Weathering the Storm: Assessing, Attracting, Retaining and Developing Critical Talent

Weathering the Storm:

Assessing, Attracting, Retaining and Developing Critical Talent in the Basic Materials Sector Right Now

by Jay Millen and David Sapp

Key Takeaways:

The assortment of leadership capabilities sought by companies in the global basic materials sector has shifted in meaningful ways since the onset of the global economic downturn.

CEOs, senior human resources executives and key leaders who participated in Korn/Ferry’s leadership research in late 2008 and early 2009 emphasize the need for talent capable of balancing a strategic mindset with the increasingly imperative ability to drive the execution of pricing, cost-reduction, customer retention and process improvement initiatives on a daily basis.

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he turbulent global economic environment is forcing senior executives in the basic materials industry to adjust the capabilities and skills of their leadership teams.

To better understand the nature of these ongoing leadership talent adjustments, Korn/Ferry International conducted interviews with nearly 100 global industry CEOs and senior human resources executives (some of their insights are cited throughout this paper) during late 2008 and early 2009. The purpose of the discussions was threefold: 1. To identify how different organizations currently are responding to the

global economic downturn from a leadership and talent management perspective; 2. To understand the specific decisions and processes basic materials

companies are executing to ensure their long-term survival and success; and 3. To identify which of Korn/Ferry’s Leadership Characteristics™ industry

executives view as most critical to their leadership team’s performance in successfully navigating through the current economic storm.1

Key Takeaways (continued):

Industry CEOs indicate that the relative importance of a handful of leadership characteristics – Acting with Honor and Character, Dealing with Trouble, Focusing on Actions and Outcomes, Inspiring Others and Communicating Effectively, respectively – has significantly increased in the past several months.

Given the pressures the industry confronts in the current economy, basic materials executives express an interest in leadership assessment, team development and organizational development activities as a means of strengthening decision-making around staff reductions and succession planning.

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This research yielded compelling results.

First, industry executives describe a growing desire for senior leaders who are capable of balancing a strategic mindset with the increasingly imperative ability to drive the tactical execution of pricing, cost-reduction, customer retention and process improvement initiatives on a daily basis.

Second, the research indicates that the relative importance of select leadership characteristics – namely Acting with Honor and Character, Dealing with Trouble, Focusing on Actions and Outcomes, Inspiring Others and Communicating Effectively – has significantly increased in the past several months (see “Mission Critical Leadership Profile” chart on page 3).

Third, senior leaders point to a common set of five strategic considerations that they believe should be addressed if they are to successfully realign the business during the global downturn – and properly assign the leadership capabilities required to drive this realignment.

“Engaging the leadership team across both of our primary businesses is one of our key objectives in today’s environment,” reports Mark Towe, chief executive officer of Oldcastle, Inc. N.A. “In order to develop a leadership structure and succession capability in both units, we have switched the two business unit presidents to the opposite role and are preparing our next level leadership teams to be more flexible in progression between the two businesses.”

The emphasis Towe places on leadership team engagement was echoed by other interview subjects. If there is a silver lining to the economic crisis, it may be the industry’s interest in “leveraging” the downturn to conduct leadership assessment and development activities and changes that help create leadership teams who are more adept at thriving during bright periods while always remaining prepared to manage during darker market conditions.

Mission Critical Leadership Profile

The following seven leadership characteristics were identified as “mission critical” in a 2008-2009 survey of basic materials senior executives conducted by Korn/Ferry’s Leadership and Talent Consulting group: Percentage of respondents who identified the leadership characteristic as “mission critical”

100% 90% 80% 70%

88% 79%

79%

75%

71%

60% 50%

63%

58%

40% 30% 20%

Ac

tin an g w d ith Ch H De ar on ac o ali te r ng r w ith Tr Fo ou cu bl e sin an g o d n O A ut ct co io m ns In es sp irin g O th er Co s m m

u Ef nic fe a c ti De Ev tive ng ly pl alu oy a in tin Ac g P g a cu eo nd ra pl Un tely e th der e sta Bu n sin din es g s

10%

Requirements for Successful Leadership

Like many other industries, the basic materials sector faces one of the most complex and uncertain economic environments in a generation. The economy-wide challenge of pricing and demand volatility are particularly pronounced in the basic materials arena, where capital scarcity, cash flow problems and slackening global demand for basic materials and commodities further complicate the process of guiding companies through the economic maelstrom.

