Danske Advokater Bestyrelsens dag, 2. maj 2014 Board recruiting to the board and by the board Inge Berneke, Egon Zehnder may 2, 2014
We are a Boutique Firm with global reach Size, Reach, Scope Egon Zehnder is the largest privately held executive search firm worldwide. We are equally owned by 236 partners, with over 420 consultants, working in 68 offices and 41 countries. Total staff is approximately 1,642. With nearly 50 years of experience, we hold the number one position in Europe, Asia-Pacific and South America, and are an industry leader in North America. 41 Highly Collaborative Boutique Structure We operate as a single unit, with a consistent methodology and a single profit centre. countries 68 offices Amsterdam Buenos Aires Houston Malmö Seoul Athens Calgary Istanbul Melbourne Oslo Shanghai Atlanta Chicago Jakarta Mexico Palo Alto Singapore Bangalore Copenhagen Jeddah Miami Paris Stockholm Barcelona Dallas Johannesburg Milan Prague Stuttgart Beijing Dubai Kuala Lumpur Montreal Rio de Janeiro Sydney Berlin Düsseldorf Lisbon Moscow Tel Aviv 420 consultants Bogota Frankfurt London Mumbai Tokyo Boston Geneva Los Angeles Munich Rome Toronto Bratislava Hamburg Luxembourg New Delhi San Francisco Vienna Brussels Helsinki Lyon New York Santiago Warsaw Budapest Hong Kong Madrid São Paulo Zurich + 2
Our presence in Denmark is closely connected with the Nordic region and with the rest of the world... Denmark Henrik Aagaard Inge Berneke Christian Fischer Lars Bo Jørgensen Peter L. Levin Martin Nordestgaard Knudsen Thomas Wamberg Finland Veli-Pekka Elonen Richard Lehtola Heikki Kivilaakso Norway Petter Eilertsen Fred O. Jacobsen Ingeborg Molden Hegstad Morten Tveit Sweden Peter Berntsson Carl Edenhammar Björn Malmgren Nina Peters Jacob Rasin Johan Saarm Magnus Sandkvist 3
We partner with company boards around various board leadership themes Composition Chair Dynamics Operations Committees People Development Evaluation Ownership Assembling the optimal cast of characters Skills, approaches and habits of great Chairs Ensuring team effectiveness Best use of full-board airtime Helping board committees operate at world-class levels Understanding the board s responsibilities on people processes Integration and induction of new NEDs and first-time EDs Assessing non-executive potential in new-to-the-board candidates Differences for boards with different ownership models 4
Today we will focus on 3 themes 1 2 3 How do we approach a board recruiting assignment? How are board candidates asssessed? Board best practice; The case of CEO succession 5
We believe in a systematic process to a good board search Steps to successful board recruitment 1. Defining & Assessing Need 3. Candidate Interviews 2. Identifying Candidates 4. Nomination of Candidate to the Board Define key competencies and Director attributes Gain consensus on functional skills and industry backgrounds Research-based candidate identification Long list candidates presented to client We approach candidates to - Ascertain interest levels Review of short listed candidates with client Discussion/Prioritisation of candidates External Due Diligence on Candidate Reputation Liaise as necessary re: planning of external communications and market announcement Continue introducing new candidates until successful closure Agree search strategy, i.e., target sectors, companies, candidate profile - Perform early stage competency-based referencing - Perform early Due Diligence 6
We like to start by an analysis of the current board; age, demography, industry mix, functional mix etc 7
and understand the strategic context and the hard expectations towards new board member profiles Key priorities to explore for an international board include; Global Footprint Perspective (Europe vs. US vs. Emerging Markets?) - + Industry Knowledge (Discrete Manufacturing) - + P&L Experience (CEO/COO/BU) - + Financial Expertise - + Commercial Experience - + Current/Former Board Experience - + Active Executive - + Diversity - + 8
Our comprehensive screening filter through candidates to a small group of candidates who we engage in discussion Key priorities to explore for an international board include; Defining Key Competencies & Director Attributes Consensus of Target Functional Skill Sets & Industry Backgrounds Identification of Potential Candidates Individual Early Due Diligence Long List Phase I Discussion/Ordering of Director Candidates Short List Deep Due Diligence/ Referrals Interviews Selection/ Appointment Phase II 9
