The Leadership in Action Series: On Selecting, Developing, and Managing Talent

Rush

• Publisher: Center for Creative Leadership Press
• Year: 2012
• Print ISBN: 9781604911435
• eBook ISBN: 9781604917475
• Topic: Business
• Subtopic: Leadership
• Index: Business

Even in the midst of economic upheaval, organizations need to recognize that selecting, developing, and managing the right leadership talent will help them not only survive but thrive when the economy eventually rebounds. Despite the fact that there are millions in the ranks of the jobless, there remains an acute shortage of talent. So how can organizations best select, develop, and manage their talent? This collection of sixteen pieces-written by the Center for Creative Leadership's highly experienced and knowledgeable faculty members and researchers as well as by prominent practitioners and scholars in the fields of leadership and leadership development-explores the important topic of organizational talent challenges from a number of angles. Why do companies that want to excel need to be able to engage talented workers as never before? How can organizations best identify their high-potential employees? What do leaders need to understand about the latest generation in the workplace, the Millennials? Readers will come away with newly found knowledge on these and other questions and newly formed thoughts on how they can successfully meet the talent challenge.

Getting on Board: Involving Directors in Leader Development

Barbara Neisendorf and Scott Saslow

In addressing the many challenges of running a high-impact executive development program, organizations can now enlist the support of a powerful ally that has a vested interest in a strong executive cadre: the board of directors.

One of the biggest challenges for those responsible for designing and delivering executive development programs is getting sufficient buy-in from the organization’s most senior leaders. If the organization’s CEO is a proponent of executive development, life is good—the rest of top management typically endorses the development initiatives and is often personally and actively involved in developmental activities, and development even aligns with such other business pursuits as strategic planning and business development. Indeed, progressive organizations use executive development initiatives to advance organizational strategy and to help cascade strategy from the executive suite to frontline managers.

In many organizations, however, although some individuals may recognize the importance of executive development programs and activities, it is a constant struggle to sell and reinforce their value in order to keep them funded—and alive. Ironically, when an organization reaches a crossroads of change, leader development activities are often seen as a hindrance rather than an enabler. At a time when leaders’ talents are being stretched in response to a reorganization or a major change in business strategy, development is typically granted little attention.

But today there is a relatively new influence on executive development and realization of its value to the organization—boards of directors, whose role has evolved in recent years. Boards are being thrust into closer contact with both their organizations’ business operations and the people running those operations. This is a unique time, when several factors are contributing to a great opportunity for development professionals to support boards of directors in their role, which is increasingly focused on people development activities. As with supporting the CEO, aligning with and supporting the board provides instant credibility and support for senior development professionals. Boards are a largely untapped resource—not many organizations have really engaged them in executive development—but for those that have, the payoff can be huge.

IRON IS HOT

Why is this the right time to involve boards in executive development? In the past, boards’ interest in people issues was typically limited to CEO succession and executive compensation, for which boards are legally responsible. However, boards’ activities and the content they address are now changing, for several reasons. First and foremost is legislation enacted in 2002 that has been giving corporations compliance headaches: the Sarbanes-Oxley Act (named for its sponsors, Senator Paul Sarbanes, D-Maryland, and Representative Michael G. Oxley, R-Ohio).

Sarbanes-Oxley—sometimes known as SOX or SarbOx—has pushed boards into deeper involvement with people issues through its Title IV (“Enhanced Financial Disclosures”), which establishes a “Code of Ethics for Senior Financial Officers.” Companies often expand these principles of right and wrong into a code of conduct outlining expected behavior for all employees. An important implication for human resource departments is that behaviors are clearly affected by developmental activities. As the board is responsible for helping to define this code and deliver it throughout the organization, it is faced with a monumental development challenge, both for current management and future leaders. This is where HR’s products and board responsibilities coincide: what the board needs—a strong, ethical body of executive leaders—is what HR can deliver best. The question is, is HR up to it? Can HR frame executive development in a way that meets these critical board expectations?