To identify the impact of the global economic crisis on industry leadership teams and talent management activities (including leadership assessment and development), Korn/Ferry surveyed 3

nearly 100 senior industry leaders on the current talent dimensions of the economic crisis. The survey consisted of reviewing and ranking 20 leadership characteristics. Following the survey, the executives were interviewed to glean their qualitative assessment of the leadership and talent issues they view as top priorities right now.

In addition to the mission-critical leadership profile the survey produced, the results and follow-up discussions yielded the following insights: A blend of specific functional skills and mission-critical leadership characteristics will determine which companies survive and thrive in the coming months.

Companies often face a difficult decision between hiring (or retaining) leaders who are “custodians” or “developers/innovators” during tough times – the decision needs to be made based on the specific business conditions within each organization; “With a pan-regional and global business that is unique in each local market, the pressure to ensure we have the best players in each market has magnified as the market leader in Europe,” notes Andrew Harvey, deputy managing director, human resources of Antalis. “Each unit is facing different challenges, but common leadership denominators requiring greater capability are effective communication, flexibility, and dealing with very difficult business situations;” and A company’s best “role players” or specialists may not qualify as the best combined functional leaders. Each organization should assess the best functions to bridge – for example, supply chain and commercial operations, finance and IT, or procurement and customer service – based on the business requirements and the leadership team’s unique characteristics.

These unprecedented economic times magnify the need for core skills around out-front leadership, managerial courage, visible and clear communications abilities, agility, and acting with honor and character.

There are two ways to drive company profitability: sell more or spend less. In the current market, basic materials executives assert that the leadership team must focus on both activities simultaneously.

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“ Commercial leadership takes on increasing complexity in today’s market,” notes Consolidated Container Company President & CEO Jeff Greene. “Our ability to stay out in front of the customer and deliver new solutions that create value must be implemented with a much tighter focus on financial management and recovering costs in today’s marketplace.”

Staying in front of customers, providing new solution sets, product/process innovations and managing cash have become even more critical than ever.

Revenue generation will drive survival and potential long-term growth. Industry leaders note that drastically reducing the company’s cost base can help ensure survival; however, without revenue improvements, dramatic cost-reduction efforts merely delay an inevitable decline.

“The leadership challenge in front of us is far more demanding that any time during my career,” notes Paul McElligott, president and chief executive officer of TimberWest. “The potential consequences of even small leadership and strategic mistakes are catastrophic in comparison to the implications of far greater mistakes in more stable or growth environments. Now, more than ever, leaders have to be out in front and in the details of the business.”

Providing emerging leaders with meaningful and challenging assignments during periods of retrenchment marks a critical senior leadership responsibility.

During the most difficult times, new leaders emerge in organizations based on an entirely different focus and sense of urgency.

Industry leaders say that now is the time to secure the best talent for the long haul “if you have the stomach for it.” The troubled economic situation and the unique challenges the industry confronts provide a valuable opportunity for leadership teams willing to make talent investments that add relatively minor costs while injecting a level of talent that normally is not available.

Growing the leadership bench or replacing retiring executives with external/internal succession candidates requires a wider view of the talent landscape and is more likely to yield top-tier talent than ever before.

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Characteristic Analysis

The current leadership characteristic research described above differs from similar research in the basic materials industry conducted

by Korn/Ferry from 2006 to 2007 in four ways.

First, the relative importance of Acting with Honor has increased significantly in the past year; more than 90 percent of the executives most recently surveyed identify this leadership characteristic as a “mission critical” (or top-tier) leadership requirement. In the previous research, the majority of industry-executive respondents identified Acting with Honor as an “important” (or second-tier) leadership requirement. The shift signifies the importance of displaying highly visible honorable behavior throughout the senior leadership level.

In the past, Acting with Honor may have qualified as more of an “assumed” leadership trait; today, following the behavioral and ethical lapses in the financial services industry, Acting with Honor has graduated from an “important” leadership characteristic into a “mission critical” leadership characteristic.

