Twenty-First-Century Board Oversight of Talent and Succession

Acute talent shortages across numerous industries underscore the risks emanating from outdated, reactionary approaches to managing people, succession, and culture. This raises the question: What is the board’s role in forging a twenty-first-century approach to managing talent? 

In Protiviti’s Executive Perspectives on Top Risks for 2024 and 2034, which studied the top global risks affecting boards and companies, more than 1,100 C-suite executives and directors rated the inability to attract and retain top talent and succession challenges as the second-rated risk and increases in labor costs as the ninth-ranked risk looking ahead both 12 months and 10 years. Another risk—the shortage of new skills in the market, which necessitates significant efforts to upskill and reskill existing employees—is the sixth- and third-ranked risk, respectively, for these two periods. These results underscore that organizations should rethink their strategies to attract the unique kinds of talent they need both now and in the future.

Changing times have led to fleeting employee loyalty as talented individuals have more options than ever before with greater transparency into available opportunities. The recruitment of a transient, multigenerational workforce no longer ends with onboarding. Success today stems from creating, implementing, and communicating a talent strategy that is not only aligned with the business strategy but also focused on providing an exceptional employee experience. These dynamics place talent and succession front and center on the board’s agenda.

Embrace New Talent Realities

The board should ascertain that C-suite leaders and chief human resource officers (CHROs) are adapting as talent markets and economic conditions change. Over time, the need for more sophisticated talent strategies will only increase—as will the risks triggered by relying on reactive strategies for managing talent. Below are relevant questions for directors to ask themselves and management as the company focuses on implementing a sustainable talent strategy and aligning talent-related actions to the corporate culture narrative.

• Do we have a clear view of the skills and talent (e.g., leadership abilities, functional or operational expertise, specialized knowledge) that our organization needs to meet short-, medium-, and long-term objectives that underpin our business strategy? Do we know if we have these capabilities within our organization currently, or are there any skills gaps present in our organization that will impede us from achieving our short- and medium-term goals? Are we skilling our people for the jobs of the future?
• How effectively do we adapt to changing markets? What is the readiness of our employees to help us transform our organization to stay ahead in the face of innovative and disruptive change? Do we handle unexpected challenges well?
• Do the CHRO and human resources (HR) team have access to the data-driven performance insights they need to reduce hiring activity or staff size (when necessary) with limited impact on the execution of business objectives? For example, can HR leaders consider workforce changes based on data analyses and longer-term forecasts while concurrently focusing on the employee experience? Is traditional workforce planning and performance management being supplemented with artificial intelligence-powered applications and advanced tools?
• Have we evaluated the effectiveness of our onboarding process in integrating talent and preparing external hires to contribute and succeed? How effective is our learning environment in developing the skills of our people and the resiliency of our workforce? Are we channeling people to areas that they are passionate about? 
• Are there aspects of our culture that require improvement? For example, are there pockets of high turnover where we need to look for patterns and themes or an ineffective leader? Are we managing the effects of remote work on our culture effectively?
• How does our overall retention compare to that of other companies in the industry (e.g., employee satisfaction, reasons for leaving, average tenure)?
• Is our executive and employee compensation structure competitive and effective in delivering appropriate rewards? Is our reward system (base pay, incentive compensation, and benefits) fair when performance goals are achieved and adjusted for the risks undertaken in achieving those goals? How do we know?

Address Succession Planning and Leadership Development

The Association for Talent Development’s Succession Planning: Preparing Organizations for the Future, a global survey of more than 240 organizations, notes that half of the organizations surveyed are engaged in succession planning while 60 percent of those not engaged intend to develop a plan. The study also recognizes that the primary causes of shortcomings in succession planning include limited C-suite bandwidth, insufficient resources, and a lack of available knowledge and expertise.

To complicate the picture, what helped leaders step into their current positions in the C-suite may not work today. Older generations focused more on “hustle” whereas younger generations look for purpose, values, and alignment. A new employee value proposition and dramatically different expectations of the employer-employee compact have emerged in the twenty-first century. This is due to data-driven research, talent shortages, the introduction of new generations into the workforce, technological advancements, changing societal norms, and newly realized correlations between the employee experience and superior performance. This challenge is further complicated by changing demographics.

The sheer magnitude of change in the workplace suggests that the competencies that led to up-the-ladder success in the past are not the same combination of qualities needed in the future. So, how does the organization modernize its succession-planning capabilities? The following are relevant questions for boards to consider when engaging with management on these matters:

• Are we satisfied that our talent strategy will sustain our leadership and talent pipeline?

o   How healthy is our executive bench strength two to three levels below the C-suite? How has it changed over recent years, and why?

o   Do we know who our “A-player” top performers and rising stars are? How well are we developing and mentoring them and capturing their hearts and minds? Do we avoid leaving them on the shelf for too long? For those sitting in critical roles, do we understand the potential loss impact? When they leave, do we use the lessons learned from their departures to improve our retention processes?

o   Are we investing sufficient time, money, and expertise in modernizing our succession planning and leadership development capabilities for the current talent marketplace? Are we paying attention to the generational imperative as millennials fill out key roles in the workplace?

• Is the CEO involved in leadership development? Should we consider financial incentives tied to succession planning and leadership development? Do leadership development activities support and advance our corporate vision and values?  
• Does the organization foster leadership networks for high-potential people, including alumni, to create advocates for the organization as an employer of choice as well as maintain lifelong relationships with current and future leaders, even after they leave the organization?  

Organizing the Board’s Oversight

Asking the questions above offers directors an opportunity to engage in strategic conversation with management regarding what they are looking for in a comprehensive talent strategy and succession plan. The board’s focus on talent and succession planning requires a holistic, forward-looking effort, the success of which hinges on several enablers. These factors include an appropriate talent mind-set among board members and executive leaders, the communication of the talent strategy and related objectives throughout the enterprise, and investments in supporting technology and human capital analytics. To update their talent oversight efforts, directors should do the following:

• Include talent strategy and succession planning key performance indicators on the board’s dashboard linked to the overall strategy to monitor execution and progress.
• Allocate sufficient agenda time to review talent strategy and the talent pipeline on a periodic basis.
• Ensure that the full board is kept informed if a separate board committee is designated to oversee talent and succession strategy, policies, and practices.
• Periodically evaluate the quality of boardroom presentations and discussions with management on talent strategy to identify opportunities for improvement. 
• Consider how the board can contribute to the effectiveness of the talent strategy. For example, directors may wish to interact informally with members of the C-suite, such as at breakfasts or dinners, and with leaders at lower levels through town halls and focus groups scheduled in conjunction with board meetings.

Today’s talent challenges cannot be addressed with yesterday’s thinking. The demand for specialized talent is higher than ever before as organizations face nontraditional competitors such as digital side hustles. These and other factors, including the pandemic, a stronger focus on diversity, hybrid work environments, mental health awareness, social media, and the upskilling imperative as technology advances, have empowered the workforce and elevated expectations for meaningful work, opportunities for growth, more flexibility and work-life balance, and shared values with employers. The talent game has changed, and directors need to ensure that CHROs, HR teams, and management understand the playing field.

Protiviti is a NACD partner, providing directors with critical and timely information, and perspectives. Protiviti is a financial supporter of the NACD.