Hannah Mullaney, Managing Consultant, Saville Assessment and Stephanie Rudbeck, Senior Consultant, Talent Management and Organisational Alignment, Willis Towers Watson
Where are we now?
Our most recent Global Workforce Study found that only 55% of all financial services employees have trust and confidence in the job being done by the senior leadership of their organisation. Why is this?
Well, when we dig a little deeper into these results, we also found that:
- 38% of financial services employees don’t think their senior leaders are doing a good job of growing the business
- 43% of financial services employees don’t think their senior leaders are doing a good job of managing costs
- Only 44% of financial services employees think their leaders are doing a good or very good job of developing future leaders
- Only 56% of financial services employees believe the information they receive from senior leadership
- Only 49% of financial services employees believe their organisation has a sincere interest in employee well-being
Leadership appointments have a critical impact on organisations, however, so many of these appointments fail. A 2013 report by the Institute for Policy Studies cites that nearly 40% of the CEOs on the highest-paid lists from the 20 years’ prior were eventually “either bailed out, booted or busted”. Willis Towers Watson’s proprietary benchmark database estimates the cost of senior management and leadership turnover to be 75% of compensation. Our data also highlights that at any one time, approximately 30% of leaders are a flight risk – so, organisations can lose leaders easily; and it costs!
Where are we going?
Leaders already have a tough job – and it’s one that is only set to get tougher. The world is changing, work is changing and we are at the beginning of a fourth industrial revolution. Technological advances such as AI and robotics are already disrupting almost every industry and to master this new digital world, leaders must be “agile amid disruption”. Indeed, those occupations and specialties most in demand today did not exist 10 years ago. In fact, 65% of children entering primary school today will end up working in jobs that don’t yet exist. We are living in a VUCA world. Leaders are leading in a VUCA world. For those of you unfamiliar with the acronym, VUCA stands for volatile, uncertain, complex and ambiguous. Starting to sound familiar?
Additionally, the demographics of organisations are changing and younger generations are starting to emerge as the dominant force in most organisations, bringing with it another set of challenges. Our clients recently discussed this topic at a roundtable event and described how “a large chunk of the workforce feels they have a more relevant understanding of their markets and clients than their leaders” and are “full of fresh ideas” that reflect this. They are, consequentially, often “dissatisfied with decisions that current leaders are taking”. This can be particularly pertinent amongst cultures where an approach of “this is how we’ve always done it” is ingrained. The outcome is often a disengaged workforce that eventually leaves and that is not good for business.
Looking forward, what do we need to do differently to identify and develop leaders who will not simply survive in this new world, but thrive? We believe that assessment models focussing on impact will help drive innovation in future talent management practice.
What do we need to do?
Solving the problem of potential with impact
How to best identify high potential individuals has long been the subject of debate amongst HR and leadership teams. These debates often rightly start with the question “What is potential?” In an effort to support organisations with this problem, a number of generic models of potential have been put forward over recent years. Whilst such models can be incredibly useful, a major drawback of them is their inability to cope with diversity in future leadership or change within the organisational environment.
Generic measures of potential may help organisations identify future leaders but they fail to provide an understanding of the sort of leadership roles those identified would be best suited to. This is problematic for the individual and the organisation as both parties start to map out the future.
The impact model of leadership provides a solution to this problem. Rather than seeking to establish what potential looks like in a generic sense, by asking “Where must our future leaders have impact?” organisations are able to define what their future leadership should look like in a way that links directly and tangibly to organisational outcomes. Assessing individuals against this framework not only identifies potential future leaders, but enables the development of specific career pathways for individual leaders and development plans tailored to these.
Using impact in succession planning
Succession planning is an exercise that brings its own challenges. It is fundamentally a question of what talent is needed and what talent is available? The practice, however, can encounter any number of problems. Firstly, much activity in this space is positioned in a way that associates it with a current leader’s organisational mortality and so, therefore, becomes inherently sensitive. It can, therefore, be much more difficult to engage with and appropriately advise leadership teams in the exercise. Secondly, there is the issue of defining critical roles and scoping out what these might look like in the future. Whilst we might have a good go at predicting the future, it is still an uncertain place and where many succession plans fall down is in their lack of flexibility. Successful succession plans are as dynamic as the world around us. Finally, there’s the problem of successor identification itself. Leaders often fall victim to mistaking success at one level for success at higher levels (the classic example is promoting a successful sales person out of the role in which they excel and into management). And of course, we must not forget the bias that creeps in; leaders often demand to be able to see themselves in their successors.
By using impact to frame conversations about succession and what talent is needed in the future, it is possible to create plans that are fluid, adaptable, less sensitive and more objective. And this will only have positive effect.
Leadership development for the future
Some organisations still do invest heavily in an emerging or senior leadership development programme in partnership with a leading business school, however these are increasingly rare as their ROI is seen to be difficult, if not impossible, to measure. This is typically a sizeable investment for a relatively small group of individuals with no guarantee that they will stay for the organisation to realise that value.This speaks somewhat to the issue of a general preference on the organisation’s part for ‘home grown’ leaders over external hires, which probably comes from there being less risk associated with the former than the latter. This preference, however, does appear to be at odds with what employees want; the fact that younger generations actively avoid staying in one organisation for more than a few years means ‘home grown’ leaders are difficult to cultivate. If you are particularly progressive, you may not be bothered by this, instead taking the view that you are developing future leaders not just for you, but for the world – although how on earth do you measure ROI there?
