HRD invited six outstanding HR directors to an exclusive networking event. From CEO succession to the Sigmoid Curve, the agenda was wide-ranging and the conversation flowed freely. Iain Hopkins reports
EXECUTIVE SELECTION AND SUCCESSION
Prepare for both internal and external succession plans; ensure internal roles have exposure to the board. The difference between executive roles and one level down is board exposure.
Good CEO succession takes time and actually does not have a ‘start’ and ‘end’ date; consider it a constant, ongoing process, and be prepared to wait for the right person.
Chris Lamb: For CEO succession in a listed company the market expects you will do an external review, whether that’s a full search, benchmarking, or whatever. You can have the best succession plans, you can have five people internally lined up, but the market still expects you will look outside. But for most organisations, if you’ve done a good job, if you’ve developed the right people and given them the right opportunities, an internal successor is a good bet: they know the organisation, they know the culture, they know what works.
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INTERNAL VS EXTERNAL
Newly appointed CEOs in 2012 were, for the most part, familiar faces: 71% of the time, companies promoted people from within; a quarter of incoming CEOs had worked at the same company for their entire career; 81% of new CEOs had the same nationality as the company’s headquarters; and 95% were men. Research also showed that, from 2009 to 2011, 35% of externally hired CEOs were let go versus 19% of those who were promoted from within.
Source: Booz & Company’s 2012 Chief Executive Study
Bob Hogarth: There’s a certain romanticism about hiring someone externally. In days gone by, many organisations looked externally to bring something fresh into the fold. In many organisations, having someone who’s been there for a long period of time has some dangers – they have to live with their mistakes.
Mel Tunbridge: Our CEO is on a four-year contract, so every four years we face that problem. Our biggest challenge is we don’t set the remuneration for our CEO; there’s a government remuneration tribunal, so we are capped. Last time we had probably 60-odd people who were shortlisted, who either weren’t interested in the organisation – because it is quite specific, quite niche – and there were loads of other people who went: “How much? Sorry, I’m already on… XX”.
Emma Hogan: We’re in a unique situation at the moment where our COO is leaving us, and he’s been with Foxtel for nine years. He’s an amazing guy. He’s been joint CFO and COO for the last two years. We wanted to retain him; he wanted more responsibility – so we almost built the role around him. And now he’s going we’ll restructure and untangle that area. It’s rare you’d be recruiting two executives at the same time, but we’re in this situation where we can have conversations about how are we going to recruit so the team can position itself well. So we’ll restructure, but I think we’ll prioritise it as structure, strategy and then person. Previously we’ve maybe done person, then structure and strategy.
Simone Carroll: You’ve also got to look at where the knowledge lies in the company to make sure that’s disseminated out as far as it can go, and then be careful with hierarchies. Ensure people aren’t being overshadowed by their manager. Give them as much knowledge as possible and provide them with opportunities to be exposed to the board. You must give them the opportunity to see what that environment is like; otherwise, when it comes to putting an internal up against an external in front of the board, the internals are not going to win.
HR AND BOARDS
Regardless of industry, boardroom politics is the coming together of agendas. Understand what everyone’s agenda is; build relationships with people and aim to find a philosophical alignment with them. Once another person’s intent is understood, it’s much easier to position the issue to get an approval or at least a compromise on it.
In terms of building diversity: Analyse what you’ve got now, analyse the gaps between what you have and what you need, and then put a plan in to address that. Be prepared to look outside the usual network and means of attracting diverse board members – diverse not just in terms of gender, ethnic background, etc., but also in terms of diversity of thinking. Diversity initiatives in general are plateauing; HR needs to develop new tactics and strategies
HR can’t keep saying the same thing and expect the dial to move.
CL: We hired a board member relatively recently. I should say I wasn’t involved at all in that; it’s a board process and board decision. However, he is famous for doing six months’ due diligence on an organisation before he will join their board. He expects his first couple of months to be spent listening, asking questions, and not taking assumptions from his financial services background into a property construction company. So, given that a board role is not a full-time, hands-on executive role, your first 100 days is not much. It’s more passive than actually making a mark.
