The New Generations within boardrooms

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By Gabe Shawn Varges – Senior Partner at HCM International & Chairman of the GECN Group

 

 

Much is being written about what is different about Millennials and its implications for the workplace. But less attention has been given to why this is also a board, not just a management, topic.

Some directors do not yet see the direct relevance for the board. They perceive the matter primarily to be a HR issue, one for management to deal with. Other boards may appreciate its larger implications but see it as a challenge to come, rather than one necessarily requiring the board’s attention today.

The terminology commonly used does not help. Boards often hear the topic being referred to as the ‘Next Generations challenge’, implying it is of ‘next’, not immediate, priority. An alternate term is the ‘New Generations’. This term conveys more compellingly the notion that those who make up the Millennial population – Generations Y, Z, and beyond – are not just coming.1 They are already here. This article argues that the ‘New Gens’ merit being part of the strategic and supervisory deliberations of today’s boards and offers five practical prescriptions to jump-start board action.

1. Recognise that the New Gens are the human face of the digital revolution

Boards today are slowly coming to terms with how blockchain, artificial intelligence, and big data can affect their company’s business model and competitive environment. As they do this, they are discovering that the challenge is not just about technology; it is also about how to make their company’s culture more receptive to the types of transformation that digitisation requires. Further, it is about how to increase the capacity of existing employees to innovate and imagine new ways to enhance company competitiveness. To this end, well-conceived training and coaching efforts can be of value, as can realigning the performance management and incentives system to reward agile thinking and execution.

But, at a certain point, this question needs addressing: Can the change go quicker or deeper by looking beyond the company’s current talent and adding new ingredients to the mix? If what is sought are individuals more attuned to the digital needs of the company, is it sensible to ignore the talent pool to whom employing and leveraging new technologies comes naturally? This talent pool is the New Gens. Any digital agenda that does not consider how this population can contribute to the company’s change efforts is at best incomplete, and at worst unsustainable. Indeed, as digital natives, the New Gens are the human face of the digital revolution and, therefore, an instrumental part of a company’s digital strategy.

2. Ensure management understands that the New Gens are a strategic topic, requiring a strategic response

In our work with clients in multiple industries across continents, we are finding growing corporate awareness that ‘something feels special’ about the New Gens compared to prior generations. Many companies are experiencing what the research bears out: that while not absolute, relative and sometimes meaningful differences can be found in the New Gens on topics, such as:

  • Career time horizons, i.e. how long they can imagine being in the same position or with the same employer[2]
  • Their work habits and preference of how, when and where to work
  • Their attitudes toward hierarchy and rigid structures that shape how quickly people are given responsibility and are promoted
  • Non-financial and financial incentives, including different views on base pay, variable pay and company benefits[3]
  • What the employer offers for career development, including supporting further education or more engagement in volunteer community work
  • The nature, timing and frequency of input on personal performance

A board will want to know whether management at their company is on top of these trends. It may wish to have management report to it regularly on how the company is working through the implications of the New Gens on matters such as:

  • Recruitment and retainment
  • Workplace arrangements
  • Organisational structures
  • Performance management
  • Compensation and rewards
  • Career development

Given the many dimensions involved, it is also appropriate for the board to expect management to articulate a comprehensive strategy to address and manage the New Gens challenge. The board can add value by critically reviewing such strategy and providing constructive guidance. Delaying is not an option. The challenge is here. The New Gens are expected to represent more than 50 per cent of the workforce by 2020 and as much as 75 per cent by 2025.[4]

3. Ensure management is taking concrete steps to implement a sound New Gens strategy

One immediate step the board can request management to take is to do a generational mapping. When thoroughly and systematically done, such mapping helps the company concretely visualise how the various generations are represented in the company and in the various units and roles across the enterprise.

  • Are there units or functions where there is an overrepresentation of Baby Boomers or Generation X members and a paucity of New Gens?[5]
  • Are the New Gens at the company automatically placed in positions having less opportunity to generate ideas or have exposure to senior management?
  • Are the company’s New Gens who are in promising positions or on the list of high potentials only from Generation Y, or does it include also some from Generation Z?

The latter question is of special significance as New Gens are not a monolithic group. Subtle but important differences are detectable, for example between older Gen Y members, such as Facbook’s 34-year-old Mark Zuckerberg, and younger Gen Z members, such as LinkedIn’s Sneha Keshwani. The latter, for example, runs, at the age of 24, global mobile growth for LinkedIn, a position calling not just for digital and entrepreneurial prowess but collaborative know-how to forge sustainable partnerships for the company across borders.[6]

After gaining a better understanding of the company’s demographics, a next step is to determine where the skills and insights of the New Gens could best be leveraged. For example, could the company benefit from having the perspective of a Gen Z member in a product development or consumer research team? Or on a taskforce charged with improving the company’s recruiting strategy?

The challenge in pursuing innovative approaches is that they may run up against cultural precepts at the company. There may be ingrained views on what seniority or age is a ‘minimum’ to carry out certain roles or be involved in certain projects. For example, a company may welcome New Gens on a project to test artificial intelligence for procurement but may hesitate to include them on ‘sensitive’ projects, such as revamping the company’s governance decision-making processes or re-evaluating the compensation approach.

