CEO Education

By Jamie Ferguson, Vice President US and Latin America, Maxwell Drummond

There has been much debate about the education level required to become a CEO. Technically, any discipline can fill the role, but what makes the best CEOs?

There is no law dictating a tertiary-level education for CEO however most have attended college or university. Completing this level of course demonstrates hard work, exposure to a number of subjects and the ability to work well within a team and also individually- all skills a CEO should have. A degree from an Ivy League school or other highly-rated educational establishment is looked upon particularly favourably because of the competitiveness associated with these courses. Some well-known CEOs, such as Richard Branson of the Virgin Group, didn’t complete tertiary education and have carved out extremely successful careers regardless.

The Harvard Law School Forum on Corporate Governance and Financial Ethics research found that there is no consistent, long-term relationship between CEO education and firm performance. The analysis was extended to six measures of education and three measures of performance; however, it failed to find strong or reliable associations.

The difficulty of evaluating intangible qualities like leadership ability and interpersonal skills means that many hiring committees end up relying on a potential CEOs education, even though studies have proven it has little impact on a company’s performance. When faced with more than one candidate, education is one way of choosing between them. Those making the final decision on hiring a CEO should be careful about the weight assigned to a candidate’s educational background and focus on other factors equally.

An individual’s personality is especially important for the role of CEO. Strong leadership is a trait which is considered essential by many and suitable personality traits can help a CEO rise to the top and most importantly, stay there in tough times. Typically, CEOs are good decision makers, deal makers and communicators, brand advocates enthusiastic about the company’s story and able to gain the respect of employees at every level. A common motto is ‘leaders are born, not made’. Becoming a CEO takes years of hard work and often those who have worked their way up through a company know the firm, its people and culture better than any outsider ever could.

About the author
Jamie Ferguson joined Maxwell Drummond’s Aberdeen team in 2006 to focus on executive search in the energy sector. In 2007 he was promoted to General Manager in Aberdeen and in 2009 Jamie relocated to Houston as Vice President of Maxwell Drummond’s USA and Latin America business.

Maxwell Drummond International is a world leading retained search consultancy offering professional search services to clients in all sectors of the energy and natural resources industries.

Attracting Talent in Emerging Markets

By Jamie Ferguson, Vice President US and Latin America, Maxwell Drummond

Multinational organizations are constantly challenged with identifying and attracting the most talented leadership and workforce to their companies. While many succeed in doing so in their offices in developed regions, it can be a struggle in the emerging markets they are operating in. As economic activity shifts from North American and European markets to markets in Latin America, Asia and Africa, an accelerated percentage of global growth will take place in these emerging regions, straining the already tight pool of talent.

Talent remains a scarce commodity in emerging economies. Not to say there are not talented individuals within these markets, they just come at a heavy price and this issue makes them hard to retain. A recent report cites paying top people in Brazil, China and India almost double the pay of peers in the United Kingdom. Managers in China, for example, change companies at a rate of 30 to 40% a year, which is five times the global percentage. Obviously, compensation is a key factor in attracting leaders to these regions, though it is a slippery slope as both companies and regions are getting into salary wars, driving inflation up even further. Offering long-term incentives is one way to offer a creative, yet competitive compensation package whilst also aiding the retention of senior leaders.

Global companies must make themselves attractive to locals in the markets they operate in. This includes not only appointing local content to visible roles within the company but also ensuring that the markets in which they are operating in are represented in some way on their Boards. In the US, less than 10% of directors of the largest 200 companies are non-US nationals. Given the international interests of many of these companies, this is a low percentage. Local leadership development is an incredibly important aspect to this. When appointing a local leader to a senior leadership role, these individuals have the cultural knowledge and relationships with key suppliers and contacts, though they may not have the breadth of international experience expats will likely have. In Africa particularly, there is much emphasis placed on local talent. Companies must be aware that if they cannot find an individual with the right blend of experience, they will have to train and develop them. Developing talent will be increasingly important as these markets continue to mature.

When the brand of an organization is developed effectively, this can motivate and excite future leaders to develop themselves and contributes to building a company’s presence on the global stage. The brand story must be authentic and employees must be able to imagine their rise to Board level. Whilst competitive pay and continued training remain important in emerging markets, it is important local employees’ skills and experience gather pace in conjunction with market growth. Employees will value an employer that plays a part in bettering their own country as well as the world economy. Global citizenship is an important value that should be embodied by both companies and employees to ensure the advantages of international business are visible in all office locations.