MT: That’s exactly right. I’m on a couple of boards myself, and the hardest board to get onto is your first one. Then suddenly you have a network to draw on. From a culture diversity perspective our board is ridiculously diverse. Yet it’s hard to find a real mix. It’s easy to find the same 100 people who are already on boards of similar organisations, but if you don’t search – and sometimes that’s what happens – you go to people you know.
CL: Board-level diversity is a massive issue in Australia. We get stuck on gender, but it’s much broader than that: cultural diversity is terrible on boards. Beyond specific diversity components, I talk about diversity of thinking. You can have a board that is diverse by gender but they all come from the same background; they have the same thinking, they come from the same organisations and roles. To solve big problems you don’t want a bunch of experts all thinking the same way; you want people who bring different perspectives.
FAILING ON ETHNIC DIVERSITY
Just 3% of directors at top 100 ASX-listed companies are Asian-born. The latest Australian Institute of Company Directors sentiment index showed that while 40% of boards are seeking to increase their gender diversity, only 21% are seeking increased ethnic diversity. The figures come despite warnings the Federal Government may consider imposing a quota on Australia’s top 200 publicly listed companies that would require one third of board members to have ‘deep experience’ in Asia. The call was made in the government’s Asian Century white paper. The report predicts that Australia’s trade links with Asia will rise to at least a third of GDP by 2025, up from 25% in 2012.
CL: The biggest issue is 95% of board positions are not filled through a search or selection process. Vacancies are filled the same way they’ve been filled for the last 100 years. If you had that process, then you can decide what you need – what sort of experience, what sort of thinking, etc., and rigorously test for that. The board roles that are advertised, by and large, are those that have to be advertised because it’s government criteria to advertise it.
HR AND FINANCE
HR has access to some of the most important metrics and analytics; it must therefore build confidence in ‘talking numbers’.
No matter the department or division, the commonality is data.
Those HR professionals who cannot build a solid business case that justifies why a company should invest in their initiative or project should not be practising HR.
When the pressure is on, HR needs to help the organisation look at growing revenue rather than cutting expenses.
SC: I don’t like it when I hear, sometimes from HR professionals themselves, that they are not numbers people. We’ve just got to stop saying that to ourselves. If you explore the labour budget and look for opportunities to optimise that, we have some of the most valuable data in HR about where our money is going. My relationship with the CFO is a daily relationship. We are tied to each other. We’ve been to HR conferences together, to learn about the future of HR. I’ve spent time learning what’s happening in her space as well. I think all execs, be it the C-suite or whatever we call it these days, have to know each other’s business.
BH: This is an important issue for HR: the fact that HR see the CFO and finance as distinctly different. Although we may think differently, we both understand each other’s roles and the roles we play in a successful company. So we need to know how to speak the language of CFOs. We need to have metrics that are convincing, not some airy-fairy metrics that in the past some have passed off as being convincing.
EH: There’s also this thing that finance people don’t get people, and I think that assumption can be just as bad as HR people being perceived as not getting the numbers. It’s an unfair generalisation. I think the commonality is data. Personally, with our finance guy, I don’t think I’ve ever been so heartbroken to lose a colleague – ever. We’ve been attached at the hip and worked very closely together.
Joanne Allen: We completed a project recently around reducing expenses, and it was interesting to sit down with finance and say, “OK, we’ve got a task X. Who are we looking at around the table who can deliver that?” We don’t have anything but technology and people so that’s where we go to look. When we started to tease out the expenses associated with human capital management – what we spent on agencies, what we spent on our insurance providers and all these other costs of running a very people-heavy service business – we far exceeded the task we were given.
HR DATA & METRICS
Determine the most impactful data that is relevant in your organisation and use it; collecting and analysing incorrect or inappropriate data can actually be more damaging than helpful.
EH: HR is bringing more of these stats to the table, but we can also produce a lot of metrics that don’t mean anything. You need to understand what data is meaningful, then you can have that executive conversation regardless of which function you run.
