Leading Through Change - files.ctctcdn.comfiles.ctctcdn.com/53dc5b5b001/1baed3ef-1df7-4a16-a877-ea5db163… · Leading Through Change Insights for Boards and CEOs May 2016 Rusty O’Kelley

Private and Confidential

Leading Through ChangeInsights for Boards and CEOs

May 2016Rusty O’KelleyGlobal Leader of the Board Consulting Services Practice

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“Leadership reputations are made in times of crises.”- Ken Chenault, CEO, American Express

“You have to study your competitors daily and know how the world is changing, because it moves like this” -he snaps his fingers – “and you have to be very fast.”

- Joseph Jimenez, CEO, Novartis

"The biggest risk is not taking any risk. In a world that's changing really quickly, the only strategy that is guaranteed to fail is not taking risks.”

- Mark Zuckerberg, Chairman/CEO, Facebook

The only thing that is constant is change

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Crisis leadership (or lack thereof)transcends politics and geography

Valeant Shares Plunge After CEO is Subpoenaed

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The Board and CEO have keyroles to play during challenging times

The CEO Right skills for the situation Prioritize engagement Never stop repeating

Anticipate the possibilities Plan for all types of succession Protect the culture

The Board

LeadershipThroughChange

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Anticipate the possibilities: Before a crisis, Boards should be scenario planning Scenario planning helps the board anticipate what is possible, not predict the futureBoards use scenario planning for a variety of reasons: Broader strategic thinking Protect against ‘groupthink’ and challenge conventional wisdom

The best boards examine and plan for a multitude of scenarios Pace of market changes requires that boards consider a much wider range of scenarios than ever before Boards that don’t plan for the dramatic change are the ones to fail

65%Percentage of companies using scenario planning in strategy development

Source: HBR “Living in the Futures”; Bain “Management Tools and Trends”; McKinsey “Toward a value creating board”; McKinsey “The use and abuse of scenarios”

52%Percentage of directors who want to increase board time spent on strategy development

8.9Average number of days per year directors devote to strategy development

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Anticipate the possibilities: Boards need to engagein robust strategy and business scenario planning

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$110

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Average price of crude oil (USD)

Our client, a major North American oil pipeline company, hired us to conduct an evaluation of their board’s effectiveness Management was resistant: believed

oil would never go below $50/barrel A single board member took a

leadership role to push the board to undertake comprehensive scenario planning Our review indicated that scenario

planning was a major gap for the board

2014 2015 2016

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Plan for all types of succession: Boards must plan for both the expected and unexpected

Time often permits for thoughtful analysis and updating the succession plans while the CEO is fully confirming the diagnosis Careful consideration around disclosure is crucial

Accident/health issueRecovery expected

Time often permits a thoughtful refinement to an existing plan and announcement Disclosure timing needs to be handled sensitively

Accident/health issueTerminal condition

Unexpected and catches the company off guard A prior plan needs to be put in place with roles and

responsibilities clearly defined upfront

Accident/health issue Sudden Death

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Plan for all types of succession: Boards must plan for both the expected and unexpected

Unexpected and catches the company off guard. Good communication with the CEO or his/her family

about the CEO’s health status, as well as careful focus on disclosure timing, should be a constant theme

Sudden Incapacitation CEO expected to return

Unexpected and can be a minefield Given the uncertainty of recovery, disclosure can be

complicated Once again, strong communication with the family

regarding the CEO’s health status is a must

Sudden Incapacitation Unsure if CEO returns

The investigation (or activist intervention) may be known and the Nominating Committee or Special Committee can update the succession plan

Executive Investigation/ Activist Intervention

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Plan for all types of succession: Boards need todetermine key roles in the CEO succession process Key stakeholders each play an important role in the process. Role clarity helps mitigate the inherent risks related to CEO succession and search

Incumbent CEO

Provides the Board with informed perspective on the appropriateness and readiness of the internal candidate(s) Directs the involvement of SVP, HR to collaborate in developing a rigorous

assessment process Offers the Board continuing feedback on internal candidates and progress

against development plan Provides input into the process with independence of thought and judgment

Owns and is ultimately responsible for the CEO succession process and the outcome. Reviews the process and holds the CEO accountable for developing internal candidates. Owns key criteria profile of next CEO Selects CEO successor and works with the incumbent CEO to ensure successful

transition Instills confidence in a successful CEO appointment and transition. Monitors the

development of the internal candidate pipeline

Board of Directors

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Plan for all types of succession: Family and Chairman leadership example – Ford

In 2006, after several failed turnaround efforts, Ford was losing market share Chairman and CEO Bill Ford had already

determined that company leadership was most important strategic priority, announcing that no job was safe, including his own After determining that big changes were

coming to the industry, Ford voluntarily handed CEO reins to Alan Mulally, a senior exec at Boeing Mulally restructured the organization and

implemented “One Ford” vision, making Ford one of the only automakers to avoid bankruptcy after 2008 financial crisis

Source: IHS “Bill Ford Jr. Steps Down as CEO at Ford; Boeing’s Alan Mulally is In”.

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Protect the culture: Boards should help management safeguard the culture

Culture helps employees weather

storm

Seize crisis as opportunity

to refresh culture

Boards can take the

macro view on culture

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Steward the company culture: Boards can ask the right questions about cultureBoard can help protect or adjust the company culture

Assessment: do we have the right culture or what needs to be changed?

Understand drivers of culture: are we incenting the right behaviors?

Include culture in succession: how can we create the right tone at the top?

Keep culture on the board agenda: are we making culture a priority for the board?

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The Board and CEO mustwork together in order to lead through change

The CEO Right skills for the situation Prioritize engagement Never stop repeating

Anticipate the possibilities Plan for all types of succession Protect the culture

The Board

LeadershipThroughChange

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Right skills for the situation:CEOs need talent who are committed to the change vision

During change or crisis, talent upheaval can seem risky – but having the right people in the right jobs is key

CEOs cannot be afraid to make change, must be bold about eliminating anyone who is not contributing

Source: Booz&Co “Managing Talent at a Time of Crisis.”

CEO must assess the leadership team to ensure there are the right skills and alignment

Leading change requires that the entire management team is aligned on direction, but willing to push back as needed to reach the goal

Objective assessment of team’s skills and leadership abilities is important

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Prioritize engagement: CEO must win employee hearts and mindsEmployees are likely to feel scared during change — it’s the CEO’s responsibility to define reality and give them a direction and optimism

Employees want to be told the reality and reassured that leadership is prioritizing employee engagement and understanding in the company’s evolution

Leadership must be willing to make sacrifices to prioritize and protect employees, if necessary

Focusing on employee engagement throughout change will yield long-lasting benefits Engaged employees more willing to see the need for change, find ways to contribute and

add value, and help lead the organization to the vision that leadership puts forth

“The role of a leader is to define reality and give hope.”- Ken Chennault, CEO, American Express

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Never stop repeating the message:CEO must tailor message and over-communicateOne of the key reasons that change initiatives fail is that leaders under-communicate the vision by a factor of ten

Communications must be tailored for different audiences, though core message remains the same

Source: Harvard Business Review “Leading Change: Why Transformation Efforts Fail.”

Top executives Grounded in data, but with a personal connection Highlight their role in leading change,

inspire them as leaders

Front-line Can’t just talk about financial data points, need to be moved emotionally Connect change to something they are

proud of: pride in work, pride in company

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The CEO and Board playkey roles in leading through change

The Board The CEO

Right skills for the situation

Prioritize engagement

Never stop repeating the message

Anticipate the possibilities

Plan for all types of succession

Protect the culture