The work of boards in the area of succession has been, classically, confined to the narrow task of CEO succession, unconnected to both management succession and executive development. Boards have simply not had a say in such matters. But that lack of involvement is nearing an end. Boards are starting to demand information and involvement in overall management succession because they now feel the heat for what goes on inside the company, including management behavior and corporate culture. The health of the organization’s leadership is a key indicator of the organization’s ability to successfully execute its business plan, and boards must now vouch for that ability. This requires that the information available to boards go beyond succession lists and be reviewed more often than just once a year.

Boards may be reluctant to involve themselves more fully in executive development work for one key reason—they have typically not been good at it. In a 2004 study by global management consulting firm A. T. Kearney, all board members agreed that leadership development and succession planning are important, but only 25 percent believed that they were very proficient at these activities.

Some boards are changing their composition to address this issue. According to “The New Recruit,” an article in the September 2005 issue of Human Resource Executive, a few boards are nominating HR executives to their ranks in order to gain these individuals’ expertise and focus.

Another factor that is moving boards to take a more substantial role in executive development is CEO turnover. Executive outplacement firm Challenger, Gray & Christmas reported in 2005 that CEO turnover was running a whopping 53 percent higher than in the previous year and that the final rate for the year was likely to surpass the record set in 2000. Because of this turnover, if development of senior talent isn’t monitored at a higher level—in other words, by the board—development initiatives are likely to be suspended or rebuilt every few years, resulting in loss of momentum and hence of impact on the executive group. Boards, as an element of their fiduciary responsibilities, have to ensure the quality of company management.

For evidence of another influence on board behavior, one has only to look at the number of articles on executive development that have appeared in Harvard Business Review and McKinsey Quarterly, favorite intellectual watering holes for CEOs. “The View from the Boardroom,” an article in McKinsey’s 2005 special issue on value and performance, reported on the key issues board members want to spend more time on; five of the top seven are related to executive development. These seven, in order, with development-related topics in italics, are talent and skills, strategy and risk, developing management, evaluation of top management, evaluation of CEO performance, current company performance, and CEO succession.

According to an October 2005 article in HBR, “Growing Talent as If Your Business Depended on It,” “Many executives believe that leadership development is a job for the HR Department. This may be the single biggest misconception they can have.” The implication is that although HR needs to support the development process with methods and tools, line executives and top managers also need to take executive development under their wing. The article goes on to state that “if line managers are held responsible for executing the talent development initiatives, the board should assume high-level ownership of the overall system.” Such board ownership is a hallmark of highly evolved succession management processes.

These are the forces that boards are responding to in demanding more involvement in executive development and succession. Three of the top drivers are legislative pressure, turnover of CEOs and corporate officers, and a groundswell of popular opinion that holds that boards should shoulder more responsibility. So if a board expects to play a role in this arena, what can you as a leader do to partner with this newfound ally?

POWER UP

Here are five things leaders can do to leverage the power of the board in executive development:

Ensure that succession integrates with business planning. Too often succession planning and business planning are completely separate activities, the first owned by HR and the second by the CEO. Because the business plan is simply a combination of opportunities weighed against capabilities, the organization, to properly construct a strategic plan, must consider current and future talent. There can be disastrous consequences when the strategic plan and succession plan are developed separately. For one, a company may fail to recognize that it lacks the appropriate talent to execute a new strategy. Or as is more often the case, the company may waste executive development resources in ways that negatively affect a new business direction. The business press has featured a lot of rhetoric about the importance of intertwining development with core business processes, but the starting point for this integration is in the planning process itself. When a new strategy is being evaluated, the board must surface succession and development considerations at the same time.

To support the board in this, HR must make a few changes:

• Increase collaboration in succession planning, shifting it from an HR process to a business process.

• Align the milestones and approval timelines for succession with timelines in the business planning process.

• Provide tools and templates that equip leaders to perform succession work in conjunction with strategic planning.

• Take an active role, and facilitate combined discussion on strategic planning and succession.

• Ensure that succession and development issues are a part of the dialogue at each stage of strategy development, whether HR is in the room or not.

These are important foundational steps in harnessing the board’s power in support of development.

