NACD Boardvision - Talent: Strategy and Risk
This week's edition of NACD BoardVision focuses on developing talent. Join Chris Clark, publisher of NACD Directorship, and Phyllis Deiso, McGladrey's national SEC practice leader, as they discuss how boards can create effective talent development strategies.
Announcer: Welcome to NACD BoardVision where leading boardroom advisors, governance professionals, and seasoned directors discuss critical issues related to your responsibilities in the boardroom.
Chris Clark: Hi, I'm Chris Clark, Publisher of NACD Directorship Magazine, and this is BoardVision. I'm joined today by Phyllis Dieso of McGladrey, a preeminent or the preeminent accounting firm. And today, believe it or not, Phyllis and McGladrey have an expertise and a wealth of experience well beyond simple accounting. And in fact, we're going to go into areas of leadership and governance. Phyllis, welcome.
Phyllis Dieso: Thank you. Although I would say my brethren in accounting would say that accounting is really simple these days.
Chris Clark: Correction noted. And I should say also in the middle market. But let's jump right in and I want to use a, something as base for our conversation today, and it's our recent NACD Blue Ribbon Commission Report on Talent Development. And one of the 10 imperatives really concerns itself the full board should have responsibility for talent development and management, while senior management is obviously responsible for planning and execution. In your opinion, what are the key factors as to why that is a true imperative?
Phyllis Dieso: Well I, you know, I think one of the things that we have to step back and address is what I'll call the CEO-gap. There's a lot of attention by boards on CEO talent management and CEO succession planning. Now, we could arguably discuss for a while whether or not that's effective, but a very high percentage of boards today accept that responsibility, embrace it, and certainly have it on their radar screens. What we are not focused on quite so much is that level below the CEO -- and one might say levels below the CEO -- those strategic leaders who are key to the success of the organization, but yet are not part of any formalized talent management process. And that gap -- what I call the CEO-gap -- is really something that I think boards need to begin to focus on in a disciplined way.
Chris Clark: All the major recruiting firms obviously are focused on CEO succession planning, their research -- and you were talking about this [inaudible] -- but CFO succession planning is even in worse shape than CEO succession planning. And you're saying even below the CFO level, amongst the C-Suite, there's a real gap in the pipeline?
Phyllis Dieso: I think absolutely. And if you think about strategy, right, we have the what, the how, and the who, okay? Which is what we need for a successful strategy implementation. Yet that who factor is rarely -- it is sometimes, but rarely -- embedded in each strategic initiative. And I think one of the points in the whitepaper, which I think, by the way, was very well done, is really that every strategic initiative should address the talent component. That is not often the focus. You know, when companies establish strategy those strategic imperatives are discussed. You go to every meeting and we talk about those imperatives, the keys to our future success, yet often that people component is not linked to that strategy and it's not discussed, it's not focused on. But yet, when we fail, or we have bumps in the road, the first question often is, "Where were our leaders? Who led this?" Yet it is not embedded as a component. And I think that is really where boards needs -- and we as directors -- need to focus.
Chris Clark: What you're really talking about is a board lens regarding talent, strategy and risk. I want to focus a little bit more on the risk side, because you clearly made a good point on the strategy side of it being part and parcel. On the risk side, do they need to be better monitors, better communicators with senior management? Because it seems like such an obvious imperative. And, you know, you have a wide client list; what do you think?
Phyllis Dieso: Well, you know, I think in the post-Enron era, enterprise risk management became something that was the byword of corporate America. And it's rare today that you would find any company that doesn't have some type of enterprise risk management. But those risks are generally product development, competition, emerging markets, foreign corrupt practices -- we could go on and on -- IT, cyber security; human capital sometimes comes in there, but it seems to be one that achieves less focus -- and I said earlier, less discipline. And so that is where I think boards need to make this more than a once-a-year discussion. So a standing board agenda -- in my view -- should quarterly have some component of talent management. The future of our companies rest upon the talent that we develop. And one key question board members should ask themselves is, every time we have a strategic leadership opening, is our first thought, "What search firm do we hire?" Now, I'm not saying we shouldn't use search firms, we should not recruit the best and best and brightest of external talent, but if that is your go-to place every time you have an opening at the upper levels of your organization, I would say it's a red flag as to whether or not you're internally developing talent the way you should.
Chris Clark: I'm going to go back a little bit on the imperative, because I, I liked some of your comments -- and again, it's one of the "shoulds," that boards should request of management in every strategic initiative that they present is going to be this, you know...
Phyllis Dieso: The who.
Chris Clark: The who part of it, and I, I've got to tell you that when you look at -- in some companies -- human capital can be 50 percent of their operating expenses. Again, I'm assuming that it would be such a priority that, you know, even if you're only having four to six meetings a year -- and by the way, I did a focus group last night, where the recommendation was to have 12 board meetings a year -- not to scare our viewership -- but that part about the prioritization knowing that, again, from some companies it represents 50 percent of your operating cost. Why isn't this a common practice?
Phyllis Dieso: Well, you know, I think there are -- as with everything -- there's no simple answer, but there are probably a few observations that I would share. One is that we talked about earlier, boards embracing the management of the CEO. And good leadership involves an element of delegation. And in many ways, we as directors manage the CEO and look to the CEO to manage talent in the rest of the organization. I believe that talent management is not something that can be delegated. It requires the oversight of the board and not simply the oversight of the CEO. And so I think that is key, but I think that's one of the reasons perhaps we don't see the focus on those levels below the CEO. I would also say that there are many, many, many risks to manage in an organization today. And without that disciplined -- perhaps assignment to a committee, perhaps embedding this in a committee charter where it is something that is calendarized, it is a known and expected responsibility of a committee with reports to the full board, I think it gets overlooked.
Chris Clark: Today we've touched the tip of the iceberg, and I wanted to thank you. I'm glad you're a regular on BoardVision. I know there's more to come. And on behalf of NACD and McGladrey, I want to thank you for viewing today. I'm Chris Clark, and this is BoardVision.
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