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Canada’s executive class is well aware that a mass demographic storm is on its way as the boomers start to retire over the next five years. While most organizations recognize the threat, many have done little to counter it.
A recent survey of Canadian senior executives conducted by Odgers Berndtson found that nearly half of all private and public sector organizations expect to lose 20 per cent or more of their executive staff by 2017. Worst still, more than 90 per cent of respondents said the next generation of managers is not ready to fill the gap at the executive level. Perhaps the most perplexing finding is that while senior executives are aware of the imminent skills gap, more than half admit to having no formal plan in place to address the anticipated shortage.
It is not all doom and gloom, however. We talked with three Canadian organizations who have seen the storm on the horizon and have implemented measures – large and small – to ensure that they have the next generation of leaders ready when the time comes.
Mining for talent on two continents
One of those organizations is Hudbay Minerals Inc., a mining company with growing operations in Canada and South America. The Toronto-based company has recognized that it faced a “demographic cliff” with regards to the senior ranks of its Manitoba mining group and a “thin” management team in Peru where it is in the process of building a new mine.
Hudbay’s top executives and division heads spent two days this fall reviewing approximately 60 employees in its top four management levels as part of its first annual talent management review.
“We went through every single individual, the manager of their area came and spoke to us about them and what we tried to do is categorize them as sort of ‘high fliers’ and people requiring additional counselling and development,” said David Garofalo, Hudbay’s President and Chief Executive Officer. “We were able to slot these people into potential successors in various key roles and we were able to identify whether they were in line for immediate succession, or one to three, three to five, or five to seven years out.”
The succession planning project is one of several recent initiatives that have been developed by human resources veteran Sharon Sanzo, who joined the mining firm last year. Hudbay has also created an HR database that allows senior executives to instantly obtain key data employment information on personnel within the company. “It warehouses all their objectives, and it measures their performance against objectives, while tracking their education and their aspirations,” explained Garofalo. “Any one of us in management can log in to the system at any time and keep track of people and how they are progressing against their objectives.” So it is very much a real-time human resources management system.
CEO plans his own exit
It was the future retirement of the CEO that prompted Pacific Blue Cross to create a succession management plan. It addresses all three levels in the organization. In the case of the senior executive team, the board has detailed information on their potential to assume other positions in the C-suite. At the middle management level, individuals identified as high potential leaders all have individual development plans in place. For staff who want to progress to a management position, there is a group mentoring program. This year-old “Leaders of Tomorrow” program has already borne fruit as four participants have moved from unionized positions into management roles at Pacific Blue Cross.
The insurer has taken a top-down approach to management succession. “I think you start looking for your successor almost the first day you start the job,” said Ken Martin, the CEO. The organization identified three possible successors to his job and, after a process involving the board and senior management, eventually settled on one of the candidates, broadened her duties and experience and promoted her into the number two slot in the organization, that of Chief Operating Officer.
“Two years ago, as I was getting closer to retirement, I suggested a plan to the board which they agreed to,” said Martin. The Vancouver-based health insurer hired an outside consultant to interview the board about what the organization required in a CEO and similarly polled the senior management team, a process that resulted in the selection of its current COO. The organization will still go through an external search for Martin’s position when his retirement gets closer.
Martin, who was taken aback by the worrisome results of the Odgers Berndtson Executive Outlook survey, said organizations need to take succession planning seriously. He believes it is a responsibility of both the CEO and board, and key to helping employees achieve their career goals.
Creativity key in talent war for smaller employer
Succession planning at ING Direct Canada is a family affair — involving every employee at the bank. For most this involves talent management planning including setting career paths and development plans that set targets for individual employees. For its top 50 people in the organization it conducts more formal succession planning.
“Each year I present to our board of directors a succession plan for the top 20 positions in the bank, as opposed to the people, and then the succession planning looks at internal candidates, the ING group of companies and external candidates,” said Rob Landry, ING’s Senior Vice-President of HR, Legal, Operations and Real Estate.
The bank carries out annual reviews of top talent as well as quarterly updates and grades people as “ready now,” “ready after one rotation” and “future potential.” ING ideally would like to identify one or more candidates for every senior position, but this often proves challenging. “That is a challenge that smaller or mid-sized organizations have, you don’t often have the luxury to be as deep as you would like to be, so it requires a bit of creativity sometimes,” said Landry.
