The UK Corporate Governance Code puts the relationships between companies, shareholders and stakeholders at the heart of sustainable economic growth, writes Eelco Van Eijck. Revisions in 2018 included an emphasis on board refreshment and succession planning, ensuring that boards have the right mix of skills and experience, constructive challenge and diversity. The Code sets the tone for many equivalents around the world.
Executive search plays a pivotal role in attracting and positioning the ‘leaders for what’s next’, supporting boards in meeting the criteria set out in governance codes. Yet to this day it lacks a code of its own. Its practitioners have no legally-regulated professional or behavioral rules. In the meantime, they bear more than a little responsibility for the leadership of the private and public sector.
As a guest lecturer at the Governance Institute of the ESAA (Erasmus School of Accounting and Assurance), I regularly get questions from incoming board members about this lack of rules. All the more reason for writing a management book that seeks to be a compass for both hiring organizations and candidates. Too often, good managers end up in the wrong positions. A failing leader causes a lot of damage, both for the organization and the person in question. Beautiful career steps don't have to end in tears. Thanks to intensive interaction with key stakeholders from the hiring organization, an experienced executive search consultant can prevent a mismatch.
Guidance in the labyrinth
Running an organization in a rapidly changing world is no easy task. Members of supervisory or executive boards must take the interests of all stakeholders into account. At a time when complexity is increasing and technological developments are hard to keep up with, the stakes are high.
Managing and monitoring remains human work, despite digitization and robotization. No organization is looking for expensive mismatches. Finding the best candidates for highly responsible leadership roles is a serious profession. Unfortunately, hiring organizations don’t always see it that way. A former chief executive of an industrial company (turnover €3.2 billion and over 3,000 employees) put it like this:
“We have elevated procurement to a science. We know from every supplier who their supplier is. We strike agreements with all of them. We know the manufacturing dates of all these products and closely track their performance. For every product we purchase, we have three suppliers — and this is burned into the way we spread risk. But when it comes to buying our most important assets — directors and managers – we put all that aside. It’s as if we’re buying sand, always from the same supplier, and dumping it on the doorstep. I think that’s bizarre.”
This series is about the headhunters who are active in the higher segment of the public and private sector — the executive search partners. They serve organizations with a turnover ranging from €10 million to €10 billion. How can clients use headhunters effectively? How do headhunters select top candidates? And how is top talent found? What is done, what is not done?
The answers come from various sources: from discussions with Eelco van Eijck to the critical (anonymized) voices of influential decision-makers from the private and public sectors. We draw on recent management literature, and desk research.
In this series we address key aspects of the executive and board search landscape: from sector to company, from headhunter to process and from client to candidate. The chapters are connected like the blades of a propeller. The propeller blades are all adjustable, and should be well-balanced. This image also applies to the search process. If the most important components — selecting, searching, nominating and leading – are optimally adjusted, the process proves its value.
3 Trends Redefining the Labor Market
The Right Match: Creating the fit between a hiring organization and a candidate is human work, despite the rise in algorithms, artificial intelligence and big data. The same goes for discovering early-stage talent. It’s about searching and being found in a rapidly changing world — that is becoming ever more complex.
Today’s world of work comes with its dose of uncertainty and unpredictability. Employment relationships are getting shorter and looser, employers expect employees to regularly re-train. In addition, working is increasingly linked to technology. Labor market provisions are rooted in the 1950s and 1960s. What is the new reality?
Trend 1 | Data
Innovative business models, aggressive market strategies and smart ways of organizing and managing are disrupting the labor market. A driving force is rapid technological development, in particular the availability of cheap(er) data. For executives, this data is indispensable to arrive at reasonable decisions and actions.
In today's information economy, many companies are in a state of metamorphosis. The classic business of the twentieth century — the modern enterprise – is making way for the information-based organization. Investments in tangible assets such as land, buildings and machinery are giving way to expenditure on intangible assets: human capital, information capital and organizational capital.
New Capital, New Trinity
In his ‘Reflections on Governance, Management and Organization’, business expert Hans Strikwerda describes 'human capital' as knowledge, insights and skills that are difficult to transfer to others. This trinity can be applied to new problems that arise in the organization. There are no transferable property rights; these remain the property of people associated with the company. 'Information capital' addresses the potential value of the information in the business, including investments in ICT.
