Succession planning in the oil and gas sector: unclogging the leadership pipeline

January  2015  |  FEATURE  |  BOARDROOM INTELLIGENCE

Financier Worldwide Magazine

‘Plan today, succeed tomorrow.’ This sensible sounding maxim could very well constitute the sagest advice currently available to companies operating in the volatile oil and gas sector – especially following recent events which, while tragic, served to shine a stark light on the succession planning strategies currently employed by a number of high-profile operators.

The death of 63-year-old Christophe de Margerie, chief executive of French oil giant Total, was indeed a tragedy. The event resulted in collective jaw dropping throughout Total’s corridors of power, as the senior team quickly realised that no ready-made replacement was waiting in the wings to succeed him.

“Total confirms with deep regret and great sadness that chairman and CEO Christophe de Margerie died just after 10pm on October 20 in a private plane crash at Vnukovo airport in Moscow,” said a spokesperson for Total in the aftermath of the tragedy. A subdued response to a seismic event – a deliberate understatement, perhaps, as to the true impact on the French multinational’s upper echelons.

October 2014 was also the month which saw another high-profile executive change, this time, thankfully, of a less tragic nature. In this instance, 51-year-old Helge Lund, chief executive of Statoil, jumped ship to BG Group after bosses of the UK giant undertook an extensive talent sweep, which included a fruitless search in the US. BG had itself spent a period of time without a chief executive after the previous incumbent, Chris Finlayson, departed due to ‘strategic differences’.

The rub

Therein lies the rub: succession planning among the oil and gas giants appears to be a somewhat hit and miss affair. To steady its ship, Total turned to one of its former supremos, 68-year-old Thierry Desmarest, since designated successor, 51-year-old Patrick Pouyanne, was not yet deemed up to scratch. Likewise, BG needed to look beyond its ranks and recruit Lund. At the same time, the soon-to-be Lund-less Statoil (he officially moves in March 2015) is currently in the midst of its own extensive, and intensive, recruitment drive.

The loss of corporate heavyweights de Margerie and Lund to Total and Statoil respectively exemplifies the talent gap that currently permeates the oil and gas sector. But life, as well as business, goes on. The leadership pipeline must be clear and unambiguous, even though circumstances often appear to dictate otherwise.

Clearly, succession planning issues are not unique to the oil and gas sector, as RBS’s struggle to replace Sir Phillip Hampton attests. Yet the experience of Total, Statoil, and to a lesser extent, BG, suggests that there is a distinct lack of employees ready to step up and take the place of genuine corporate heavyweights. The sector, quite simply, is operating with a dearth of succession talent. “The quality is varied,” says Sherief Hammady, director at Hay Group. “There are some pockets of excellence but, generally, companies should be considering technical and leadership skills core to strategy, how that matches to current population, and what the internal development opportunities are.”

Strategies

Analysts may ask what it is that corporations should be doing to ensure their leadership pipelines deliver the next generation of talent on time and ready to take the helm. It could be in-depth planning programs, fast track training, or career lattice – as opposed to career ladder – development strategies. However, some say this is of secondary importance. After all, an attractive financial offer, such as Lund’s £29m BG package, can always substitute for a lack of suitable candidates from within.

Handsome remuneration aside, strategies do exist for companies to progress their talent. For example, a PwC report – ‘Succession planning: What is the cost of doing it poorly…or not at all’ – suggests a five step approach to succession planning: (i) that such planning is integrated into the organisation’s long-term business strategy; (ii) that the planning is owned by the senior management team; (iii) that key talent is continually assessed; (iv) that succession planning is linked to other talent management processes and practices; and (v) that companies monitor and evaluate the performance of their succession planning efforts.

Conclusion

For those companies that observe methodologies for succession planning, the rewards are clear: a conveyor belt of talent that achieves and exceeds expectations, maintains global reputation, stays ahead of the competition, and leads from the front. “Individual companies need to plan ahead and decide what kind of leader they need in the future, and try to grow those from within,” believes Mr Hammady. “Succession planning is about actively managing someone’s career so they are ready to assume a leadership position. The cyclical nature of oil and gas means that a longer term view of the business is essential.”

While it is clear that many companies do indeed neglect the talent at their disposal, presumably unintentionally, the key to successful succession planning is to develop future leaders to such a level where their skills and leadership abilities are as strong as possible when they are required to step into the breach. Failure to do so can result in corporate stagnation, the erosion of competition and an exodus of unrealised talent – essentially a leadership pipeline that is permanently clogged.

© Financier Worldwide

BY

Fraser Tennant