent management to the next level.
Prof Sattar Bawany is the CEO & C-Suite Master Executive Coach of Centre for Executive Education (CEE Global). CEE is a premier network for established human resource development and consulting firms around the globe which partners with our client to design solutions for leaders at all levels who will navigate the firm through tomorrow’s business challenges. CEE offers human capital management solutions for addressing challenges posed by a multigenerational workforce including talent management and executive development programs (executive coaching and leadership development) that help leaders develop the skills and knowledge to embrace change and catalyze success in today’s workplace. Website: www.cee-global.com Email: firstname.lastname@example.org
Bawany, Sattar, “Maximising the Potential of Future Leaders: Resolving Leadership Succession Crisis with Transition Coaching” in ‘Coaching in Asia – The First Decade’., Candid Creation Publishing LLP, September 2010. Available as e-download at: http://www.cee-global.com/6/publication
Bawany, Sattar, “Winning the War for Talent”, Human Capital, Singapore Human Resources Institute, (September-October 2007); 54-57.
Charan, Ram. “Ending the CEO Succession Crisis”.Harvard Business Review, (February 2005); 83-86.
Charan, Ram. “Leaders at All Levels”, Jossey-Bass, Wiley, San Francisco, California, (2008); 1-4.
Deloitte Human Capital Trends 2012: Leap Ahead, Published by Deloitte www.deloitte.com.
Questions for board directors to ask
1.What are the key talent risks associated with our core business strategies? With our major investments?
2.What is our talent bench strength? How is our organisation mitigating succession risks?
3.What plans are in place to bring about smooth succession or substitution of our key talent, if the need arises?
4.How can we strengthen our talent-related due diligence in joint venture and M&A situations of any of our holdings or subsidiary entities?