CL: Sometimes it even gets harder because there is so much data, so much more information. Someone latches on to something and says, “I’ve seen this statistic and this tells us…” There’s a lot of distracting information, so being able to filter through that and determine what is actually relevant for the business is critical. The top-line attrition number may tell you something; it may not. But there’s lots of meaningful information out there.
BOEING FLIES HIGH
HR thought leader John Boudreau frequently cites Boeing as a case study when talking about meaningful data. Until the creation of the 787 Dreamliner, the most important people in the organisation were the engineers who built components out of metal. However, the 787 was made largely from composite materials. The new ‘most valued’ employees became those engineers who were the best collaborators with other organisations that made the various composite materials. Previously these people made armrests; they were not valued highly. For HR the lesson is: how do you determine who are the most important people in the organisation? In this instance collaborative behaviours suddenly became highly valued; find the equivalent in your organisation and reap the benefits.
CRISIS MANAGEMENT AND PR FROM THE HR DIRECTOR’S SEAT
Alarm bells ring when HR is ‘the face’ of the company in difficult times, at least externally; the issue must be escalated to the most senior appropriate person.
Internally, HR has a critical role to play in times of crisis.
CL: You never want to put the HR director in front of the 6 o’clock news because that demonstrates to the viewer and the public that the CEO doesn’t take it seriously enough to be there. If the HR person has to be the face of that sort of stuff, that would set off alarm bells. I’d be saying, “Where’s the CEO, where’s the COO?” Have you ever seen an HRD on media being the face of a company? Of course, we do all the work behind the scenes. Talking about a major IR issue, we’ve been in Federal Court on a case recently. Behind the scenes we’re dealing with the lawyers and all of that, but I would never suggest that I should be the one to front up to the media to talk about it.
MT: I totally agree with the CEO handling it externally, but internally we share that as an executive team. We’re interchangeable in terms of presentations or being the face of the organisation to the organisation, or even our EBA negotiations.
BH: We had a takeover bid a number of years ago. HR had an enormous role to play in terms of communication, keeping people informed, keeping morale up, putting up the barricades in terms of how we were going to fight off this attempt.
The most effective leadership development is a combination of experience, skills development and opportunity.
Look at the motivation for learning in the organisation. If leadership is valued and those who are good leaders are being promoted or rewarded appropriately, there will be motivation to follow in their footsteps.
Look at creative ways to give people experiences – work with someone who pushes you to try different options – and live by the mantra ‘what doesn’t kill you makes you stronger’.
EH: It’s a combination of things. Leadership programs are always helpful because they help to sharpen your focus and remind you of what you most need to learn; they also give you time to reflect. But the reality is learning from other great leaders and being given the opportunity to be a leader and diversifying your own responsibilities or accountabilities is where you make the biggest inroads.
BH: The starting point, from my point of view, is to have good leadership role models. That by itself won’t be sufficient, but unless you see it in action, all those training courses probably won’t have much impact. If you can have really good leaders and supportive elements in place to say “these are the behaviours we like and this is why”, that adds value.
JA: The term ‘leadership’ is a bit cookie-cutter-ish. Leadership is not one brand; it’s different in different circumstances, in different organisations, in different stages of evolution – they each require something different from the leadership team. There is nothing that can take the place of experience, being in tough situations and being supported through that experience. The only way you learn is being in situations that force you to pull different levers. When I was working in Hong Kong my boss asked me to be the comms lead on the acquisition of a Chinese bank. It was the most terrifying experience. But it was one of those ‘what doesn’t kill you makes you stronger’ moments. It’s that experiential piece: working with someone who says, ‘‘You can do it; I will back you’’. You need anti-role models as well. You need to look at people and say, “I don’t want to be like that person!”
SC: Have you heard about the productive zone of disequilibrium? It’s a concept which explores adaptive leadership. The theory is that you create an environment for leaders to thrive. It says that a human being has to feel slightly uncomfortable but not at boiling point to feel the necessity to try something different.
