2019 Leadership Insights and Predictions
As we approach the end of another great year, we are reflective and very grateful to have worked closely with so many amazing clients across the globe. We are proud to have successfully advised numerous boards, investors, CEOs, and executive teams on a variety of areas such as assessment of executive leadership, transition of new CEOs into their roles, increasing organization performance, raising the collective impact of senior teams, and simply coaching talented people to more effectively lead during turbulent times.
More than ever, our clients are laser-focused on organization performance due to economic uncertainties, inflationary pressure, trade tariffs, digitization, talent shortages, near-term investor expectations. While overall end markets seem to be strong for most, many are feeling the pressure on earnings and performance, placing a great weight on leaders to deliver. As former corporate leaders, we understand these challenges and move with great insight and speed to practically make an impact.
We have observed exciting trends emerge in 2018, which include continued focus on growth, some early investment exits, as well as more cautious deal-making as a result of overheated valuation multiples. Investment firms, private equity, and corporate development executives have cash to spend and are smartly looking for the right asset in which to invest. In that pursuit, we have seen an increased focus on human capital in the valuation equation in the private equity arena. Clearly investors are becoming more interested in the quality of leadership and culture in the companies they want to invest in. Boards and investors expect increasing value creation, not just from new products or technologies, but from their CEOs and their leadership teams.
Based on our observed economic and talent trends, major projects completed this year, and recent client input from numerous industries, we believe that 2019 will prove to be an exciting year. More specifically, we are expecting the following leadership insights and organization trends to take “center stage” in 2019.
2019 Leadership Insights and Organization Trends
Will be more First-Time CEOs than ever. Get ready for a new generation of executive leaders to take over. Baby boomers will no longer be the dominant workforce in the United States (Fry, 2018). As of October 2018, 1,176 CEO changes have been recorded this year domestically, with the vast majority of them being from retirements (Challenger, 2018). Up and coming business unit presidents and chief operating officers are looking for their own businesses to run. Gen X and Yers will soon be leading companies of all sizes, both public and private. While this group has gained experience, new CEOs still face unique transitions and challenges.
More founders take ‘chips off the table’. Once again, baby boomer and Gen X company founders know it is a good time to sell and do not want to be locked in during the next downturn. Meanwhile, the Society for Human Resource Management found that at least 40 percent of organizations don’t have a succession plan for their retiring executives (Doyle, 2017). In addition, long-time founders, while leaving the CEO post, often still want to stay involved, thereby increasing ambiguity for this new generation of leaders. These factors place increasing pressure on boards to ensure succession and/or leadership transition plans are ready. In addition, a new co-CEO model may come into vogue more to preserve the founder’s DNA while bringing in someone to scale the company further.
Deal making comes back with greater expectations and pressure on leadership to deliver. While over the last five years, private equity funds globally have raised more than $3 trillion in capital, including $701 billion in 2017, the investment activity and deal count has slowed down significantly since 2014 due to higher costs to buy as well as manage and/or exit current investments (Bain, 2018). Rumors of a slowing economy may expedite transactions as well. Deals will pick up but with greater expectations for organizations to deliver given the overheated acquisition prices. There is lots of “dry powder,” and organizations must be prepared to deliver soon after the deal is made. High performing leadership teams must be in place immediately.
Shortage of impactful CHROs worsens. The good news is that most CEOs recognize that a top human capital leader is critical for a company’s success (Cappelli, 2018). Many of our clients have a top CHRO in place or are actively looking for one. The bad news is that the supply is nowhere near the demand. There are simply not enough HR execs who possess the invaluable balance of business acumen, talent strategy, culture driving, and leadership presence to make a tangible performance difference. Our friends and colleagues in the search business tell us the CHRO job market right now is the hottest it has ever been in history.
Private Equity human capital executives gain more clout. Given the increased focus on human capital and organization capability in value creation models, managing partners are seeking more guidance from a talent or organization performance expert. Our PE clients have either hired a HR or Talent Operating Partner in the last two years, or are currently recruiting one. The roles range from “uber headhunters” to executive assessment pros to organization performance advisors. These experts are helping to build playbooks around how to look at talent and leadership, both before and after the transaction. In 2019, we will be researching “the evolving role of the human capital operating partner in PE” and plan to publish by midyear. Stay tuned!
Healthcare, financial technology, and ecommerce step up their focus on leadership and organization effectiveness. These industries have been experiencing significant technological and regulatory change over the past few years. Healthcare reform has recently forced consolidation of the industry, new corporations to form, significant investment in new business models and networks, while also commanding greater organization performance. Most doctors were not groomed to be business and/or organization leaders, and the consolidation in the field is creating new opportunities for professional managers to step in (Lagasse, 2018). The rapid consolidation of FinTech is also requiring leaner or more agile organizations. Ecommerce in traditional retail is quickly becoming a business model, cultural, and talent transformation. Our clients in these markets are quickly raising their games in leadership impact and organization outcomes.
Employee engagement takes a back seat to organization performance. Employee engagement had a great run over the last two decades. Researchers and consulting firms appropriately correlated employee well-being/climate with business performance (Harter, 2002). (Although no one has yet to demonstrate engagement actually causes increased performance.) Over the last decade, companies got better at engaging employees, thanks to focused efforts on engagement programs, diversity and inclusion initiatives, greater employment transparency, Glassdoor-type social media, low unemployment, and so much focus on millennials’ expectations at work. After all, no one has to work for a crappy company anymore. While research shows a relationship between engagement and organizational performance, there is no evidence that engagement directly causes improved organizational performance in a sustainable way (Fuller, 2017). We believe people want to play on a winning team, therefore, we advise that organization performance requires focus on engagement, but not an obsession with it. Strategic alignment, leadership, decision-making, clear accountability, and other factors matter too.
‘Fit-for-purpose’ overtakes ‘best practice’ approaches to talent strategy. Back in our corporate days, we always tried to replicate the iconic leadership academy companies such as GE, Procter & Gamble, Bank of America, IBM, etc. We gathered “best practices” in leadership assessment and development and implemented a slightly altered version in our own companies. (We have all been there!) Given the increasing levels of ambiguity, complexity, and uncertainty, there are very few best practices that companies should be implementing unilaterally. Context matters more than ever. Talent strategy must emerge from business strategy and what matters more than ever is a company’s ability to test, fail fast, and adapt. Agility and speed in talent initiatives to deliver meaningful results are critical.
Hopefully our leadership insights and predictions resonate with and inspire you, because there are exciting shifts ahead. Human capital issues, such as CEO transitions, senior team performance, leadership effectiveness, and organization design are now seen as having a true financial impact – normally seen through business growth or increased enterprise value creation. At Summit Leadership Partners, we are thrilled with these challenges and opportunities that lie ahead. We are looking forward to another fantastic year in 2019.
To all of our partners, clients, suppliers, family and friends — thank you for a great year and we wish you a safe and happy holiday season!
Summit Leadership Partners