We introduce a small number of candidates, facilitate the meetings, take references and orchestrate the process... 10
Today we will focus on 3 themes 1 2 3 How do we approach a board recruiting assignment? How are board candidates asssessed? Board best practice; The case of CEO succession 11
Board candidates differ but some backgrounds are more common than others 4 common backgrounds Finance / CFO Specialist (academia, professional services ) Leading an organisation Specific industry background 12
We assess all board candidates experienced and new-to-board in the same way Complements the style of the existing Board Enthusiasm and passion for the business and its values Able to constructively challenge Translates own experience to challenge thinking on current strategy and performance for potential longerterm results Brings specific sector knowledge or skills to the board Able to contribute substantially to the large majority of board discussions Independence Acts in line with his/her values and is prepared to stand for what is right Collaboration and Influencing Strives to work with peers and partners to drive business performance; respected by shareholders and prepared to play a role in strengthening relationships whilst supporting and complementing the role of the executive team Independence Candidate Assessment Collaboration and Influencing Strategic Orientation Board Results Orientation Board Results Orientation Expresses passion to improve long term shareholder value and is a full contributor to all aspects of business Strategic Orientation Sees critical long term business needs based on understanding the company and its markets and helps to shape corporate strategy 13
Of the many business competencies, four are key for almost any board Strategic Thinking Results & Performance Focus Independent Thinking Collaboration 14
Strategic thinking Brings an expansive mind to complex problems in a relevant and constructive way Not about: Being impractical or abstract Endless requests for more information Ungrounded, blue sky thinking 15
Results and Performance Focus Consistently focuses attention on key drivers of enterprise value Not about: Short termism Doing managements job Ticking off a list of KPIs 16
Independent thinking Brings an enquiring mind, asks probing questions, demonstrates critical thinking Not about: Being stubborn, dominating or confrontational Point scoring or implicitly criticising the executives 17
Collaboration Builds constructive relationships, comfortable with being challenged and debating different points of views Not about: Always deferring to the views of others Creating a conflict free environment Abandoning your principles 18
What some of our clients have to say about their expectations from non-executive directors I don t look at the code for a definition of independence. I want independent thinking people who say what they think and you can t codify this. If they are strategic and insightful and understand the wider issues of the world then they bring a massive amount of wisdom and experience to the organisation and help in shaping its direction. Individual accountability, which is very much what is required to achieve the kind of Board structures and discussions we have. I just look for outspokenness. Then, he must inspire confidence and be able to stand up and expose his position and be consistent in what he says in and outside the Board room. Finally, I look for directors who like my company. For me, NEDs must be interested and make a commitment to the company, be shareholder conscious, business savvy, numerate and they must be team members who are good at respecting one another but still have strong and clear views based on their experience. Our NEDs have brought us security. As a CEO, nobody dares telling you are making a mistake. Providing a well thought opinion is of real value. Independent NEDs provide the checks and balances, insights based on their experience and the ability to shape the major decisions of the company. 19
Besides the four main competencies required of successful NED, three additional competencies are required of the Chairperson Core Competencies Additional Competencies for Chairperson Strategic Orientation Board Leadership Board Results Orientation Coaching & Development Board Competencies Board Integrity & Independence Collaboration Holds people accountable 20
