COVER STORY The Missing CEO: Why is top talent in short supply?

It’s tough at the top and getting tougher.

If the increasing complexities involved with being in the CEO’s seat weren’t enough to rub some gloss off the top job, then increased public/shareholder scrutiny might. Being accountable for frustrated expectations can mean the buck doesn’t stop until it’s run someone over.

So CEO status comes with fair dob of stress but, in New Zealand, lacks other compensations – remuneration is relatively lower and opportunities are migrating across the Tasman along with corporate head offices.

These are some of the reasons why it’s believed New Zealand’s CEO pool is being drained of top talent.

While New Zealand does have grey mass of good, hardy CEOs, what’s notably lacking, says Ian Taylor, managing director with Sheffield, is both height and depth.

From his perspective, we’re not producing enough CEOs of the exceptional variety, nor is there sufficient volume flow to the top echelon – the leadership bench strength is lacking.

Fuelling this dilemma, adds Taylor, is the tendency for outstanding Kiwi CEOs to jump off the corporate train much earlier than their American or European counterparts.

He believes this is partly by-product of bringing top people through to the CEO level at an earlier age than overseas. In fact, it’s generally thought that if you’ve not made it to CEO level by your mid to late 30s in New Zealand, you’re probably not going to make it.

As result, we now have growing pool of CEO talent in the mid-to-late-40s-plus bracket that’s swapping top jobs for mix of governance roles and personal business interests.

It doesn’t help that CEOs have more limited shelf-life these days. Taylor’s observations suggest the average CEO tenure within the past decade has dropped from 10 years to around two to three years. Plus, diminishing number of CEOs are prepared to endure the stresses associated with top jobs for any longer than 10 years.

Are boards to blame?
This scenario wouldn’t necessarily be major problem, argues NZIM director Doug Matheson, if corporates were adequately preparing for the next generation of bosses. Sadly, he says, they’re not.

All too often press ads for top jobs attract lot of specialists rather than generalists aspiring to CEO roles and many who just aren’t ready for the top role.

“What I’m experiencing is shortage of CEOs for medium to large companies who have the experience needed to bring it all together,” says Matheson.

So where does the fault lie? Assuming you subscribe to the commonly held view that succession planning and management development are fundamental to gov-ernance, Matheson says the finger points squarely at boards.

What boards simply aren’t doing, he says, is spending sufficient energy figuring out how and when they’ll need to replace their existing CEO.

The business press offers examples (The Warehouse, Air New Zealand, Tower Corporation) that suggest finding replacements for top jobs is something boards struggle with. For Matheson, it also raises real question marks over the prudence of directors becoming CEOs and the real value interim CEOs are allowed to make to an organisation.

He says the best global examples of how it’s done can be illuminating. It’s understood General Motors boss, Jack Welch, went through 96 candidates over seven years to find his international successor.

“Recruiting CEO is the most important decision board makes. However, too few boards have the competency to wrestle with CEO appointment,” says Matheson.

He says boards that lack CEO evaluating skills tend to overly rely on recruitment agencies that should only be advising the board – not telling them what to do. Interestingly enough, the board that appointed the infamous John Davey to Maori Television’s top job blamed the recruitment company for inadequate scrutiny.

That said, are the recruitment agencies putting the right people through for selection?

Contrary to speculation, George Brooks, CEO with OCG, dismisses the notion that some recruitment agencies simply aren’t putting forward candidates over certain age – most of his contemporaries tend to agree.

He suspects that the number of senior people out of work is more reflective of the growing branch economy syndrome – where many CEO and senior management roles are being lost to offshore head office locations, typically Sydney and Melbourne.

“As result, there’s lot of good CEO material that is not operating at the CEO level,” says Brooks. “Smart people, who might be two slots removed from the top job, are following head office migration to Australia in pursuit of more senior appointments.”

Top players need top teams
What’s arguably impeding the appointment of good CEOs is the quality of the boards they’re going to have to report to. The penny hasn’t fully dropped for many boards, muses Brooks, that with diminishing CEO talent pool, and paystakes that don’t stack up globally, they must handle CEO appointments with considerably more care.

Taking more care over an appointment, argues Maurice Ellett, managing director with Signium International, doesn’t necessarily mean taking more time. Based on his experience, an outstanding appointment can be made remarkably quickly. However, board will only attract quality candidates if they’ve properly “specced” the CEO role to begin with, he warns.

“If the process and the people involved in the selection are not delivering quality candidates, then the pressure can come on for compromise appointment the longer the appointment takes,” says Ellett.

When it comes to the really big CEO appointments, OCG’s Brooks says it’s more about the exceptional CEOs sizing up whether they want to work with particular board than vice versa.

“Little do companies realise it, but many of the ‘wannabes’ that comprise their board line-up actually scare away potentially good CEO talent.”

It’s simple science that too few companies grasp, agrees Matheson. Just as good companies attract good directors, so too – good directors attract good CEOs. Top players are, unsurprisingly, attracted to top teams.

There could be problem with that team, if the interim results of research being conducted by Dr James Lockhart at Massey University’s Management School are any judge. These suggest that compared to the efforts boards are making to appoint senior executives, the process of selecting and recruiting directors is at best ad hoc.

“By comparison, today’s CEOs are much more astute in selecting the boards they want to work with. To successfully match individuals with the right board requires the right trust and confidence,” says Matheson.

That’s why it’s critical for the board and the chairperson to have strong working relationship. The current rotation of CEO roles within many large corporates illustrates what happens when CEO isn’t simpatico with chairman and his or her directors.

What Greg Muir’s termination as CEO of The Warehouse serves to illustrate, says Brooks, is how CEO appointments can be innately problematic due to board’s line-up. For example, he questions what sort of CEO will be attracted to The Warehouse given the financial control board members like Stephen Tindall have over the organisation?

Independence is something CEOs want, says entrepreneur and founder of Endeavour Capital, Neville Jordan. From his experience, good CEOs are even prepared to reduce pay expectations to work with board offering progress.

Going to the market?
So should companies go to the market for CEOs or hire from within?

It’s fair and proper, says Matheson, that boards go to the market to calibrate internal candidates. But only as long as they’re not playing games, argues Martin Devlin, professor at Massey University’s Management School. “Where it’s obvious an internal candidate is the preferred candidate before the process starts – going to the market could be verging on the bizarre. Candidates deserve to know that there really is

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