About the author
Jamie Ferguson joined Maxwell Drummond’s Aberdeen team in 2006 to focus on executive search in the energy sector. In 2007 he was promoted to General Manager in Aberdeen and in 2009 Jamie relocated to Houston as Vice President of Maxwell Drummond’s USA and Latin America business.

Maxwell Drummond International is a world leading retained search consultancy offering professional search services to clients in all sectors of the energy and natural resources industries.

Gender Diversity on Boards

By Jamie Ferguson, Vice President US and Latin America, Maxwell Drummond

The issue of diversity on Boards of Directors is an increasingly important topic in today’s global oil and gas landscape. Diversity can include ethnicity, gender and experience. By not having a diverse board or executive team, companies can seriously handicap their operations. Having a diversely well-rounded team allows companies to identify and navigate through the human, social, regulatory and political risks that the oil and gas industry constantly faces.

The issue of gender diversity varies greatly between the US and Europe. In February 2010, the US Securities and Exchange Commission enforced new Proxy Disclosure Enhancement Rules to make companies disclose how they considered diversity when choosing new board members. Several EU countries such as France, Italy, Spain and the Netherlands, have already adopted national quotas, but countries such as Britain and Sweden are strongly opposed to doing so. As such, the EU is pushing for legislation requiring that companies with 250+ employees or that earn more than €50m in revenues must report annually on the gender make up of their boards. If this legislation is enforced, failing to meet quotas would subject companies to administrative fines or to barring from state aid and contracts.

The PwC Insights from the Boardroom 2012 survey revealed that racial and gender diversity continue to receive some attention, with 22% and 25% of directors indicating they are “very important” characteristics of new director candidates. Directors at larger companies, (more than $5 billion in annual revenue), assign higher importance to adding racial and gender diversity than do those at smaller companies. Perhaps this is a result of shareholder pressure that tends to focus on larger companies first and then trickles down to smaller companies.

With several oil and gas companies lacking female board members, it is important to understand the importance of board diversity in the first place. A recent study by Credit Suisse found that the more diverse the board, the better the company performs. Diverse boards offer a better mix of leadership skills, access to a wider pool of talent, a better reflection of decision making customers/stakeholders, improved corporate governance and a higher risk aversion.

Executive search firms can play a direct role in aiding companies to diversify their boards. They must act as true consultancies and challenge leaders on the diversity of their boards. When executing board level searches, these consultants must ensure that diversity is addressed on candidate slates to include women as well as diversity in nationality and experience.

About the author
Jamie Ferguson joined Maxwell Drummond’s Aberdeen team in 2006 to focus on executive search in the energy sector. In 2007 he was promoted to General Manager in Aberdeen and in 2009 Jamie relocated to Houston as Vice President of Maxwell Drummond’s USA and Latin America business.

Maxwell Drummond International is a world leading retained search consultancy offering professional search services to clients in all sectors of the energy and natural resources industries.

Talent Development

By Jamie Ferguson, Vice President US and Latin America, Maxwell Drummond

The complexities of today’s global oil and gas and energy markets have created a rapidly changing role for the Chief Executive Officer (CEO). The Macondo disaster, the economic crisis and the rise of unconventional reserves, to name a few, have created a vast array of regulatory framework and geopolitical uncertainties that now require much of the CEO’s focus.

Gone are the days when the CEO was focused solely on strategy. Many of today’s CEO roles require an extensive understanding of several disciplines from technology and finance to operations as well as a new set of leadership skills. They must have the networking savvy to engage with governments, policy-makers and other regulatory bodies as well as the ability to act as the public face of their company. The industry could potentially face a shortage of future CEOs and executive managers who have the experience and competencies to successfully navigate their companies through the challenges facing the oil and gas industry.

Chief Executives’ cognizance of this threat has added another task to their plates. There is now an added urgency to put more focus on leadership development, though there must be a sound strategy behind it. While companies need to develop their potential leaders quickly, they must also ensure they do not move these individuals into roles before they are ready and run the risk of failure within an often public facing role.

How should they be developed? Historically, leaders have been developed in one of two ways: functional or rotational. Many times, these leaders progress through their company in one functional discipline be it finance, operations or others. While this gives them a deep understanding of one aspect of the business, they may end up lacking knowledge of other departments, thus hindering their ability in a Chief Executive role. Rotational development also proposes challenges in that rotating through different functions within a company may not give individuals the depth of knowledge they need in each area. The key to overcoming these obstacles is to assess for potential early in employees’ careers and start exposing these future leaders to different geographies and disciplines early on so they develop a sound understanding of all business functions.