Development demands from employees are also changing. Early talent in particular expects rapid growth within a less formal structure, compared to older generations. At a recent networking events, one delegate spoke of how after only a month, their graduates expected to have had a one-on-one meet and greet with the CEO and another talked of graduate employees who expected either an upwards or lateral move within the first two years in role. It is regularly reported that graduates look for training and development over financial incentives during their job hunt. The rise of the gig economy and contingent workforces poses an interesting question around who is responsible for development – workers will still want it and organisations should be thinking about how it can feed into attraction in a world where the war for talent will only become more aggressive.
It is becoming increasingly clear to us that future development needs to focus on flexible, bite-size learning that an individual can dip in and out of, depending on their preference, need and time available. It also needs to take advantage of advanced technology. Elements should include access to online modules, psychometrics, apps and podcasts with opportunities for a cohort to meet virtually for a discussion on the topic. Practical development activities where a group of individuals from different parts of the business work together on a real-life business problem are also both popular and effective.
We also think that rotation programmes and job shadowing will become increasingly more popular, along with the relatively new concept of reverse-mentoring, where younger employees are paired up with more experienced leaders to provide fresh perspectives and an insight into the reality of the millennial generation. Where already in place, it is seen to have had a positive impact in bringing different employee generations closer together, facilitating better working relationships, closing the knowledge gap for both parties and empowering both emerging and established leaders.
The future is packaging leadership development together differently and making use of more flexible,technology-driven, self-selected and self-directed approaches. The learning ‘event’ is no longer.
UK might need negative rates if recovery disappoints – BoE’s Vlieghe
By David Milliken and William Schomberg
LONDON (Reuters) – The Bank of England might need to cut interest rates below zero later this year or in 2022 if a recovery in the economy disappoints, especially if there is persistent unemployment, policymaker Gertjan Vlieghe said on Friday.
Vlieghe said he thought the likeliest scenario was that the economy would recover strongly as forecast by the central bank earlier this month, meaning a further loosening of monetary policy would not be needed.
Data published on Friday suggested the economy had stabilised after a new COVID-19 lockdown hit retailers last month, while businesses and consumers are hopeful a fast vaccination campaign will spur a recovery.
Vlieghe said in a speech published by the BoE that there was a risk of lasting job market weakness hurting wages and prices.
“In such a scenario, I judge more monetary stimulus would be appropriate, and I would favour a negative Bank Rate as the tool to implement the stimulus,” he said.
“The time to implement it would be whenever the data, or the balance of risks around it, suggest that the recovery is falling short of fully eliminating economic slack, which might be later this year or into next year,” he added.
Vlieghe’s comments are similar to those of fellow policymaker Michael Saunders, who said on Thursday negative rates could be the BoE’s best tool in future.
Earlier this month the BoE gave British financial institutions six months to get ready for the possible introduction of negative interest rates, though it stressed that no decision had been taken on whether to implement them.
Investors saw the move as reducing the likelihood of the BoE following other central banks and adopting negative rates.
Some senior BoE policymakers, such as Deputy Governor Dave Ramsden, believe that adding to the central bank’s 875 billion pounds ($1.22 trillion) of government bond purchases remains the best way of boosting the economy if needed.
Vlieghe underscored the scale of the hit to Britain’s economy and said it was clear the country was not experiencing a V-shaped recovery, adding it was more like “something between a swoosh-shaped recovery and a W-shaped recovery.”
“I want to emphasise how far we still have to travel in this recovery,” he said, adding that it was “highly uncertain” how much of the pent-up savings amassed by households during the lockdowns would be spent.
By contrast, last week the BoE’s chief economist, Andy Haldane, likened the economy to a “coiled spring.”
Vlieghe also warned against raising interest rates if the economy appeared to be outperforming expectations.
“It is perfectly possible that we have a short period of pent up demand, after which demand eases back again,” he said.
Higher interest rates were unlikely to be appropriate until 2023 or 2024, he said.
($1 = 0.7146 pounds)
(Reporting by David Milliken; Editing by William Schomberg)
UK economy shows signs of stabilisation after new lockdown hit
By William Schomberg and David Milliken
LONDON (Reuters) – Britain’s economy has stabilised after a new COVID-19 lockdown last month hit retailers, and business and consumers are hopeful the vaccination campaign will spur a recovery, data showed on Friday.
The IHS Markit/CIPS flash composite Purchasing Managers’ Index, a survey of businesses, suggested the economy was barely shrinking in the first half of February as companies adjusted to the latest restrictions.
A separate survey of households showed consumers at their most confident since the pandemic began.
Britain’s economy had its biggest slump in 300 years in 2020, when it contracted by 10%, and will shrink by 4% in the first three months of 2021, the Bank of England predicts.