The sheer speed and intensity of tech developments rather leads one at a loss for words. The margins of uncertainty are huge. However, companies are rapidly increasing the use of robotics. Still, many technological applications that seem meaningful and feasible never come to fruition. Breakthrough technologies and their effects outcomes remain unpredictable.
Well-crafted books such as The Data Economy probably sit on the bedside table of many a headhunter and manager. With Peter Verhezen, an expert on governance and ethics, Amrop has also explored AI and Wise Decision-making. This reading gives a penetrating, sometimes chilling insight into the current development of economic practice. Big data and machine learning play a key role. But where this is all leading, and when, is something that most authors leave open.
Victor Mayer-Schönberger and Thomas Ramge argue in ‘The Data Economy’ that the unstoppable rise of data-rich markets will lead to an economic revolution. They give examples of online transactions in which an adaptive system guides the buyer of, for example, a frying pan, based on online buying behavior, to the right providers. In this way, an optimal match is achieved.
The Possessed World is Now a Reality
The authors are affiliated with the Oxford Internet Institute and The Economist respectively. They argue that massive job losses will follow from a market in which much of the transaction process is automated and in which the company’s status as a dominant way of organizing people to work efficiently, is declining. This painful fact will play into the hands of populist movements, according to the authors.
Their central message is the rebirth of the market: the current money-based economy will transform into a capitalist system based on data. This data provides richer information about a product or service than money does, and the algorithms behind it are becoming autonomous and self-directed. Citizens are losing ownership of their own data. In the data economy, as in the old economy, it’s all about power and its concentration.
Online and offline are becoming more and more intertwined, we talk about 'onlife'. Digital applications are so widespread, and so much happens with our data behind the scenes, that they are changing our lives in ways we often don't even recognize, the Rathenau Institute said in a recent report.
"We are living in a possessed world and we know it." This opening line of Johan Huizinga's ominous bestseller ‘In the Shadow of Tomorrow’ (1935) makes sense when reading Philipp Blom's ‘What is at Stake’ (2017). The historian analyzes the profound effects of digitization on the labor market. Robots and algorithms deliver work better and faster than humans, and carry out ever more tasks independently.
Will artificial intelligence become smarter than we are? The British physicist Stephen Hawking observed that we should not be afraid of change. “We've got to make sure it works to our advantage.” To conclude, "Our future is a race between the growing power of our technology and the wisdom with which we use it. Let's make sure the wisdom wins."
Like Mayer-Schönberger and Ramge, Blom also refers to MIT research. In ‘The second Machine Age’, Erik Brynjolfsson and Andrew McAfee describe how income and productivity growth kept pace with each other in the second half of the last century. But the income from capital is now rising, the income from labor is falling: the 'great decoupling' is now a fact.
Brynjolfsson and McAfee outline how in the first machine age the limitations of human muscle strength were tackled and in the second machine age — ushered in by the advent of the Internet – the limitations of human thinking. Almost no sector escapes. Does this also apply to executive search? Is search work now based in algorithms?
According to Eelco van Eijck, this is partly a misconception. “Carefully looking for the best candidates for responsible leadership positions in the private and public sector is human, rather than purely algorithmic work. A good headhunter uses his senses in every encounter. In this profession it comes down to hearing, seeing, feeling, smelling and tasting in combination with observation and association. And let’s not forget the input of the client.” Nevertheless, Van Eijck, as an executive search specialist, does not want to shut himself off from data management “The ideal is an interplay between the latter and the personal touch.'
Trend 2 | Diversity
Diversity may relate to age, gender, nationality and background, training and professional experience. Of course, the importance of the organization and its future is always center stage. Questions that should be leading in policy design: Why does an organization want diversity? What kind of diversity is sought and why? How to achieve it?
In 2018, women still held only 22,5% of Fortune 500 board seats, (Alliance for Board Diversity and Deloitte). And minority women held only 4,6% of those seats, versus 66% held by Caucasian men. In the LATAM region, the current average ratio for female representation at top level is still under 15%. If the picture is improving, it is doing so at a snail’s pace, and still under performing.
According to a director of a governance institute, more women are being brought in to director positions/boards of directors. This is even more evident in supervisory boards.