This practice is a key component to succession planning and may in fact be one of the most important steps in the process. Companies want to promote their own people and talent development gives them the platform to not only accelerate their employees into senior management and executive level roles, but to give them the proper training they need to succeed in them.

About the author
Jamie Ferguson joined Maxwell Drummond’s Aberdeen team in 2006 to focus on executive search in the energy sector. In 2007 he was promoted to General Manager in Aberdeen and in 2009 Jamie relocated to Houston as Vice President of Maxwell Drummond’s USA and Latin America business.

Maxwell Drummond International is a world leading retained search consultancy offering professional search services to clients in all sectors of the energy and natural resources industries.

Mapping Out an Effective Succession Planning Strategy

By Jamie Ferguson, Vice President US and Latin America, Maxwell Drummond

As companies continue to focus their best efforts on talent management and development, it is important to revisit a key strategy for oil and gas companies’ success in the coming years: succession planning. As many research reports have indicated over the last year, many organizations do not place the emphasis on building this strategy it deserves, thus it becoming a heavily discussed topic. Several questions surround the topic, such as what companies can do to bring these plans to fruition both easily and effectively? How will succession plans differ when preparing for an executive or manager’s departure?

Developing a sound and effective succession planning strategy is not a task to be taken lightly, though a few key practices can go a long way when beginning to map out a strategy. In order for the process to be as effective and painless as possible, there must be buy-in from the Board level and Senior Management from the very beginning of this process. Executives must map out the future of their company and really understand what the company will need in a leader to navigate through the imminent challenges their company will face. There must also be high quality HR leadership to take charge of the planning and to see that these plans are being carried through and to work with the board and senior leadership to set measurable goals. In working with senior management to set goals, the board will gain support for succession planning and establish ownership for leadership development programs. In setting goals, the Board and Senior Management must keep it as simple as possible-measurable goals could include the ratio of internal hires vs. external hires for executive roles or the number of promotions from a company’s high potential pipeline. Too complex of performance criteria could deter those managing the process from executing.

Once these plans have been created at a high level, they can be applied differently to the different roles in need of a succession strategy. The transition from one CEO to the next is a critical moment for companies and puts the organization in a vulnerable state, so a well crafted and smoothly executed plan is essential to the board delivering on their governance responsibility to stakeholders. A plan for CEO succession should be developed and executed at least six months before the current CEO is ready to step down. In the case of an unexpected transition, there should be a pipeline of capable leadership already in place to take the reins if needed. This requires not only a succession plan, but a talent development plan for high potential employees as well. These high potentials should be identified several years before a likely CEO retirement-giving them the time to be trained and developed into C-level managers. This process does differ slightly from mid-senior level management. The timing and transition of this level of role is not as sensitive as C-level positions as they are not quite as visible to shareholders.

As little as a year ago, several research reports were released indicating that the majority of global companies did not have succession plan strategies in place, which is surprising as governance is one of the board of directors’ must crucial responsibilities. Companies are only at the beginning stages of developing succession plans, but we are indeed seeing a rise in positions that are being recruited as a direct result of succession plans being put into place.

About the author
Jamie Ferguson joined Maxwell Drummond’s Aberdeen team in 2006 to focus on executive search in the energy sector. In 2007 he was promoted to General Manager in Aberdeen and in 2009 Jamie relocated to Houston as Vice President of Maxwell Drummond’s USA and Latin America business.

MaxwellDrummond International is a world leading retained search consultancy offering professional search services to clients in all sectors of the energy and natural resources industries.

Executive Compensation

By Jamie Ferguson, Vice President US and Latin America, Maxwell Drummond

Executive compensation has been the subject of many, often negative, headlines in the last five years. Almost three quarters of non-executive directors recently agreed with the popular view that remuneration is too high.

Research by GMI Ratings revealed that the average compensation package in the US in 2011 totalled $5.8 million. This increase is on the back of a 28% pay rise the year before. This boom time contrasts sharply with the wider economy, where average wages have been little better than flat.

Investors are demanding more disclosure and recognition of shareholders resulting in increased investor activism. In the U.S, the Dodd-Frank financial reform law of 2010 requires a shareholder vote on pay at least once every three years, but those votes are nonbinding. Known as the say-on-pay movement, it will take effect in the UK in 2013. It would require all listed companies to publish a single figure for each director’s compensation, as well as chart comparing the company’s performance and CEO’s pay.

Shareholders in 44 U.S. companies have voted this year against proposed compensation plans, according to data collected by Semler Brossy. One company facing shareholder rebellion, Chesapeake Energy, said last month that it had made “significant” changes to compensation for its board and CEO. In April, Citigroup shareholders refused to endorse CEO Vikram Pandit’s $14.8 million package after the stock fell more than 44 percent in 2011.

It is the role of chief executive officers (CEOs) and other executives to oversee the company’s strategy and operations and these individuals require compensation for their work. The ‘right’ amount to pay an executive is the minimum amount it takes to attract and retain a qualified individual.

Executive compensation packages generally include a mix of short-term incentives (including salary, annual bonus, benefits, and perquisites) and long-term incentives (including stock options and restricted shares). The package may also include guarantees such as a severance agreement, change in control provision (if the company is bought out), and pension. A good program is targeted at motivating and driving desired behaviours.

Previously, companies in the energy sector were using stock options as the only vehicle to attract, retain and motivate and to align the executives interests with those of their shareholders. Now, it is more common to see companies choosing a mix of long-term incentives to provide a better balance in the overall program design and to better align pay with mid- and long-term performance.

Companies may also choose to move to operational and financial measures that tie into the strategic business plan as compensation to executives. In the cyclical energy industry, a company’s share price can rise and fall due to factors that a CEO has little to no control over. By shifting incentives to company-specific issues like safety performance, production targets and capital program performance, executives can also feel they have more control over the outcomes. Those long-term incentives tied to company-specific performance also help the company to execute its business strategy.

Today’s boards and compensation committees must strike a delicate balance — between developing a program that keeps executives motivated and appropriately compensated on the one hand, and shareholders’ interests and the company’s business strategy on the other. Those with the skills, experience and ambition to take on a president or chief executive officer role are scarce. Compensation should drive a business strategy.

About the author
Jamie Ferguson joined Maxwell Drummond’s Aberdeen team in 2006 to focus on executive search in the energy sector. In 2007 he was promoted to General Manager in Aberdeen and in 2009 Jamie relocated to Houston as Vice President of Maxwell Drummond’s USA and Latin America business.

Maxwell Drummond International is a world leading retained search consultancy offering professional search services to clients in all sectors of the energy and natural resources industries.

Strategies for the Oil and Gas Talent Crunch

By Jamie Ferguson, VP Business Development, Maxwell Drummond

One of the most talked-about topics in the oil and gas industry today is the ever-present talent crunch. How can it be overcome? Who is responsible for implementing changes and initiatives? It is a topic we as executive search consultants frequently discuss, but, as the industry continues to boom creating an even greater demand for talented and experienced leaders, it is certainly a topic to revisit. Initiatives by both the industry as whole and individual companies must be made to continue attracting and developing talent from entry-level workers to the most senior leadership roles.

The industry must be more proactive in marketing itself to the younger generation. The negative perception so many young people possess about the oil and gas industry could be remedied if the industry better communicated the vast opportunities available to those entering the workforce and countered claims of environmentally unsound practices. Students should also be educated on the investment the made in research and development, the opportunity to work in diverse geographic locations and the challenging technical advances they could be on the forefront of. Partnering with universities may not be enough-young adults should be reached before entering university to plant the idea of the opportunities available early on.

Companies must turn their attention to the talents of international personnel and cultivate “global sourcing” for the health of the industry. Currently, there is a trend in upstream recruitment to create a globally mobile workforce. For example, in India, there is a large market of skilled engineers which North Sea companies can tap in to in order to fill their current engineering needs; companies operating in countries with rich shale plays look to the experience of the US unconventionals workforce to drive their efforts. The creation of an internationally mobile workforce is ideal for the short-term and implementing this strategy into long term talent development and acquisition plans will be crucial in driving future industry growth. Utilizing global talent will unlock business opportunities on an international scale and give companies access to the talent they need to overcome the current deficits.

In addition, it will be critical that companies put a solid strategy in place to steer their organizations through the imminent transitions in corporate leadership and senior management. Succession planning and knowledge transfer are key components to ensure there will not be any gap or shortage of qualified leadership in the industry.

About the author
Jamie Ferguson joined Maxwell Drummond’s Aberdeen team in 2006 to focus on executive search in the energy sector. In 2007 he was promoted to General Manager in Aberdeen and in 2009 Jamie relocated to Houston as Vice President of Maxwell Drummond’s USA and Latin America business.

Maxwell Drummond International is a world leading retained search consultancy offering professional search services to clients in all sectors of the energy and natural resources industries.