This is where the board could be of help. It could nudge management not to permit hierarchy or tradition stand in the way of tapping into what the New Gens have to offer. This includes the area of succession. Part of good governance is to have contingency plans for key positions that become vacant. In today’s environment, corporate succession planning that is unduly influenced by age or job seniority detriments the company if it automatically excludes candidates from the New Gens.

In some cases, the internal forces may be strong enough to require more creative experimentation. For example, one major international insurance company – in an effort to recruit high-performing young talent that would otherwise be attracted to start-ups and industries more ‘sexy’ than insurance – has initiated an internal unit that re-creates a start-up feeling and gives those recruited for this role better incentives to innovate, collaborate and have more impact than is normally possible in more structured organisational units.[7]

4. Get closer as a board to the New Gens

 If it is going to provide oversight of management on the New Gens, the board itself needs to get better acquainted with them. Some boards have made progress in piercing the CEO/executive committee wall and are gaining exposure to managers immediately below the ‘chiefs’ in the C-suite, sometimes referred to as the ‘C minus 1’ level. Boards are achieving this by requiring periodic direct reports from such managers, rather than having the CEO or another executive committee member present on their behalf. More significant are efforts by some boards to meet personally with C minus one managers outside of board meetings and hear directly their views on the company’s business.

While helpful, these efforts may not expose the board to younger employees since New Gens are not yet commonly represented at the C minus one level. Thus, boards need to pursue other strategies to reach the New Gens. One option is for the board to request management to allow it to have periodic exchange of views with a cross-section of employees from Generations Y and Z. Another is to suggest to management that it includes New Gens on the company’s key taskforces and projects, including those having impact upon generational, digital and other transformative change at the company. The board in such cases could also request the taskforces to make reports to the board and to have their New Gens members present findings or answer board questions directly.

However, if the board wishes to gain even more meaningful insights into the New Gens, it could consider a ‘reverse mentorship’ programme. At many companies, it is now common to have more experienced managers serve as mentors to younger employees. The reverse mentorship concept flips the table. Under such a programme, a promising New Gens member is assigned to a board member. If properly designed and operated, the programme creates an informal, yet regular, platform for discussion and sharing. In the safe space of a one-on-one conversation off the record, the board member could ask without embarrassment, for instance, about a new term or technology he or she does not understand, or could get the New Gens partner to share what is on the mind of younger employees at the company. As in the case of other mentorships, it cannot be a forced exercise. It is made available to board members but is not mandatory. Directors are given a choice of the young people with whom they wish to ‘partner up’ for the mentorship, rather than having management do the matching.

DIGITAL SAVVY New Gens bring new skills and perspectives

5. Consider the New Gens, directly or through an advisory council, to be part of the formula for increasing board effectiveness

Boards are under considerable pressure to increase their own performance and be more effective at providing strategic and ethical stewardship.[8] Since part of the current challenge relates to guiding their company through the turmoil of the digital revolution, a board cannot avoid asking the hard question of whether its members possess the bandwidth to skilfully and swiftly act in the aforementioned areas.

The demographics of boards would suggest not. Some studies put the average age on boards at more than 60, with 25 per cent of boards having an average age of nearly 65.[9] While not encouraging, these statistics per se are not the key problem as they are simply averages. The central problem is that many boards lack any member who is under 50. This means there is typically a very large age gap even between the ‘youngest’ board member and a Millennial. Even social media-savvy Facebook currently has only one board member under 40, all others being 47 years and older.

While for most boards recruiting a New Gens member is not a realistic current option, revisiting the criteria of what qualifies a person for the board could be an eminently practical exercise to undertake now. Should age per se be a disqualifier? How could the notions of board diversity and renewal be enriched by looking beyond gender or ethnicity to also consider the value that an energetic and fresh younger member could bring to the table? Deliberations of this nature are timely, not only due to the relentless pressure for boards and companies to respond to the digitisation and related challenges, but because in a few years there will start emerging a viable pool of potential board members from those New Gens leaders who – in some cases even as teenagers – have successfully launched or led start-ups. These include young CEOs, who while not yet 40, already may have a decade or more of executive experience under their belts.[10]

Until the board is ready to take the ‘age plunge’ and take a chance on a New Gens member, it could consider an intermediate step. Some companies have long histories of having, next to their statutory or official board, an advisory board. Such a body is made up of individuals who provide company additional perspectives and serve as a sounding platform for prospective corporate initiatives.[11] Advisory boards have no governance authority but can play a valuable complementary role to the official board. For example, to help the company address the digitisation challenge, some companies today are employing this technique, though it is not always clear if the advisory bodies being created owe their duty principally to management or to the board.[12]

Having an external advisory body to the board composed of New Gens is a viable transitional solution. To have more independence and bring the most value to the board, the members are recruited by the board itself. To avoid confusion with the board, the body is given a different name, such as ‘council’ and it is made clear that its role is purely advisory. How the board uses this advisory body is fully at its discretion, but it could task it to provide recommendations and input on any matter, including on the company’s New Gens strategies and initiatives.

