Ears to the Ground

 

I came across an excellent opinion piece written by Ram Charan, a world-renowned business advisor, author, and speaker who has spent the past 35 years working with many top companies, CEOs, and boards. He’s known for cutting through the complexity of running an organization in today’s fast changing environment to uncover the core problem that needs solving.

Ram Charan’s article in the newsletter Corporate Board Member Briefing, is about the five lessons a board can learn from the recent debacle surrounding the artificial intelligence company, OpenAI, where the board of directors fired the CEO, then re-hired him after the entire company threatened to quit OpenAI and move its brainpower to Microsoft.

Perhaps for the first time ever, super-talented employees with highly specialized skills could walk out and destroy a company while starting a new competitor.

“They claimed power for themselves over the board of directors of a multi-billion-dollar organization. And won.” – Ram Charan

At first glance this story of drama and turbulence at a high-powered, high-tech company might appear to have little relevance to the work most of us do as board directors leading the organizations we serve. But in this blog, I’ll be striving to make the case that Ram Charan’s five lessons can be applied to any board and the work that we all do.

I’ll also share excellent resources from Deloitte and others on the more general topic of talent retention and the board’s role in that conversation. For many of us, we’re just beginning to understand that board oversight of culture and talent is a fundamental part of our fiduciary duty.

To paraphrase the Russell Reynolds article referred to in our Resources section below - when it comes to talent management, boards should keep their ears to the ground, meaning directors would be well advised to ensure they understand what’s going on and they’re listening to what’s happening in the organization.

To put it succinctly, no talent > no company >> disaster for all stakeholders.

Flippin’ Burgers

Like a character in the classic movie comedy, Caddy Shack, I started working a summer job at a local private golf course when I was thirteen years old. It was a fun place where I could ride my bike to work, play nine holes before my dishwasher shift, 18 holes afterward, and then walk back into the kitchen to make whatever I wanted to eat before biking home in the dark along a country road. Life was good, the staff was great – a real family atmosphere.

In year three, the club had a new manager and things were no longer running smoothly. The mood was tense, and the senior staff miserable. Things came to a head when the new manager identified two waitresses (as they were known in 1975) that he wanted to let go because he didn’t like how they looked. To the rest of us, including the club members, the two servers were like family.

Here’s what happened next. The Chef organized a staff walkout in protest, meaning the clubhouse had to shut down on a busy night.

By the next day, the board had fired the manager they had hired, and everyone else was back at work. There was no joy in the workplace, but rather a feeling of relief.

This low-tech example of hospitality workers walking off the job to protest an injustice is obviously not the same as the OpenAI super-talent crisis where a new competitor could emerge instantly.

But the two scenarios are similar - an organization was incapacitated for a time, resulting in maximum inconvenience for all stakeholders including the employees themselves. The board of directors was forced to fix a problem of its own making.

What are the common lessons we can extrapolate from these examples?

Making it real

In the high-tech world, the labor market keeps shifting in favour of uber-skilled knowledge workers. In terms of the super-talent overseen by our own boards, could Ram Charan’s five lessons, outlined below, apply to boards that oversee talent like doctors, nurses, air traffic controllers, teachers, day care providers, and police officers, just to name a few?

Consider Ram Charan’s insights, and ask yourself, “Can the five lessons of board failure in the OpenAI story be adapted to our own governance world?”

Lesson 1: Brilliance doesn’t make you immune from error. Even the brightest people can make glaring mistakes. In the case of OpenAI’s board, exceptionally brilliant tech minds exercised flawed judgment, underscoring that intellect alone doesn’t guarantee infallible decisions.

Lesson 2: The power of board composition. Crafting the right board is paramount. A board’s unchecked ego or misguided decisions can single handedly jeopardize an entire industry’s future. The lesson here is clear: curate a board not just for expertise, but for humility and forward-thinking vision.

Lesson 3: Oversight is essential. No matter the individual brilliance or collective expertise, the absence of proper oversight can lead to catastrophic outcomes. It’s a stark reminder that even the most accomplished minds require checks and balances. Establishing robust oversight mechanisms within a board structure is fundamental to prevent grave errors that could otherwise jeopardize an entire industry.

Lesson 4: Extinguish fires early. The board (and the CEO) must do all they can to head off any kind of impasse with key talent (or the CEO) long before it becomes a combustible issue. Reason, listen, keep your ears to the ground to avoid having a tense situation boil over. No one wants to have what happened at OpenAI happen to them, even within a key department or division.

Lesson 5: Don’t embarrass or surprise anyone. The board’s sudden public firing of Sam Altman is a case study in how not to treat a CEO with a powerful followership at a company. But it’s also an example of how not to treat anyone in your organization. If you have to terminate someone, do it with dignity and avoid any kind of public spectacle.

The Talent-Intelligent Board

How can the board help your organization attract, develop, and retain talent?

