Accelerating Focus on Culture and Talent in the Boardroom - Part Two

Pre-pandemic, there was increasing understanding by boards and leadership that culture correlates with performance. Based on research of over 1,000 organizations encompassing more than three million individuals, those with top quartile cultures (as measured by McKinsey’s Organizational Health Index) post a return to shareholders 60% higher than median companies and 200% higher than those in the bottom quartile. This pandemic has accelerated the growing acceptance that culture has real business implications and is being less and less viewed as “soft” topic.

Given this significance, it is clear that culture is a boardroom issue. There is a significant role for boards to play given the impact this crisis will have on business operations, and potentially strategic direction.

Egon Zehnder's Greig Schneider and Lisa Blais spoke with Patricia Connolly, the Executive Director of the Raj and Kamla Gupta Governance Institute at Drexel University’s Lebow College of Business, to share their unique perspective on culture and talent and how they are impacting the boardroom.

Watch Part Two of Accelerating Focus on Talent and Culture in the Boardroom, which focuses on talent: 

Patricia Connolly: Hello, my name is Patti Connolly and I am the Executive Director of the Raj and Kamla Gupta Governance Institute at Drexel University’s LeBow College of Business. Welcome back to Boardspeak. This is part two of our discussion with Lisa Blais, Head of Egon Zehnder’s US Board Practice and Greig Schneider, Global Head of Egon Zehnder’s Leadership Advisory Practice. If you missed part one with Lisa and Greig on the topic of culture, the recording and transcript are available on the Gupta Governance Institute’s website under “Center for Corporate Governance Knowledge Sharing”.

In today’s discussion, we will take a closer look at how the pandemic is reshaping the way boards and companies approach talent overall. I want to get right to it and start with a basic question. What is the crisis revealing about leadership in organizations?

Lisa Blais: Over the past, I would say eight weeks, I’ve had conversations with over 30 chairs. The first thing that they all say about leadership is that this is quite the pressure test. Even most of the CEOs that are sitting in the chair now perhaps weren’t CEOs back in 2008 during the last financial crisis. Now, this is not only a financial crisis, but a human health crisis, so the first thing they say is that this is a great pressure test for the CEO, the C-suite, and the board. They’re finding out many things: who’s stepping up, who’s performing well, who are they surprised by, who’s disappointing them, who’s not leaning in.In terms of pressure testing their succession plans, it’s revealing a lot about leaders. They’re looking at broadening and deepening their succession plans. There’s been a lot of conversations around emergency succession. I’ve had conversations that I’m not sure a lot of the boards even had before: what if all of our committee chairs fall ill? What happens if the chair gets sick? In the past, there wasn’t a lot of conversation around emergency succession in the boardroom, but that’s being talked about a lot now. Obviously, in the C-suite emergency succession plans are going deeper. I had a client the other day say, “We actually have emergency succession plans going all the way down to our distribution center, where normally it’s C-suite minus one.”

Certainly, it’s pressure testing their talent systems around succession planning. Some boards have questions around how they’re assessing their leaders: more leadership skills around resilience, agility, and stamina and what typically have been known as softer leadership skills are being highlighted or magnified during these times. Also, some of the boards are talking about either accelerating or decelerating succession planning. I have lots of different examples where one client was in the middle of a CEO succession and they decided to delay it given what’s going on. We’ve had others where the CEO is on the older side and they’ve decided to actually accelerate that CEO succession plan. Depending on the context is, or what the situation is, boards are having to react.

Greig Schneider: I completely agree on that. Like any pressure test, it reveals where the weak points are. The only thing I’d add is that it’s revealing and/or accelerating the importance of some parts of the business that may not have gotten as much attention. For example, a big one would be supply chain, it has always important, and in some businesses, it’s absolutely vital. I think there’s many businesses where it was just position six on the leadership team, and all of a sudden, it’s the most important thing that’s going on. Not only that, but it requires a skillset that they hadn’t actually been focused on, and same with HR.When you are redesigning compensation plans on the fly and thinking about how and what do you do with benefits, there’s just so much happening and it’s happening so fast that it’s showing both how critical those roles are, and how important those people are. We’re learning a lot about how important HR and supply chain are, and we’re learning a lot about how good or not good they are in this crisis.

Connolly: Talking about the changes, you can list a hundred different things that we’re seeing as far as talent is concerned. If I’m a board member and I want to focus on three key things that clearly identify the shift that’s taking place, what would you suggest I focus on?

Blais: First, as both Greg and I mentioned, it’s really this agility and resilience that they need to be focusing on right now. The other question that board should be asking is, “Has the leadership mandate changed?” There could be more new opportunities that could be better opportunities, worse opportunities, etc. So, has that leadership mandate changed? And if so, what are the implications of that in terms of their leaders, their succession plans, the agenda of the boardroom conversations, etc. Because so many of the external factors have changed, I can’t help but think that there are implications on leadership that, that board members should be thinking about. I’m not suggesting they could then make wholesale changes, but over time they need to be thinking about that.