THE PRODUCTIVE ZONE OF DISEQUILIBRIUM
A leader creates and sustains a productive zone of disequilibrium when people feel pressure to do the work they must do to live out their values. Like a pressure cooker at the right temperature, the zone creates the right amount of pressure for the work to get done. Too little pressure and nothing happens. However, too much disequilibrium will push a group over the edge and prevent members from working together productively. The challenge for leaders is how to create a sense of urgency without creating stress or disengagement.
Apply the Sigmoid Curve model to yourself, your team, your organisation.
JA: I hired someone in my team recently who has an interesting background. He’s done a lot of work relating to change. I asked him to run a session in my team on the topic, and he introduced me to the Sigmoid Curve. We are not an organisation that ever rests – if you don’t like that, you won’t enjoy Citi. What was great for my team was to say, “OK, it might be painful, it might present some challenges, but we need to keep doing that to perform as a team, as an organisation”. It’s a great little model you can use for yourself, for a team, for an organisation. If you can understand that change is a good thing and why, it’s very powerful.
SC: An exercise you can do is ask where is your company in terms of its lifespan on the curve. Can you see competition coming over the horizon? If you’re in growth phase, what you want to do is come off that natural growth curve and then put your energy into a new Sigmoid Curve. You want to take your momentum, your strategies, to reinvest in different things. One of our strategies is to anticipate market needs, so we’ll tend to get ahead of where our customers, consumers see us going. Not anticipating what they need but telling them what they want – the Apple model. So the Sigmoid Curve is the heart of REA Group strategy.
THE SIGMOID CURVE
The S-curve is about the nature of change. With any change there is always a first period of experimentation and learning, which is followed by a time of growth and development. Ultimately, however, every curve turns downward. The only variable is the length and duration of each part of the curve.
Figure 1: Click to Enlarge
As demonstrated in Figure 1, the best time to start a new ‘curve’ is before you reach the peak of your existing one (point A). That way, you will be starting something new when you still have the resources, and the spirit. Most entities think of doing something new only when they have reached the bottom of what they are presently involved in (point B), yet if they desire to continue growing and reinventing, they must develop a second curve out of the first. Change at Point A, however, results in a period of confusion, represented by the shaded area in the drawing. At this time there are two contrasting and often competing cultures.
The challenge of the second curve is to find a way to start that curve while still building upon the success, learning and maturity gained from the first curve.
HR SKILLS GAPS
HR needs to work on building confidence; be brave and sell your story. Determine what it is the key decision-maker values and build an airtight business case for it.
HR has a crucial role to play in terms of coaching and mentoring, encouraging strengths in people, and building networks for people across the business.
HR professionals benefit most when they’ve spent time outside of the profession.
EH: What’s missing from many HR professionals is a couple of behavioural things. There’s the issue around competence and confidence. HR is moving into an area where they’re much more credible. They’re transitioning to being true business people. I think over time that will just become the expectation. But I don’t think there’s a level of confidence required. I often find HR people do know the numbers and do know the business but are almost so worried the credibility isn’t there that they start off on the back foot. If you’re in there apologising for the job you have, you’re kind of missing the point.
CL: An issue is also leadership. Often you can become quite senior in HR without having led anyone, or no more than two or three people. That’s why often a stint in business, a shared service function or another area can be beneficial.
EH: Sometimes in an effort to be so credible and be such good business leaders we can forget that part of our role and part of our experience is to bring the voice of everyone to the table, not just the business or the people but a combination of both. You must work hard to be consciously objective, otherwise you fall into one category or the other.
SC: Also, don’t fall into the trap of believing what works in one business will work in another. It’s like a cargo cult. What we need is information about strategies and tools that are adaptable but not necessarily the way forward. When learning about other strategies in other companies, you want to hear “it worked for us because…”, not just “this is what the company is doing…”.
The term ‘cargo cult’ comes from religious cults of Melanesia whose central belief is that spirit beings will bring them large cargoes of modern goods. After World War II one tribe in particular received food packages from American aid workers. As these packages came from the air, out of an aircraft, they believed that if they also built a beautifully crafted airplane, out of wood and bark, the same thing would happen: food would drop from the sky. They built the craft and nothing happened. This same thing happens in organisations all the time: they read the case study and apply it directly to their company. It then fails to produce results.