Getting creative at ING means developing people through experiential opportunities such as rotating mid-level employees through four departments, over two years, to gain exposure to different areas of the company. The bank also uses project work and shadowing as a way to get employees access to different functional areas and leadership opportunities. “Ensuring that the talent pipeline is kept filled is the most important job of any leader,” reiterated Landry.
Odgers Berndtson recently conducted a survey of Canadian senior executives on the looming leadership gap and its potential impact on innovation and productivity. The most significant finding was that Corporate Canada and the public sector are clearly anticipating a mass exodus of senior executives over the next five years, yet few are prepared for it. According to the survey, nearly half of all private and public sector organizations anticipate losing 20 per cent or more of their executive staff by 2017. This departure is further complicated by the reality that more than 90 per cent of respondents believe the next generation of managers is not ready to take over at the executive level.
Psychologist Dr. Robert Hogan, an international authority on personality assessment and leadership, contends that great leadership stems from the skills and personality of the leader, rather than the position itself. Dr. Hogan’s personality assessments are used by more than half of the Fortune 500 and his influence is felt in boardrooms around the world. While he is optimistic that organizations can improve leadership and operational effectiveness, he is highly critical of how leadership assessment and succession planning are carried out in the public and private organizations today.
Q: What is the state of leadership currently in the private and public sector?
A: Unfortunately, few take the issue of leadership seriously today.
Q: You have carved out a reputation and international business by identifying what traits are necessary for successful leadership?
A: Yes. People want to see you are working for the team and not for yourself. People pick up on narcissism (“look at me”) instantly and it is one of the most toxic things a leader can do.
Q: At a recent presentation at Odgers Berndtson, you discussed the link between leaders and those they lead in the workplace. Can you give a gist of that presentation?
A: Yes. I presented some key findings from an important study of nearly 8,000 companies concerning leadership and employee engagement. The study confirmed that the personalities of managers directly influence employee satisfaction. So when employee satisfaction is high, positive business outcomes result. It essentially showed that the link between leadership and unit performance is mediated by staff morale. In the end, people don’t quit organizations, they quit their boss.
Q: You talk about how important it is for staff to trust their leaders. What are the key components of trust?
A: Four traits: integrity, decisiveness, competence, vision.
Integrity in a leader, which shows up in our assessment scores, appears in their behavior: they don’t lie, they don’t play favorites. They will have a reputation for integrity or they won’t, and it will follow them from their last job. The people who won’t see it are those senior to the leader, but the staff always knows.
The second thing people want to see is: do they make good decisions? It is called good judgment. It gets even more complicated than that because 50% of all decisions are going to be wrong. Good leaders learn from their mistakes.
People also want to see evidence that a leader knows what they are talking about. This is competence. Leaders have to identify a sensible future for the operation and they have to communicate it.
As for the vision thing, it’s essentially: ‘Here is the reason we are doing it, why it makes sense and why it is important.’
The most important element is integrity and the least important is vision, but they all matter.
Q: You have said if organizations put the right people in the right leadership positions, operations improve quickly. How do you identify the right people for leadership roles?
A: We use our assessment results. The only real variable is the culture. Do they have the requisite talent to be a leader and do they fit with the culture? Yahoo, a high-tech IT firm, hired a CEO who was a movie producer. (He later resigned amid weak company results). That was a really bad fit with the culture. It didn’t work.
Q: How many companies put the right people in leadership positions?
A: We estimate that the base rate of bad managers is between 50% and 75%. (Hogan research suggests poor-fit managers “interview well” and are hired based on technical skill and business knowledge, not on talent for leadership).
Q: Are there any companies that have used your principles?
A: Yes. When they give us access to the records, 100% of the time we can show improved productivity and improved revenues. Usually it is around sales. We worked with a convenience store chain and the profitability of the individual store was directly correlated with the personality of the manager. It was the same with Burger King, which is also basically a convenience store.
Q: Are there any companies out there that you can point to that are doing it right?