Second, three out of four basic materials CEOs who participated in the current research rank Communicating Effectively as a “mission critical” leadership characteristic. In interviews, the vast majority of senior leaders indicate that, given the adversity that their companies confront, the leadership team must communicate early and often to employees, shareholders, customers and other key stakeholders.

A failure to do so, they said, can result in rumors and innuendo filling the communications gap, which greatly limits the leadership team’s ability to manage and influence stakeholder perceptions of plans and actions designed to curb the negative effects of a highly turbulent market.

Third, Evaluating and Deploying People Accurately also qualifies as a “mission critical” characteristic; as recently as 12 months ago, it was described by most industry executives an “important” characteristic. Senior executives emphasized a need to identify and understand the capabilities of leaders two levels to three levels deep in the succession plan. That understanding requires senior leaders to assess their direct reports’ ability to move people into additional responsibilities and stretch assignments. With fewer resources and additional stresses in the business it is clear that the consequences of poor people moves are even greater risks than in more stable or growth business situations.

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Fourth, the fact that Dealing with Trouble and Inspiring Others both were deemed “mission critical” leadership requirements by 75 percent or more of respondents suggests that strong leadership (versus management) represents a must-have in difficult times.

During periods of growth and economic prosperity, the managerial requirement to plan, manage and develop the business on an upward trajectory represents decidedly functional challenges.

During times of adversity, leading the workforce and other stakeholders through the storm requires leaders to inspire others with their view of how to best guide the business through uncertainty. Tough times also require leaders to ensure that their executive teams possess the requisite “survival” skills to return the business to prosperity as the economic climate begins to turn.

“The challenges in the building products market require closer and disciplined communication with customers and the courage and will to see the company through tough times that both current executives in the marketplace and the incoming generation of talent lack, given the last decade of success,” asserts Bluelinx CEO George Judd. “Courage, will and integrity are the true discriminators for leaders in these difficult times.”

Strategic Considerations

The shifting leadership requirements that Judd and other industry executives identify reflect the need to address a new set of strategic questions related to growth, customer retention and a host of costreduction and process-improvement efforts.

The companies that provide the most effective answers to these questions will be those that maintain the strongest and most agile leadership teams within their talent frameworks. To thrive in the current economic uncertainty, leaders say their executive teams are reviewing a number of strategic considerations, and then ensuring that their leadership teams possess the characteristics necessary to chart a course forward in light of the evaluations. These assessments include the following: Consideration 1: Generating Revenue Growth What needs to be kept in front of the market to maintain and expand revenue opportunities in the core business?

This consideration is straightforward: leadership teams need to identify sources of future growth.

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Consideration 2: Balancing Fundamental Needs and Cost Reductions What legal, compliance and support capabilities need to be maintained as the senior leadership teams weighs structural changes designed to reduce costs and improve performance?

Leadership teams cite a need to identify the infrastructure required to support the business strategy in the current economic environment; these needs have changed, sometimes dramatically, in the past 12 months. For example, if a company eliminates the position of chief information technology officer, can its chief financial officer step in and head up the information technology function in addition to overseeing finance and accounting?

“The finance operating model and leadership team required to drive success in today’s market require significantly different thinking and resilience,” notes International Paper SVP & CFO Tim Nicholls.

“We must all stretch our thinking to navigate successfully in what is traditionally an event-driven business model.”

Finance and IT are not the only functions targeted in these efforts.

Numerous executives discussed the need to examine this sort of “functional bridging.” CEOs express a need to identify, for example, which three senior executives are best suited to divide up responsibility for five functional areas when reducing five positions into three.

Consideration 3: Identifying the Source of the Challenge What is the primary driver of our specific business challenges – the macroeconomic environment or our core business?

Senior industry leaders cite this consideration as crucial. While it may be easy to blame the economy, doing so can help mask issues within the underlying business that require attention for the long-term survival of the company.

Consideration 4: Leading a Multi-Generational Workforce How do we realign our leadership team and capabilities while retaining the current generation of leaders, without losing nextgeneration generation of leaders?

Today marks the first time in recorded work history in which four different generations – the Silent Generation, Baby Boomers, Generation X and Generation Y – are represented in the workforce.

The global financial crisis’s impact on retirement savings has significantly altered the workforce’s generational makeup.