Directly involve the board in succession planning. According to a board member of a $3 billion diversified manufacturing company, “The absolutely clear, nondelegable responsibility of the board is CEO succession. Very close behind is how the board today has an immense interest in CFO performance and succession. For the board not to be active in a significant way in CFO succession is a mistake. As to succession in other key management roles, a company cannot fail to look very carefully at its bench strength and know what it really would do if it loses its chief marketing officer, chief information officer, or others at that level. This has to be part of an active, continuing conversation between the board and top management, especially since retention level and bench strength are directly tied to board-level issues.”

When it comes to succession, boards increasingly want to be able to vouch for the whole body of leadership, not just the CEO. Boards now assert their need to know about bench strength for all key positions. This means they expect to receive more information on the successors for a number of management posts—as many as thirty of the top positions.

HR must help the board do several things:

• Understand which key positions drive corporate performance.

• Assess incumbents, successors, external talent, and longer-term high-potentials.

• Keep an eye on the development plans, and discuss progress in board agendas.

• Engage in frequent discussions about bench strength and retention.

This moves board succession discussions from perfunctory annual presentations to an ongoing, dynamic dialogue on talent. Just receiving prepared information isn’t enough, though. The next step requires even more board involvement.

Help the board get to know and grow the talent. A board member of a $2 billion manufacturing company says: “When companies have a sales meeting, a reward weekend, or other highlevel events, it is a grand opportunity for board directors to take time to get at the fiber of the people in important positions and be prepared to talk to and about those people. Or when there’s a board retreat, it is mighty important for directors to be around senior management other than who they are around all the time.”

Directors have a fiduciary responsibility to know the organization’s executives and how they will behave when no one is looking. So boards are looking for more opportunities to get acquainted with the people entrusted with operational decision making. They need the benefit of formal and informal information on the ethical soundness of these critical leaders, and some of this information needs to be provided independent of the CEO. To this end HR should encourage independent interaction between the board and individual leaders, although not always staging these interactions.

HR can pave the way for board members to do the following:

• Sponsor high-level project teams.

• Directly coach succession candidates.

• Visit candidates’ operating units in different parts of the world.

• Observe presentations by leaders outside of board meetings.

• Participate in company leadership development courses.

• Implement a committee dedicated to human capital, one that goes beyond the scope of the compensation committee.

• Participate in the planning and implementation of development.

• Informally assess leaders at social events and recreational outings.

In the process, directors will gain a personal sense of individual leaders and the overall cadre of top talent. That knowledge is indispensable to directors’ accountability for guaranteeing ethical leadership for the organization.

Enable the board to evaluate leaders’ performance and ethical behavior. According to the CEO of a $145 million high-tech firm: “Having a leader in a key position who is not aligned with corporate values and culture can be enormously detrimental, to the point that it can unravel the company’s performance. Alignment with corporate values doesn’t necessarily guarantee you’re going to be successful, but if you’re not aligned, you won’t be successful in the long run.”

One responsibility that has emerged for board members is to know and vouch for the character of the company’s leaders—a checks-and-balances role. Boards that can unreservedly stand behind the character of the organization’s leaders are better positioned to protect the long-term interests of the company. But the reality is that there has been intense pressure from Wall Street over the past fifteen to twenty years to focus on short-term results. Corporate executives have felt this pressure to deliver outstanding results every quarter and have sometimes let the pressure prevail over sound management. But with the ensuing negative and sometimes disastrous consequences, boards are now setting a clear mandate that companies reward results that are achieved in accordance with corporate values and that support long-term aims.

HR ...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• Introduction
• Building Talent: Developing Effective Leaders Is as Crucial as Ever
• Engaging and Developing Is Key to the Challenge
• How to Put Your Finger on the High Potentials
• Building the Pipeline: Leadership Succession Is a Key Challenge
• Learning a Lesson in Executive Selection
• Getting on Board: Involving Directors in Leader Development
• Generations Talk About Leaders and Leadership Development
• Developing and Retaining Emerging Leaders
• Next Generation: What Leaders Need to Know About Millennials
• The Missing Link: Organization Culture and Leadership Development
• Quality Control: Why Leaders Need to Understand Personality
• A Key Link in the Chain
• Character Study: Strengthening the Heart of Good Leadership
• A Retention Strategy for the Ages
• Finding Success at Succession
• Managing Talent Is a Burning Issue in Asia
• About the Contributors