“Sometimes this quest has a box-ticking character: we have another woman. She is then ‘the diversity’. But the question is whether you can take this approach to women. And also whether only one, or at most two women at the top of organizations is enough to make the necessary changes.'
He also wonders whether new entrants are given sufficient space: "Sometimes someone is selected because it is almost certain that she won’t be difficult — which of course can also apply to male candidates. The approach should be: What competencies are we looking for, both in experience and character? How do we define that? To then look for suitable candidates.”
Van Eijck has given a lot of thought to the state of affairs at the top of the business and public sector: “Given the weight of this role, you might ask yourself whether someone should really want to become a CEO. The person’s life is fully lived by others. The role requires physical, mental and emotional fitness to remain vigilant and alert. The risk of burnout is considerable.”
Time for the Duo-Ceo?
He continues: “The duo-CEO, a two-member board in which a man and a woman both work four days a week, is a good alternative. They are the model for working together, sharing tasks and getting equal pay. In addition, they send out the signal that they can indeed fill a top position part-time.”
By dividing the eight working days well — both executives working four days each – a company leader is available, if needed, seven days a week. So, also on weekends. Of course, the compatibility of characters and competencies is a pre-condition for this model to work. It very much comes down to the people involved.
An experienced female board member notes that ethnic diversity is even more difficult than gender-based diversity. “Headhunters need to make more effort. This means sharing new avenues, no matter how difficult. Because it is not easy to build a network in these groups and to establish contacts with talented men and women.”
The High Price of Gender Inequality
Taking the Dutch labor market as an example, the economy as a whole is much smaller than it could be due to the disadvantaged position of women, a recent McKinsey study found. Supposing the Netherlands were to outperform all other Western European countries in diversity terms, the economy would be injected with an additional €114 billion. And if women worked as much and in the same positions as men, the Netherlands could be €221 billion richer.
Trend 3 | Generation Y
Generation Y (‘millennials’) will supply the directors and supervisors of businesses and public institutions in the years to come. Whilst a lot is expected of them, they’re not always well understood.
Are Millennials Ready for What’s Next?
Millennials grew up with new technology and thanks to frequent social media use, have become more self-image-focused. They want to live as ‘fun’ an offline life as their online friends and are willing to invest generously in it. Yet earning money is not the first priority for this multicultural generation, it's widely believed.
Generation Y’ers have an idealistic attitude: you can create your own happiness. Their lives are sometimes like a news cinema. They readily echo other people's opinions, and seem to lack a historical frame of reference; their (grand) parents lived in a completely different era.
In organizations, millennials conform less to hierarchy, rules and guidelines than the previous generation. They don’t score highly on values such as loyalty and engagement. They read shared values as conformism. Flexible generation Y is committed to meaning, to leadership that shows vision. No strangers to navel-gazing, they like to honor the 'I cult'.
In his recent book: ‘Kids these days. Human Capital and the making of Millennials’, (2017) Malcolm Harris sketches out the backgrounds of generation Y. They are better educated than previous generations, less involved in alcohol and drugs. They take a disciplined approach in preparing for a future as an employee. They have unrivaled personal branding knowledge, especially on social media. Harris: 'In a world where every choice is an investment, growing up as a millennial is a complex exercise in risk management.'
The golden future envisioned for Generation Y has not come to pass, in spite of their thorough preparation, adaptation to the system and ability to eliminate risks. After an unpaid internship, they enter the labor market with high levels of student debt. Fixed contracts have become scarce, a mortgage is difficult to obtain and an affordable first home especially difficult. 'The market' has not fulfilled its commitments.
According to Van Eijck, millennials underestimate the requirements that a CEO has to meet: “I was active in international business for many years. As Erhard Schoewel, one of my former managers at Reckitt Benckiser taught me: "Experience is a skill in itself". His philosophy: someone could only become a general manager if he had got stuck as a functional manager (CFO, CIO, CIO) and came through the impasse successfully.”
To illustrate: a manager made a brand marketing plan at his own discretion and based on his own research. It misfired at launch. However, by intervening in a timely and forceful way, the launch became a success in the second instance. Schoewel saw in him someone who managed to turn the tide during a setback. Van Eijck: “This kind of experience is worth gold, but it takes time, even today, when everything is changing at high speed.”
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Next time, we’ll open the box on the search process and the leadership characteristics most sought-after by today’s hiring organizations. How to build, and appear on, the radar?