The central bank expects a strong subsequent recovery because of the COVID-19 vaccination programme – though policymaker Gertjan Vlieghe said in a speech on Friday that the BoE could need to cut interest rates below zero later this year if unemployment stayed high.
Prime Minister Boris Johnson is due on Monday to announce the next steps in England’s lockdown but has said any easing of restrictions will be gradual.
Official data for January underscored the impact of the latest lockdown on retailers.
Retail sales volumes slumped by 8.2% from December, a much bigger fall than the 2.5% decrease forecast in a Reuters poll of economists, and the second largest on record.
“The only good thing about the current lockdown is that it’s no way near as bad for the economy as the first one,” Paul Dales, an economist at Capital Economics, said.
The smaller fall in retail sales than last April’s 18% plunge reflected growth in online shopping.
BORROWING SURGE SLOWED IN JANUARY
There was some better news for finance minister Rishi Sunak as he prepares to announce Britain’s next annual budget on March 3.
Though public sector borrowing of 8.8 billion pounds ($12.3 billion) was the first January deficit in a decade, it was much less than the 24.5 billion pounds forecast in a Reuters poll.
That took borrowing since the start of the financial year in April to 270.6 billion pounds, reflecting a surge in spending and tax cuts ordered by Sunak.
The figure does not count losses on government-backed loans which could add 30 billion pounds to the shortfall this year, but the deficit is likely to be smaller than official forecasts, the Institute for Fiscal Studies think tank said.
Sunak is expected to extend a costly wage subsidy programme, at least for the hardest-hit sectors, but he said the time for a reckoning would come.
“It’s right that once our economy begins to recover, we should look to return the public finances to a more sustainable footing and I’ll always be honest with the British people about how we will do this,” he said.
Some economists expect higher taxes sooner rather than later.
“Big tax rises eventually will have to be announced, with 2022 likely to be the worst year, so that they will be far from voters’ minds by the time of the next general election in May 2024,” Samuel Tombs, at Pantheon Macroeconomics, said.
Public debt rose to 2.115 trillion pounds, or 97.9% of gross domestic product – a percentage not seen since the early 1960s.
The PMI survey and a separate measure of manufacturing from the Confederation of British Industry, showing factory orders suffering the smallest hit in a year, gave Sunak some cause for optimism.
IHS Markit’s chief business economist, Chris Williamson, said the improvement in business expectations suggested the economy was “poised for recovery.”
However the PMI survey showed factory output in February grew at its slowest rate in nine months. Many firms reported extra costs and disruption to supply chains from new post-Brexit barriers to trade with the European Union since Jan. 1.
Vlieghe warned against over-interpreting any early signs of growth. “It is perfectly possible that we have a short period of pent up demand, after which demand eases back again,” he said.
“We are experiencing something between a swoosh-shaped recovery and a W-shaped recovery. We are clearly not experiencing a V-shaped recovery.”
($1 = 0.7160 pounds)
(Editing by Angus MacSwan and Timothy Heritage)
Oil extends losses as Texas prepares to ramp up output
By Devika Krishna Kumar
NEW YORK (Reuters) – Oil prices fell for a second day on Friday, retreating further from recent highs as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather.
Brent crude futures were down 33 cents, or 0.5%, at $63.60 a barrel by 11:06 a.m. (1606 GMT) U.S. West Texas Intermediate (WTI) crude futures fell 60 cents, or 1%, to $59.92.
This week, both benchmarks had climbed to the highest in more than a year.
“Price pullback thus far appears corrective and is slight within the context of this month’s major upside price acceleration,” said Jim Ritterbusch, president of Ritterbusch and Associates.
Unusually cold weather in Texas and the Plains states curtailed up to 4 million barrels per day (bpd) of crude production and 21 billion cubic feet of natural gas, analysts estimated.
Texas refiners halted about a fifth of the nation’s oil processing amid power outages and severe cold.
Companies were expected to prepare for production restarts on Friday as electric power and water services slowly resume, sources said.
“While much of the selling relates to a gradual resumption of power in the Gulf coast region ahead of a significant temperature warmup, the magnitude of this week’s loss of supply may require further discounting given much uncertainty regarding the extent and possible duration of lost output,” Ritterbusch said.
Oil fell despite a surprise drop in U.S. crude stockpiles in the week to Feb. 12, before the big freeze. Inventories fell by 7.3 million barrels to 461.8 million barrels, their lowest since March, the Energy Information Administration reported on Thursday. [EIA/S]
The United States on Thursday said it was ready to talk to Iran about returning to a 2015 agreement that aimed to prevent Tehran from acquiring nuclear weapons. Still, analysts did not expect near-term reversal of sanctions on Iran that were imposed by the previous U.S. administration.
“This breakthrough increases the probability that we may see Iran returning to the oil market soon, although there is much to be discussed and a new deal will not be a carbon-copy of the 2015 nuclear deal,” said StoneX analyst Kevin Solomon.
(Additional reporting by Ahmad Ghaddar in London and Roslan Khasawneh in Singapore and Sonali Paul in Melbourne; Editing by Jason Neely, David Goodman and David Gregorio)
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