The other thing I would say question is, “What is the board’s role in ensuring that the board and the company come out of this stronger?” Not only the board, but also the leadership team. From a talent perspective and a leadership perspective, what are they doing? How can you make sure that the leadership team comes up stronger? It’s hard now because people are leading remotely. In the US we have about 25 CEOs that we’ve placed during this pandemic that are starting during the pandemic, and you can imagine that leadership challenge. So, there is all kinds of focus on communication skills. How do they lead remotely without getting input by walking the halls and visiting? It is important to make sure that they’re still getting that feedback and input.

Schneider: That is a good focus. The title of this is Accelerating Focus, and I think a lot of what Lisa is talking about were already underway. What the pandemic has done is rapidly increased the focus. Agility was needed before and now it’s the most important thing. For example, having digital leadership capabilities was already a big trend, but now it’s essential because of the communications channels needed when you’re trying to reach your whole organization and tell them the new strategy. As a leader, you have to understand how those channels work, and some are better than others. These are new skills that are needed generally across the board.

One of the things that a lot of our clients were talking with us about already is that the leadership models, the paradigms they were using, were not building the right kind of leaders to lead in today’s environment with much faster pace of change and acceleration of information flows. They were starting to already think, “How do we think about building the leaders we need for the future?” Now, this has all gone in a blender here with the pandemic, but it provides a huge opportunity for everybody to step back and say, “Alright, things are going to look different. What do we need and how do we define it? How do we either build it or get it?”

Connolly: Greig, it’s interesting that you said that some people were already realizing that they need to support and build different kinds of leaders as we go forward. When you have leaders right now who are deciding how many people are going to be employed, who to furlough, etc., how does a board support the leaders through this?

Schneider: Just think for a moment, the pressure on any CEO all the time that just comes with the territory. Then you throw on top of that an uneven government response, depending on where you are, where you live – there are policies changing. Then top of that, you’ve got your kids at home, your dog barking, and your parents are elderly and at risk. The historical view of a leader is you’re supposed to be tough, right? You can take it, you just soldier on, and that’s part one. Part two of what we learned over time is that leaders find the role, in particular CEOs, quite lonely. Who do you talk to? You need to talk to somebody and now here’s all of this going on and you want to show you’re strong and you don’t want to show you are under pressure, and you have no one to talk to. It’s a prescription for disaster, honestly. You could have people truly breaking down. Let’s remember, we’ve only been in this thing for 10 weeks, but assuming we’ve got another few months of sorting out what to do now, and how to come out of it with the economy in rough shape. I really do think a good question for boards is to step back and say “how are you?” to its leaders. One of the most important things for us is that you stay healthy and you got to find ways to take a break. You can’t work 24/7, truly, it’s not possible, your body will shut you down. Not the friendly, “how are you?”, but the serious conversation about what are you doing to maintain your health? Where are you finding ways to take a break? Making sure they’re doing that with their leadership team as well because you can’t have your leadership team getting sick and breaking down.

Blais: I keep saying that to the role of the chair, or if the CEO is the chair, the lead independent director is really critical here because it is lonely. The CEO’s have to be communicative, and express hope and confidence. The chairs really need to meet these CEO’s where they’re at. Because again, some CEOs have done something like this before, but not at this magnitude, and some haven’t. We’ve heard stories from chairs saying that, “Our CEO broke down crying, just totally overwhelmed”. It all depends, but they need to meet the CEO where they’re at and then just be a support mechanism, or a counselor, if you will. Most of them get that this is their role. Not only from a business perspective but prioritizing the CEO’s wellbeing and energy are being managed. There needs to be somebody, usually the chair or lead independent director, on the board needs to be that one interface with the CEO to make sure the CEO is taking care of him or herself. The closeness we have been seeing over the last few weeks between chairs and CEO’s is remarkable and very helpful.

Connolly: Thank you. Greig, can you give us some examples of what you’ve done in the past? How you advise leaders to become better leaders and to give themself permission to take care of themselves?

Schneider: It tends to come back to a matter of mindset. There are many leaders that don’t need a lot of help here because they understand it, and those tend to be really curious leaders who are looking into things like centering and meditation. These things that for many old-style leaders just sounded soft and squishy, sort of the stiff upper lip leaders. What the science shows is that just doesn’t work very well, and there’s better ways to lead. I think what we’ve tried to do as a firm is to help leaders go a little bit deeper. We did a survey not too long ago of a lot of CEOs, and one of the things that came out of it, in addition to this point around it being a lonely job, is this need for both an outer and an inner journey.

As you get into these very senior leadership roles, there’s skills you need to learn, there’s relationships you need to build, etc. But, there is also a need for this inner journey; to take your own understanding of your own style and motivations and default positions to another level. That requires time and it requires focus and commitment. I think the work we’re doing with leaders is to help them understand that. Anyone who is a coach listening to this, they’re just nodding their heads. This is what good coaches do, is help leaders understand their own need for this so that they can unlock pieces of their leadership that they may be holding back. When you put it all under extreme pressure, this is the time when it’s most important.

Connolly: Lisa, given your experience working with boards, is that similar to what you see?