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Nearly half (44 percent) of Baby Boomer executives now plan to work past the age of 64, according to Korn/Ferry research2; another 15 percent report that they intend to work past the age of 70. If this shift is not managed carefully, it could hinder the upward mobility of future leaders among the Gen X and Gen Y demographic. Industry executives report that they confront numerous complexities in attempting to motivate aging Baby Boomers while retaining and developing highly talented workers in their 30s.

Above all, basic materials CEOs say they confront a pressing question: do we have the leadership talent necessary for success today and tomorrow?

Consideration 5: Evaluating Compensation as a Retention Tool Can the company tolerate compensation adjustments in lieu of headcount reductions over time?

While these considerations represent complex issues and short-term business targets must remain front of mind, “repairs underway” can be made to help ensure that the key considerations discussed above remain in focus during difficult times.

The leadership team’s ability to operate with agility and courage – in addition to the specific skills each leader brings to the senior team – has a significant impact on how well the organization responds to current, and future, economic adversity.

Always Be Prepared

Courage and agility – and what Judd describes above as “will” – represent valuable leadership requirements because there have been relatively few opportunities in the past 10 to 15 years for current leaders to hone these skills in challenging market conditions.

There is little doubt that the current economic downturn will provide a continuing opportunity to develop these leadership qualities.

Agility and flexibility will remain critical leadership characteristics because the economic climate requires CEOs and other executives to flex distinct leadership muscles. On one hand, they have to lead prudently as they guide the organization through severe challenges

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Acknowledgments

Korn/Ferry would like to thank the following leaders, in particular, for their participation in this research:

such as declining revenue streams and discomforting pricing volatility.

On the other hand, senior executives have to drive long-term business success by ensuring that the most effective leadership team is in place to serve the company and its stakeholders well once the economic forecast brightens.

Robert M. Amen International Flavors and Fragrances

Leaders who successfully balance these two dimensions will ultimately deliver value to key stakeholders and ensure that their companies not only survive but thrive.

Igancio Bustamante Hochschild Abraham Chahuan Abedrrabo Compania Minera Milpo S.A.A. Graham Chipchase Rexam Plastics Mike Devolld Kennecott Copper Andre Dorf Suzano Bob Farmer Argos N.A./Southern Star W. Edwin Frazier III Rayonier Richard Garneau Catalyst Inc. Jeffrey M. Greene Consolidated Container Company Andrew Harvey Antalis George Judd Bluelinx Mike Keough Caraustar Industries

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References

1 K orn/Ferry Leadership Worksheet: © Copyright 1992 - 2008.

Korn/Ferry International and Lominger International. All Rights Reserved. Version II. 2 N early Half of Executives Plan to Work Past Age 64, Korn/Ferry Survey Finds,” Korn/Ferry International, 2005.

Acknowledgments (continued) Mario Longhi Gerdau Ameristeel Paul McElligott TimberWest Bob McLellan DS Smith Packaging Tim Nicholls International Paper Thomas Plath xpedx Hannu Ryopponen Stora Enso Matthias Sandoval General Cable International Joao Bosco Silva Votorantim Metais John Surma U.S. Steel Sue Suver U.S. Steel Bob Thomas Titan America Mark Towe Oldcastle, Inc. N.A. John Williams Domtar

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Jay Millen is a Senior Client Partner and Leader of Korn/Ferry’s Basic Materials Sector, based in Miami.

David Sapp is a Senior Client Partner in Korn/Ferry’s Global Industrial Market, based in Atlanta.

About The Korn/Ferry Institute

The Korn/Ferry Institute was founded to serve as a premier global voice on a range of talent management and leadership issues.

The Institute commissions and publishes groundbreaking research utilizing Korn/Ferry’s unparalleled expertise and preeminent behavioral research library. It also serves as an exclusive destination for executives to convene and hone their leadership skills. The Institute is dedicated to improving the state of global human capital for organizations of all sizes around the world.

About Korn/Ferry International

Korn/Ferry International, with more than 90 offices in 40 countries, is a premier global provider of talent management solutions. Based in Los Angeles, the firm delivers an array of solutions that help clients to identify, deploy, develop, retain and reward their talent.

For more information on the Korn/Ferry International family of companies, visit www.kornferry.com.

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© Copyright 2009 The Korn/Ferry Institute