A: Oh yes. I think at Ford Motor Co., (CEO Alan) Mulally is excellent. (Sergio) Marchionne, the head of Fiat and Chrysler, he really knows what he is doing. Another is the guy who saved Continental Airlines, Gordon Bethune, and the one who started Southwest Airlines.
Q: So it can be done?
A: Yes. The data is so well established it holds no surprises for me. The best single way to choose a leader is ask the people who used to work for him or her.
Q: In an ideal world, what would you do to identify and develop great leaders in an organization?
A: It is all those things that we have talked about. Can they keep their emotions under control? Are they a good role model? Do they treat the staff with respect? Do they avoid micro-managing and screaming fits?
Q: What are the components of a great organization?
A: Talented team members, good leadership and an effective business model.
We asked partners in our five Canadian offices what makes the difference between a candidate who moves up into the senior ranks of an organization – and one that doesn’t. Having depth and breadth of experience was cited as the most critical success factor for senior level roles, followed by the importance of thinking strategically, having good communication skills and knowing how to be visible.
In my area, financial services, the chief shortcoming most often is breadth of experience. As you go into these top jobs, you have to have a broader understanding of the overall business. You can’t be a one-trick pony. To become more attractive as an executive, you need experience in multiple business lines. The other ingredient often missing is visibility, both inside your organization and outside. The days of being in your office and doing a good job are over. You have to be visible to the organization – in developing leadership skills because quite often you are not pulled up but rather you are pushed up by your people.
The takeaway: Candidates can raise their visibility by playing an active role in a company initiative such as leading the United Way Campaign, taking on not-for-profit board positions, or being active in industry associations as a board member or as a speaker at a conference. I also highly recommend looking for an executive coach - someone who has either been there or understands what it takes to make it to the next level.
A person absolutely has to have outstanding communication skills. No matter how technically strong you are, if you are not able to communicate, articulate your vision and get your message across, you are going to fall short. As well, candidates who stand out display a demonstrated ability to be a successful team player. They are not only able to lead others, but also to inspire and support people, and demonstrate a proven ability to work with others. No matter how talented you are, if you cannot translate that skill into action, you will be held back.
The takeaway: A candidate looking to improve their communication skills might join a not-for-profit board, a public speaking group like Toastmasters or take an evening course. As for being a better team player, this comes from being adaptable, responsive, disciplined and positive. You should candidly identify your own strengths and seek to assist the team by building on those strengths. You will be more successful and will find the experience more rewarding.
The one thing that I see as lacking is the ability to think strategically. In particular, thinking about how you can be relevant to the CEO, the board or the executive committee and how to add value if you are not in that strata already. How do you become relevant? You need to solve problems that are strategic, not just operational. For example, IT executives must show how they create value and be an enabler for the business. Can IT stimulate ideas for the Chief Commercial Officer or the CEO on new business models, expansion into new markets, or transform the customer experience?
The takeaway: Get exposure to cross-functional issues, problems and teams so that you can think strategically and act outside your area, widen your scope and become valuable to your peers and superiors – even if you need to do it outside of your ‘day job.’
One of the primary things that I see happening often is just a lack of experience and time. Getting the depth required to go into an executive role, while also being aligned with what the organization needs to move forward on its strategy, is critical. Being an integral team player, and networked both internally and externally can result in organizational and market insights that will help set you apart. Another differentiator is self awareness – knowing where your strengths and limitations really lie. People who are more aware of what they need personally and professionally seem to seek out the experience that will get them to that next level.
The takeaway: Be your own career manager. Seek out mentors and networks. Know when it might be time to leave an organization if you are not getting the growth or opportunity in-house, and have the courage to do that.
Many candidates will have the depth of experience required but they are missing the broader leadership skills needed to go to the next level. Often they are so deep in one area, that they haven’t learned enough about the other critical functions of the business. While I find most organizations these days are good at moving their executives around, often what they end up missing is an operational role — such as a CFO who has never run a business unit and had direct P&L responsibility.
The takeaway: Individuals should make sure they're looking around at how they can progress and that they are managing their own careers – not just waiting for others to make those decisions for them. For example, if you're a financial executive in a company that is really sales and marketing-driven, you’ll want to position yourself with broader experience than just finance.