People skills and EQ become ever more important with senior roles, including Boards 100% Interpersonal Behaviour Skills and Competencies Professional Experience 90% 80% 70% 60% 50% 40% 30% 20% 10% Approx. Percent of Role 0% Individual Contributor First line Manager Roles Middle Manager Board Member 21
Today we will focus on 3 themes 1 2 3 How do we approach a board recruiting assignment? How are board candidates assessed? Board best practice; The case of CEO succession 22
CEO Succession is Critically Important and Drives Value Recruiting the CEO is one of the most important task for the board and occurs (on average) every 5-7 years All research show that CEOs have critical influence on company performance. Relative to other factors (e.g., interest rates, industry effects etc.) CEOs influence on a company s value is significant The CEO choice can be attributable up to 14% of company s market value: max 40%! The choice of the CEO is the most important and controllable factor for the board Source: HBS & Egon Zehnder joint research 2007 23
However, few organisations are happy with their CEO Succession Planning How effective is your company at succession planning? Very successful 1 Not at all successful 6 Total 9% 15% 29% 25% 21% 1% 47% 27% 29% 20% 20% 30% 20% 10% 9% 18% 18% 28% 18% 9% 17% 17% 33% 33% 11% 33% 11% 45% 20% 80% 20% 40% 40% 71% 29% 14% 14% 29% 14% 29% Egon Zehnder Survey, sample size 1092 senior executives, October 2008 24
Insufficient CEO Succession Planning gives a False Sense of Security Companies which say they have a succession plan often have to reconsider ; 54% are grooming an executive for this position but 39% cited they have in reality no viable internal candidates 71% of internal candidates know that they are in the formal talent development pool 65% have not asked internal candidates whether they want the CEO job, or, if offered, whether they would accept 19% have well established external benchmarks to measure the skills of the internal candidates against 50% offer new CEOs on-boarding or transition support Few companies run a transparent CEO Succession process which visible to the Board of Directors and the internal candidates Source: H&S, Analysis of 140 North-American large- and mid-cap public and private companies 2010 25
Many Companies Face Succession at a Time They Cannot Choose What was the reason for your change in CEO? 15% 50% 35% Prompted by M&A Forced Planned Source: Booz Allen 2009 survey of 2500 of world's largest companies 26
Succession Planning Is Also Highly Relevant For Companies With Great CEOs in Good Health Even companies with great CEOs may be caught out Hi Board/Company failing to convince the markets that they have the right CEO. Is this sustainable or recoverable? At Risk Contingency Plan Needed Best Practice Succession Planning High performing CEO who will be in demand by other companies. Does the board recognise they are at risk? Board s Rating of CEO Lo Urgent CEO Search Needed Lo Disconnect Planning Increasingly Poor Fit to Mission Market Perception of CEO (City/Street, major shareholders, media) Hi Incumbent CEO may have been good for a turnaround, but can s/he inspire and lead a creative growth agenda? 27
Effective Preparation for Succession is Critical! Relative shareholder returns of incoming CEOs 20% 10% Planned Succession 0% Abrupt Change -10% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: Booz Allen 2009 survey of 2500 of world's largest companies 28
CEO Succession is More Complex than Ever The CEO role spec changes constantly as the environment changes unpredictably and rapidly Heightened scrutiny on the CEO succession process and the candidates involved - by an increasing number of stakeholders The press is a key factor as CEO Succession attracts a lot of public scrutiny The market for CEOs has become a global one: - International candidates - National candidates abroad 29
You can Never Start too Early It is vital that CEO succession planning is a continual and ongoing process CEO Risk Successors New CEO hired CEO serves 2-6 years Change required 30
Best Practice Succession is Achieved Through a Sustained Process of Assessment, Development and Talent Scan CEO expected to serve minimum 2-5 years CEO change required New CEO hired Risk CEO CEO annual appraisal Defining evolving job requirements and position specification Action plan in a crisis CEO Integration Internal Successor candidate assessment Successors External Recruit CEO successor Candidate(s) into the executive team Successor candidate development External talent mapping CEO search Always look to hire outstanding leaders 31
Thank you for your attention! 32