Blais: I think the old days of the command and control CEO that knows everything, has the answers, and keeps the board at arms-length and tells them only what they need to know, are pretty much gone. I think there is much more of a contemporary CEO in the seat these days where they’re curious about their own development, they let their guard down, are more vulnerable, and a lot more transparent with the board. We do coaching and we do executive breakthrough programs where it’s all about that inner journey and that self-developmental journey.

I think those are contemporary practices and programs that more CEOs these days are open to and see the value of. Boards that are made up of former CEOs also see the value in those. So, boards are encouraging of that, and board members don’t expect perfection out of the CEO. They see them as humans that are vulnerable and need to manage their own energy and health. So, I think boards are very much supportive of all of those things. The days where coaching was for remedial are long gone. Most boards encourage or insist that many members of their C-suite and leadership team have executive coaches that can provide this help. Their eyes are very much open to the value that these programs bring.

Connolly: What advice would you give a CEO about how they manage their own talent? How can they get through this and assess what their current talent is?

Blais: Today, since we’re still in the thick of this, it’s all about supporting. I talk to CEOs, and while they agree that this is a great learning opportunity for the CEO and a board to see how their bench is holding up and performing, that’s certainly not the priority now, right? They’re all being very supportive of their teams. These CEOs know that everybody’s at a different phase on their team and require different things. We would recommend the same thing to a CEO as we would to a chair: to meet every direct report where they are and provide them what they need. These CEOs and leadership teams are working very hard as you can imagine, globally. Everyone’s remote on different time zones, so I think most of them are saying employee health comes first, that is always the priority. And now, it’s all about scenario planning, and contingency planning, and making sure we have plans in place around the talent piece. As things change and factories open up, now it’s all about how we reenter and open in a safe way and then going through the scenario planning on the financials and the business.

Schneider: Because leaders are under so much pressure, there’s so many decisions that need to be made that have to happen under extreme circumstances, and so I would encourage leaders to again, find some ways to check yourself. If there’s an executive that really upset you for some reason, they said something wrong, or maybe did something that you thought was the wrong thing. There might be an understandable default to say, “This is one of the people who’s not stepping up.” Conversely, as someone does something right, one might say “I always knew this person was great”. In the heat of the battle, you start to form these opinions. The problem with that is that the battle is heated so these opinions are clouded by all kinds of biases and other things going on and you don’t have the time to do a proper assessment of what’s happened. The executive who screwed up may or may not have, and maybe you’re right, maybe they’re the wrong person in that job, or maybe they got information that was wrong that you didn’t know about, or maybe their parent died that day.

There’s lots of things that could be happening, but you don’t have time to review them because it’s a crisis. So, I think that my advice would be to build in some time to step back, as hard as that is, and make sure you’re getting some perspective, and look for what you’re missing that is coming at you. It may be the obvious stuff, and you may be maybe missing some things that are in the background and those things could be would be really important about the longer term decisions you make on executives that could be important on opportunities that the business has and a risk. So, it’s hard to step back, but I would say, find some way to do it.

Connolly: I want to end with some last pieces of advice for board members. Lisa and Greig, what is something that you wish a board member would ask in reference to talent?

Blais: I think board members should be asking themselves, “What can we learn from this?” They need to find the silver lining, as terrible as this is, it’s a great pressure test and learning experience. One of the things we’re going to be asking our boards and our CEO clients is at the end of this or as we’re coming out of this, “What did you learn? What do we want to keep? What do we want to get rid of?”. Not people, but in terms of either processes or systems or how we assess. Making sure that boards and leadership teams stop and look at this as a learning opportunity. So, I would say, ask “What did we learn?”

Schneider: I completely agree with that. I’m just going to build slightly on it and say, ask, “What are the opportunities we can take advantage of? What can we leave behind as far as people systems that weren’t working? Is there a way of recruiting? Are there things that we always kind of knew didn’t work well? Good, get rid of them. What do we need to make sure we hang on to that links us to culture and what are these opportunities that this whole crisis gives us to make some changes in how we and our people systems change? First, we learn and then we apply that learning to take advantage of opportunities. Those have been the two things that I would be focused on as the board member and be pressing my leaders on those issues.

Connolly: In closing part two of this discussion, are there some parting words that you would like to leave with our stakeholders?

Schneider: Well first, thank you for listening. Second, I think that the era of culture is accelerating greatly right now. It’s always been important, but I don’t know that people realized it was. I think coming out of this and trying to figure out how to make the most of whatever comes next is going to be more and more important, and it’s inextricably linked to the kinds of leaders that you need in your organization. If you don’t have the right leaders, you can’t build the culture you need.

Blais: My comment would be just that boards should think about culture and talent at the board level. It’s so often applied to the management team but should be reflective as well around the board culture and the talent that’s on the board. What did they learn at the board level about the culture and how it held up, and the talent on the board and how it held up? Those would be my parting thoughts.

Connolly: Thank you both very much, we appreciate you sharing your insights with our stakeholders at the Gupta Governance Institute and thank you, our audience, for joining us today. We would appreciate your feedback on what other thought leaders you would like to see in future webinars. Thank you and take care!
 

Watch Part One of Accelerating Focus on Culture and Talent in the Boardroom: