Managing Energy's Biggest Risk: Leadership

Just when it seemed that the role of energy CEO couldn’t become any more complex or demanding, it did. Macondo, Fukushima, Keystone, Iran, the Arab Spring, and the rise of unconventional plays, offer only the sparest shorthand for the risks, regulatory blowback, and geopolitical uncertainties that now dominate the agenda of the energy chief executive.

In the past, driven by a relentless search for value, energy CEOs devoted much of their time to strategy. Today, CEOs tell us, they spend far more of their time dealing with external stakeholders, making sure the voice of the industry is being heard by governments around the world and managing boards that have become highly risk-averse, short-term focused, and even bureaucratic.

Thanks to the relentless focus on risk from a broad array of threats, the CEO role requires extraordinary understanding of many disciplines, from finance to operations to technology. Meanwhile, with boards preoccupied with risk, many CEOs lack the depth and breadth of advice they formerly received.

The role also requires new leadership skills: the ability to act as the public face of the company in an era of unprecedented “headline” risk, to diplomatically champion upside potential with wary boards that tend to focus on down-side risk, and to engage with governments, policy makers, and regulators around the world to help the public understand energy’s critical role in a growing global economy. As a result, the industry faces what could the biggest risk of all: a shortage of future chief executives and top leaders who have the requisite competencies for navigating this complex new world.

Many of today’s energy CEOs are acutely aware of the threat. They tell us that in addition to devoting more time to external stakeholders and to board management, they also spend more time on leadership development than ever before. They know that the typical development path of many of today’s top executives did not take into account the unforeseen changes in the CEO role. And they know that their companies have to compensate for that gap – and soon, especially given the coming “silver tsunami” of experienced leaders retiring.

The urgency of the issue presents a classic dilemma of talent development: speed versus derailment. Companies need to develop potential leaders rapidly, while ensuring that they acquire the requisite skills. Move too fast, however, and you run the risk of putting people in jobs for which they aren’t ready, setting them up for failure, and derailing them.

The complexity of the role presents a second classic development dilemma: depth versus breadth. Traditionally, organizations have taken one of two paths in developing future leaders: the functional and the rotational. On the functional path, the executives rise primarily through a single function – whether it’s production, operations, projects, exploration, or finance. They then get broader exposure to other parts of the company as they enter the upper tiers of management or the C-suite. On the rotational path, promising executives are posted to different functions and areas early on in their careers, gaining broad knowledge of the business. Both approaches have limitations. The functional approach imparts depth, but may fall short on breadth. Rotation provides breadth, but may lack real depth.

There’s no magic formula for instantly resolving the tensions of speed versus derailment and breadth versus depth. But in our experience, there are some concrete steps you can take to significantly mitigate their risks and – with all deliberate speed – identify and produce the kind of leaders that will be needed. Those steps include:

  • Assess for potential. Too often, the identification of “high potentials” is based solely on their experience and past performance, both of which are important, but don’t necessarily predict future behavior. Potential is the capacity to take on leadership roles that are greater in both size and complexity, and the speed with which someone can do so – precisely what energy companies need to know right now and with great accuracy about possible CEOs.
  • Revisit the CEO profile. Take a fresh look at the competencies the next CEO will need – not just in terms of strategic considerations like business drivers, industry trends, markets, and financial goals that will help shape the company’s future, but also in terms of what kind of leadership competencies will be required – especially, the skills to influence external stakeholders, a proven record of developing and mentoring talent, and the ability to build organizational capability and create solid teams.
  • Put a stake in the ground. Assess internal candidates against those competencies and then benchmark them against external talent. By measuring internal CEO talent against best-in-class external talent, you can further determine any shortfalls and use the information along with the assessment for potential to create highly specific and targeted development plans for each promising individual.
  • Accelerate integration. When moving a high potential into a major complex role, institute a structured program to accelerate development. Much like an onboarding program for new hires, it should be designed to rapidly help the executive understand the role, the culture, team dynamics, and the networks he or she will need to develop in order to succeed.
  • Provide ongoing support. Create a structured program that continues to provide the executive with behavioral feedback, coaching, and learning – even after the executive becomes CEO.

Many organizations already do some of these things in the normal course of succession planning and talent management. But these practices need to be tightly integrated and deployed in a conscious and concerted effort to address the urgency and complexity of today’s energy leadership issues. To do anything less is to take a big – and unnecessary – risk.

This article was first published in Forbes magazine and is republished on this website with kind permission of the magazine.

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