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Energy companies must plan now for ‘silver tsunami’ of CEO departures

March 8, 2013
By Deon Daugherty
Houston Business Journal

The stakes have never been higher for energy companies, and experts say the dearth of executive talent in the sector is seriously upping the ante.

On the heels of one high-profile CEO resignation — Randy Limbacher at Houston-based Rosetta Resources Inc. (Nasdaq: ROSE) — and the unexpected departure of David Roberts, the heir apparent at Marathon Oil Corp. (NYSE: MRO) in Houston, about a half dozen North American oil and gas companies are looking for a chief executive.

It’s really the culmination of a story I’ve looked at before — what Houston energy executive recruiter Trent S. Aulbaugh described to me last year as a “silver tsunami” of retirements among the corporate ranks. I caught up with Aulbaugh again this week in light of the CEOdepartures to discuss what he describes as a “lost generation” of leadership.

“The reality is the number of what I would call qualified and CEO-ready candidates has never been less than it is today,” Aulbaugh told me.

Aulbaugh, Houston office leader for Egon Zehnder, the third largest Houston-area retained executive search firm according to HBJ’s 2013 Book of Lists, said that in addition to expected retirements, the industry has to compensate for the period in the late 1980s and 1990s when it wasn’t hiring.

“That has really come to roost at just the wrong time for the industry,” Aulbaugh said. “Never has the demand been greater, and never has the supply — certainly on a relative basis — been less.”

A recent analysis by Egon Zehnder of some 175 companies showed that 35 percent of CEOs in public upstream — exploration and production — and oilfield service companies with revenue of more than $1 billion have been replaced in the past three years. Of those replaced, 25 percent were appointed from outside the company and only 15 percent indicated that they had enough succession depth from which to choose an internal CEO.

All of that means boards must work up executive leadership succession plans now, Aulbaugh said, while also planning for future CEOs to function in a more adaptive environment.

In the 1970s and ’80s, most CEOs came up through the engineering ranks. Aulbaugh said that may still be the case, but he believes the most successful CEOs are the ones who can adapt to a much more agile industry, now that its paradigm has shifted due to the rise of shale and unconventional drilling.

Exploration and production has become more about production, which is different than just a few years ago when those companies were spending more time searching for reserves than pulling them out of the ground or ocean. Top executives have to be able to roll with the changes of that dynamism in the market, he said.

“All these things mean the CEO of today really has to build an organizational culture that has that responsiveness built into their DNA,” Aulbaugh said.

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