In today’s environment, corporate succession planning that is unduly influenced by age or job seniority detriments the company if it automatically excludes candidates from the New Gens”  

Whatever approach a board chooses, it is important that it does not perceive the New Gens as a ‘special interest group’ or a constituency that only needs to be ‘serviced’. Instead, the forward-thinking board sees the New Gens as part of the solution for navigating the strategic, operational, financial and talent challenges that arise in a digitising world. With respect to the board itself, considering a New Gens member or at least a New Gens advisory council can be a way to ‘upskill’ the board more quickly and heighten its ability to help management cope with the multitude of knotty issues engendered by generational and technological change.

 

About the Author:

Gabe Shawn Varges has extensive international experience as an executive, advisor, and regulator, with expertise in cutting-edge areas relating to governance, compensation, compliance, risk, and regulation. He specialises in advising, assessing, and supporting boards of directors (including compensation and audit committees), senior management, the heads of control functions, as well as public and international institutions and industry associations. He supports companies and other institutions in developed and emerging markets, including in the Gulf. He also serves on monitor teams overseeing the implementation by companies of specific legal, governance, or regulatory commitments.

His experience includes serving as Chief Compliance Officer of a major financial services international group, counselling large corporate clients at a leading international law firm, and heading the governance and remuneration areas of a key financial services regulator, where he also worked on taskforces of international standard setters. At HCM, he is a member of the Executive Committee and serves as Chairman of the Global Governance and Executive Compensation Group, GECN Group.

Footnotes:

1.While there is a degree of fluidity in how the terms are employed in the market, the term ‘Millenials’ is often used to encompass both Generations Y and Z. Generation Y, sometimes referred to also as the Internet Generation, is  defined typically as covering those born from 1981 to 1995. Generation Z is thought to include those born after 1995. The term ‘Digital Natives’ is often used to refer to all Millennials, though sometimes only to younger Millennials. More recently the terms generation ‘Alpha’ or ‘Generation AA’ are emerging to denote the generation after Generation Y, i.e. those born presumably after 2000 and who will soon start entering the workforce.

2.Our work has found that the feeling of ‘being ready for a change’ comes much earlier among New Gens, particularly those under 30, than it does in other generations. This creates a considerable challenge for companies trying to develop talent and plan for the future. Companies need to be aware of this phenomenon and apply creative ways to motivate and retain New Gens members, including – though not only – through appropriate pay mechanisms.

3.This is a very complex area where simpler solutions, such as avoiding performance assessments or not having them count for pay decisions, may not yield the desired results among New Gens. While highly collaborative and team oriented, the New Gens are not prepared to have individual effort and results be ignored. They want these be recognised and rewarded with the right measures.

4.Statista, 2017, https://www.statista.com/statistics/829705/global-employment-by-generation/. 2025 figures are derived from various sources, including HCM extrapolations. The trend is not expected to let up thereafter, as Baby Boomers retire and older Generation X members prepare for retirement. See, e.g. Baby Boomers Retire: http://www.pewresearch.org/fact-tank/2010/12/29/baby-boomers-retire/

5.Baby Boomers refers to those born from 1946 to 1964, while Generation X to those born between 1965 and 1980.

6.Keshwani was selected among the Top 30 Under 30 by Forbes Magazine for 2018. See, https://www.forbes.com/30-under-30/2018/#1a386af1aaf4 

7.The company is Swiss Life which launched an Innovation Lab to pursue, among others, such goals. Other companies are also taking concrete steps to address the New Gens challenge. See, e.g., Redefining the C-Suite: Business the Millennial Way, https://www.americanexpress.com/content/dam/amex/uk/staticassets/pdf/AmexBusinesstheMillennialWay.pdf

8.The pressure stems from regulators, shareholders and the public. Whether Boards are being given the right support and resources to cope with these higher demands is addressed in G.S. Varges, ‘The Case for Board Budgets and Resources,’ NACD Directorship July 2015, available at https://www.dropbox.com/s/x83jkjbgj0ws9q8/HCM_The per cent20Case per cent20for per cent20Board per cent20Budgets per cent20and per cent20Resources_Aug2015.pdf?dl=0

9.Age Diversity Study, IRRC Institute, March 2017: https://irrcinstitute.org/wp-content/uploads/2017/03/FINAL-Age-Diversity-Study-March-2017.pdf

10.An example includes the three co-CEOs of the German on-line clothing retailer, Zalando, each born in 1982 or 1983.

11.American Express has such a board which includes representatives from the arts and other areas of relevance to the company’s activities and to its customers.

12.See, e.g., ‘Companies Set Up Advisory Boards to Improve Digital Savvy’, Wall Street Journal, June 9, 2015. In some  cases, it is not clear if the advisory bodies sufficiently include the New Gens. See for example, Aviva’s ‘Evolution Council’ described in their 2017 Corporate Responsibility Report.