What will be the board and C-Suite talent requirements?

Overview

  • Future corporate leadership (board and C-Suite) talent requirements will drive talent selection, development and succession planning.
  • Corporate leadership must deal with stakeholders and third parties.
  • What is the purpose of governance?
  • What are your strategy and strategic plan?
  • How will the future corporation be different?
  • Describe the future roles.
  • Outline future talent requirements.
  • Make talent management sustainable.

This article (supported by a one-page slide) is intended to enable discussion and action planning among owners/shareholders, boards of directors, CEOs, and advisory boards. The approach and action plan will be unique to the specific situation of each corporation.  There is no one-size-fits-all answer.

 Future corporate leadership (board and C-Suite) talent requirements will drive talent selection, development and succession planning.

For-profit corporate leadership includes: the board of directors, CEO, advisory board, and C-Suite.  Shareholders, if they make major decisions, such as in a private company with a shareholders agreement, would also be part of corporate leadership.

Future talent requirements are based on:  your strategy (i.e. what your successful company will look like in the future) and your strategic plan (i.e. what is the plan to build and achieve the strategy).

Succession plans often start with the current situation as a given and try to move forwards.  I recommend you start with a successful future and figure out how to get there.

The advisory board plays a key role in the future success of the corporation.  The advisory board relieves the board of directors from devoting time to coaching the CEO, and helps the CEO think through the recommendations before going to the board of directors.  The advisory board also contains people with skills and expertise who are not appropriate for, nor required on, the board of directors.

Corporate leadership must deal with stakeholders and third parties.

Corporate leadership must have relationships with, or deep understanding of, the following stakeholders (those who have an economic interest in the company):

  • Shareholders;
  • Non-equity capital;
  • Customers/users; (Dominic Barton, McKinsey’s global managing partner, meets with two CEOs a day.1)
  • Employees/unions; and
  • Suppliers, partners.

Corporate leadership must also have relationships with, or deep understanding of, third parties who can impact future success:

  • Politicians;
  • Regulators;
  • Third-party standard setters (e.g. proxy advisory firms, accountants, lawyers); and

Corporate leadership must make a conscious decision as to whether or not to have relationships with, or deep understanding of, society.  Not making a conscious decision is actually making a decision.

What is the purpose of governance?

What is the purpose of the corporation and why does it exist?

Is the only purpose of the corporation to create wealth?  Is there a higher purpose, either to a community or to society?  Or you may conclude the only purpose is to create wealth for shareholders and the C-Suite.

Peter Drucker said: “Because the purpose of business is to create a customer, the business enterprise has two–and only two–basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.”2

 What is your written definition of corporate governance?

Corporate governance is often talked about.  What is your written definition?  I use the OECD definition: “Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders.  Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined. “3

 What is the purpose of corporate governance?

Now that you have a written definition of governance, what is the purpose of corporate governance? Is it only to grow and preserve the value of the corporation?  The OECD governance definition starts with relationships: within corporate leadership, as well as stakeholders and third parties.  Any relationship has the potential for conflict of interest, because parties may have different or conflicting interests.  For example, how should the potential to generate value be allocated among: CEO, C-Suite, shareholders, employees, other stakeholders, and third parties including society, especially in cases of poor profits or losses.  The concept of potential to generate value addresses conflicts such as: whether to replace employees with lower-cost offshore staff or retain the employees in order to sustain local communities.

The U.S. perspective on the relationship between the corporation and society has changed radically in the past 37 years, as shown below by publications from the U.S. Business Roundtable.

 In 1981: “Corporations have a responsibility, first of all, to make available to the public quality goods and services at fair prices, thereby earning a profit that attracts investment to continue and enhance the enterprise, provide jobs, and build the economy.” “Business and society have a symbiotic relationship: The long-term viability of the corporation depends upon its responsibility to the society of which it is a part.  The well-being of society also depends upon profitable and responsible business enterprises.”4

In 2016: “Core guiding principles: The board approves corporate strategies that are intended to build sustainable long-term value.”5 There is no mention of responsibility to society.

There are many conflicts of interests between the corporation and society.  For example, should the corporation lobby to put in place laws which benefit the corporation but harm the broader society?  Should the corporation be extracting value from society (i.e. causing harm in the short- or long-term), be neutral, or provide value to society?  The point-of-view adopted by corporate leadership illustrates their values, ethics, and character.

Managing conflicts with society is not the same as CSR (Corporate Social Responsibility).

CSR often has a business case, which links doing-good with a combination of building reputation and supporting the wealth creation aspects of the strategy.  Sometimes a senior person in corporate leadership has a pet personal cause which the corporation then supports.

Managing conflict of interest with society requires dealing with situations where benefiting society reduces the wealth created by the corporation in the short-term (i.e. 5-10 years).  There is no business case.  The general public will have little awareness of what the company is doing, because there may be no advertising about what the company is doing.  The employees should be aware.

What are your strategy and strategic plan?

My definition of strategy: What will a successful future look like? What does future success look like to: customers, shareholders, other stakeholders, and society? What will be the future business model? What are your facts, assumptions, and scenarios?

An integral part of this strategy definition is: What will be the roles and capabilities of corporate leadership, i.e. board of directors, CEO, advisory board, and C-Suite?