Although we addressed this question in an earlier post, The Talent-Savvy Board, there’s still more ground for The Savvy Director to cover. The Deloitte Governance Framework includes talent as one of the five critical governance elements over which the board provides active oversight. The others are performance, strategy, governance, and integrity.

In addition, the Resources section at the end of this blog provides several high-quality links to get you thinking about your board’s role in talent development. You can access any time.

One example, The Talent-Intelligent Board by Deloitte is broken up into six emerging issues. The best way to keep your ears to the ground on each issue is to ask key questions during the board’s talent oversight discussions. We’ve noted Deloitte’s key questions below.

Emerging Issues/Talent Oversight Questions for Boards

1.  Overseeing talent-related risks

• What are the key talent risks associated with our core business strategies? With our major investments?
• What is our talent bench strength? How is our organization mitigating succession risks?
• What plans are in place to bring about smooth succession or substitution of our key talent, if the need arises?
• How can we strengthen our talent-related due diligence in joint venture and M&A situations?

2.  Increasing management accountability for talent

• What is the talent strategy that supports our business objectives and capital investments?
• What talent KPIs are we monitoring at the board level? How do they connect to our business strategy?
• What development have we provided our key successors in the past year? Has our leadership bench strength changed and why?
• How does our management access the necessary talent to support operational excellence, such as lean and other quality and process improvement methods? What improvements are being made?
• Which board committee provides primary oversight for our talent programs and policies? Should a board-level talent/human resources committee be formed to allow more focused oversight by the board?

3.  Considering the impact of demographics on business and talent management strategies

• Which demographic trends are affecting—and are likely to affect—our organization and our ability to execute our business plans?
• How is management reporting to the board on an ongoing basis regarding how the organization is responding to these trends?
• What are the largest demographic risks for our organization? How has management addressed these trends, particularly in comparison with peer companies?
• When evaluating performance, does our board or board committee examine how the CEO is addressing demographic trends and risks?

4.  Understanding the talent retention risks

• How clearly are our key business objectives communicated within our organization? Can our talent clearly articulate how they affect key business objectives?
• What is our external hiring success rate?
• Do we have an onboarding strategy and do we measure its success?
• What is our social media strategy and how is it connected to our talent strategy?

5.  Maintaining the right talent oversight by the board of directors

• What are the key board talent issues we need to consider over the next four years?
• What are our talent requirements at the board and board committee level from the standpoints of the business, management, regulators, and shareholders?
• What professional expertise and personal qualities—such as communication skills or credibility with management—are missing from our board?
• How can we ensure our board has diverse points of view? What is our optimal board composition (e.g., skills, experience, demographics)?

6.  Planning for succession in the family business

• How are we developing our talent to produce strong candidates for succession to executive positions?
• What are we doing to encourage family members who are not designated to leadership positions to continue working in ways that are aligned with our business and with the family’s vision?
• As part of our succession strategy, how can we retain talented non-family executives?
• How do we use corporate governance principles and practices to address successions with objectivity and professionalism?

Thank you to Deloitte and all thought leadership writers in today’s resource section.

We wrap up this edition of The Savvy Director with a closing thought from Ram Charan:

“Talent now is going to have a voice and it will challenge the power of capitalism when it feels it is not being used wisely, creating new challenges for boards and management teams. Be prepared.”

Your takeaways:

• The board’s oversight of talent and organizational culture is a fundamental part of your fiduciary duty when serving on a board.
• The smart people on your board have blind spots and biases, just like you.
• Curate your board composition not just for expertise, but for humility and forward-thinking vision.
• The board (and the CEO) must do all they can to head off any kind of impasse with key talent (or the CEO) long before it becomes a combustible issue.
• No matter the individual brilliance or collective expertise of the board, the absence of proper talent oversight can lead to catastrophic outcomes. It’s a stark reminder that even the most accomplished minds require checks and balances.

Resources:

• Ram Charan: The Real Lessons of OpenAI Are About Talent. Ram Charan. Corporate Board Member. © Chief Executive Group.
• The Talent-Intelligent Board. The Deloitte Global Centre for Corporate Governance and Human Capital. © 2013 Deloitte Global Services Limited.
• Nose In, Fingers Out, and Ears to the Ground: The Rising Mindset of Boards Overseeing Culture and Talents. Lucy Lei and Grace Cheng. Russell Reynolds Associates. January 2023.
• How Irish boards can play a critical role in talent management strategies. Laura Flynn. EY. April 2023.
• A Deeper Dive Into Talent Management: The New Board Imperative. Paul DeNicola. Harvard Law School Forum on Corporate Governance. April 2021.
• Talent management: an evolving board imperative. PwC. December 2023.

Thank you.

Scott

Scott Baldwin is a certified corporate director (ICD.D) and co-founder of DirectorPrep.com – an online membership with practical tools for board directors who choose a growth mindset.

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