The Boss report: 2006 | 2005
In 2003, KPMG woke up to a startling fact: as much as 40% of its leadership group was fast approaching retirement. What was worse, there weren't many people available to step in as replacements. At a time when demand for the tax and auditing professional services industry was growing, KPMG couldn't afford to not have the right highly skilled people warmed up in the bullpen. “Demographic realities and the fact that our business is growing so much have accelerated our need to have a talent pool of ready candidates,” says Mary Fitzgerald, KPMG's director of human resources. “People can't go into the role of leader to learn to be a leader. We want them to be ready to assume the role.” The problem was, they weren't.
KPMG's situation is far from unique. The oldest baby boomers are turning 60 this year, and in most cases their thoughts are set on retirement. In their wake are fewer employees available to replace them — a demographic shift that will reverberate throughout the economy. Experts predict significant labour shortages across much of the industrialized world. Companies aren't just worried about finding bodies to sit in cubicle farms eight hours a day. Business now relies on knowledge workers — it's not just labour it needs, but talent. The globalized economy is only upping the ante. To compete, companies will need one thing above all else: great leaders. But who will they be?
Senior management teams, who are more likely to be in the boomer cohort than rank-and-file employees, will flow over the demographic waterfall in the next five years. Many executives express concern their companies don't have the right kinds of leaders upstream to take over. In a 2001 global survey by the U.S. Conference Board, only a third of respondents rated their companies' leadership capacity to meet challenges as excellent or good. That may only get worse as more boomers retire. “That's the risk,” says Liane Davey, a principal in the Toronto headquarters of Knightsbridge, a human-resources consultancy. “All that maturity, all that seasoned business experience goes out the door, and companies are not going to feel the effect until it's out the door, because they don't even know what's accumulated there.”
But the risk is increasingly well understood, as the issue of leadership capacity moves out of the human-resources department and into the executive boardroom. “It is not an HR priority — it is now a top business priority,” says Davey. The bad news? Progress has been slow. “People are overwhelmed and almost paralyzed by it at the moment,” she says. “The most surprising thing is how little people have actually done about it. They just haven't been able to tackle it. It's too big, too scary.”
The challenge is that none of the obvious ways to close the leadership gap — recruit from outside, train on the inside, or put off your existing leaders' exits — is exactly a surefire quick fix. The demographic problem is compounded by changing corporate structures, growing business complexity and a shift in values within the next generation of employees that may make it hard to convince them they should want the top jobs at all.
The battle to recruit that next generation has already started. Marty Parker, managing director of Toronto-based executive search firm Waterstone Human Capital, says his clients are typically seeking candidates between 35 and 45 to fill senior vice-president positions — a younger target group than five years ago. Companies clearly hope to get more energy and ambition for a little less money. Not everyone is biting. “Our searches are becoming more and more difficult,” says Parker. “That [younger] group, although they are ambitious, are more discerning. And because they are smaller in supply, they have more choices than maybe their predecessors did.”
Parker adds that they are also well-educated about the nuances of the recruitment marketplace. They do their homework and ask better questions. “They're much more savvy in terms of how they go through a search process, right through negotiations,” says Parker. “It makes our work [as executive recruiters] more difficult. It forces us to go deeper and wider to get the right candidates.”
As competition for hiring talent heats up, developing leadership from within starts to make more sense. But that's not merely a matter of yanking a few middle managers out onto centre stage — because in many cases there are no understudies. In their efforts to be lean, companies have stripped middle management bare; at Canadian subsidiaries, many jobs at that level were shipped to international headquarters. It means leadership candidates will have to be identified several levels down, and quickly brought up to speed. “It's a race against time,” says Davey, “as companies work hard to elevate the next generation to the senior leadership level they require.”
That process starts with a systematic approach to finding potential leaders, and then discovering what skills they need to round out their qualifications. Sending employees off on a weeklong retreat to stare at PowerPoint slides won't be enough. Traditional leadership development methods are becoming less effective, as corporate leaders face an increasingly daunting set of challenges. They require a very broad business acumen. The Conference Board report Developing Business Leaders for 2010 says the new breed of top exec requires “extraordinary strategic thinking skills and the ability to make high-quality decisions quickly in the face of competitive pressure and uncertainty.” Jocelyn Bérard, managing director of consultancy DDI Canada, says leaders will need to be expert at managing change and exude what he calls “tolerance for ambiguity.”
But that's not something that can really be developed. Similarly, Waterstone's Parker says his clients frequently seek “entrepreneurial” qualities in job candidates — a reflection, he says, of how companies' current leaders often face “analysis paralysis.” Corporations now use more committees and cross-functional teams, and while that has improved the quality of decisions, the process can be slow. It's essential to have a leader who can think independently and cut through to an answer — that's where entrepreneurialism comes in. “Not including others in the work is one thing,” says Parker. “Not being able to make a decision after getting the input of others is another.”
This leads to an important insight: the culture of a company and the way it operates have a big impact on what kinds of leaders it needs. Sometimes, it doesn't just need a whole new kind of leader, but a new organizational practice. Vince Molinaro, also a principal of Knightsbridge, tells a story about a client that identified one of its core values as “customer focused,” and therefore needed leaders who were, too. By conducting a survey of top managers, though, Molinaro discovered the company collected vast customer data that wasn't widely distributed. “Now, if they're going to increase the customer focus, they don't need to take all their leaders and put them into a training program,” says Molinaro. “All they need to do is knock on the marketing department's door and say, 'You're collecting all this great data — why don't you share it with all the other leaders in the organization?' All of a sudden, they've boosted their leadership capacity.” If companies are to prepare for the leadership crunch, they need to think broadly about how their companies function, and how leaders fit in.
Executives might also have to adjust their expectations of those leaders. The next generation of employees is not only much less loyal to their companies, but also much more skeptical about the sacrifices that come with senior positions. They've seen bosses burn out — some may be children of overworked boomers — and they tend to place a higher priority on work-life balance. “It's almost like companies have created leadership roles that nobody wants anymore, because of the demands on people's personal lives,” says Molinaro. He has seen scores of high-potential employees in one organization pass up the opportunity to participate in an accelerated leadership development program — too much work, not enough reward, it seems.
Executives have to recognize that not everyone evaluates career prospects the way they did 20 years ago. They may need to establish new ways of talking up the benefits of leadership, and make significant adjustments in the responsibilities they place on the shoulders of leaders. But mindsets are hard to change. “We haven't gone over the waterfall yet — all those baby boomers are still leading the organizations,” says Davey. “So I'm not sure we've disabused them of the notion that their model of leadership is the only model of leadership.”
KPMG answered the challenge by setting in motion a series of leadership development initiatives. Now, there is no shortage of people preparing to be the boss of tomorrow. It's even become a big selling point in recruiting employees. “They want a lot from their leaders, and they want it now,” says Fitzgerald. “They know there's no guarantee of having a leadership role here, but they want to make sure that they are ready for whatever they choose to do in their careers.” Because chances are some company, somewhere, is going to need them — and probably in a hurry.