My definition of strategic plan: What is the plan to build and achieve the strategy?  This includes the plan to build the future corporate leadership.  What will be the process, roles, and principles used to define the roles, appoint people to those roles, develop or recruit those people, and exit those who are not appropriate?

The CEO and board chair each have a part of the strategy and strategic plan and must co-ordinate their integration.

 How will the future corporation be different?

The strategy describes a future corporation different from today.  What are some of the issues corporate leadership must deal with during the timeframe of the strategy?  What will be the:

  • Major accomplishments?
  • Major changes?
  • Major challenges?
  • Major risks and uncertainties?

Describe the future roles:

What roles will be required in the future, and on the way to the future?

You need to understand (and document) the value of each role within the corporate leadership.  This is different from the typical job description. What roles will have the greatest impact on achieving the strategy?

Which roles make which decisions? What are the decisions made by each role which have the greatest impact on long-term value growth and preservation?  For example, which votes by each member of the board of directors have the greatest impact on the corporation’s long-term value growth.  Is it the appointment (or termination) of the CEO?

Which roles will have relationships with other roles?  Relationships among the corporate leadership are key to the smooth operation of the corporation.  Relationships with stakeholders, third parties and society can be critical for long-term success or even survival.

How will your corporate leadership roles be differentiated from your competitors’ and enable you to win against competitors?  Or will you have similar roles, and your competitive advantage comes down the to talent in each role?

Outline future talent requirements:

At this point, you have developed an understanding of:

  • The strategy (excluding future corporate leadership).
  • The strategic plan and associated challenges, changes, and risks.
  • The roles within corporate leadership, and how the decisions and relationships associated with each role are necessary to achieve future success.

All of the above then enables a discussion of what type of people are required for each role.  What should be their ethics, values, character, skills, experience, etc?

Let’s use an example.  Perhaps you’ve concluded that one of the decisions made by each board director having the greatest impact on long-term value growth is the appointment (or termination) of the CEO.  What capabilities must each director who votes on the CEO have in order to make a sound decision? What ethics, values, character, skills, and experience must each director have? What level of person, if any, must the director have terminated in the past?  What decision-making process did each director use when appointing someone in the past, e.g. approved a recommendation by a third party; or assessed several candidates and selected?

How will your corporate leadership talent be differentiated from your competitors’ and enable you to win against competitors?

If your corporate leadership roles and talent are weaker than the competition or have fatal flaws, how can you expect to win against the competition?

Make talent management sustainable:

  • Integrate corporate leadership talent management into the process for developing and managing the strategy and strategic plan.
  • The most important question is: “Who sets the strategy?” Sometimes, the board of directors sets a high-level strategy. Then using this high-level strategy, determines the type of CEO required.  The CEO can then flush out the strategy. Sometimes, the board expects the CEO to set the strategy, with some input from the board. In either case, the board is also involved with the development of the CEO’s strategic plan.

What to do you if you are a small company?

If you’re less than $3 million of EBITDA, your corporate leadership might be a handful of executives with no board of directors.  You have very limited talent and resources.  The three most critical actions are:

  • Being crystal clear on your strategy. You don’t have the resources to head off in a vague direction or pursue multiple directions.
  • Having a network of ad-hoc advisors (i.e. people you can ask who don’t charge money).
  • Having an advisory board, who understand your business in greater detail. Your ad-hoc advisors will have limited time and will have limited understanding of your company.

Conclusion

Corporate talent management is the pre-requisite for long-term success.  The corporation will not succeed if it has poorer talent than the competition.

Corporate leadership will develop and achieve the strategy.  The roles and characteristics of the people in each role must be defined. The people will both grow and preserve the value of the corporation, and also manage a broad range of conflicts of interests, including conflicts of interest with society.

Your next steps

To enable discussion with your board of directors, CEO, and advisory board, download the following one-page slide:

What will be the board and C-Suite talent requirements?

Understand and assess the current situation:

The action plan begins with the description of the future state of corporate leadership. Then you outline the steps to get there.

  • How does your business performance compare against your competitors’ (market share, growth, return on capital, etc.)?
  • List which corporate leadership decisions, stakeholder relationships, and third-party relationships are most important and enable you to win against the competition.
  • Review your formal corporate leadership governance documents. This includes board approved position descriptions, mandates, and policies.  There could be informational documents (i.e. not board approved) which provide additional clarity, e.g. who makes recommendations.  A crucial document is the Delegation of Authority.  Often the board delegates all authority to the CEO but reserves specific decisions for the board.  This document is called the Delegation of Authority.  Note that it is not called Delegation of Accountability.  The board still retains ultimate accountability for the performance of the corporation.
  • Based on the document review, list who makes which decisions and has which relationships.
  • Compare the two lists.
  • What are the differences and gaps?
  • What are the implications?

 Footnotes

1 “McKinsey’s head on why corporate sustainability efforts are falling short”, Harvard Business Review, 2018 March 13

2 “Peter Drucker on Marketing”, Jack Trout, Forbes, 2006 July 3

3 “G20/OECD Principles of Corporate Governance”, 2015

4 “Statement of Corporate Responsibility”, Business Roundtable, 1981 October

5 “Principles of Corporate Governance 2016”, Business Roundtable

Further reading

 “The four tiers of conflict of interest”, Professor Didier Cossin and Abraham Hongze Lu, IMD Global Board Center

“Beyond corporate social responsibility: Integrated external management”, McKinsey, March 2013