The Emerging Business Imperative

Finding, Cultivating and Retaining Next-Generation Leaders

What are CEOs and C-Suite executives looking for in the next generation of organizational leaders? What skills and qualities do future executives require to lead effectively in a changing world, and how will current leaders attract, develop and retain the talent necessary for their organizations to thrive in the future?

In AESC’s largest client survey to date, respondents provided telling insights about how they are preparing the next generation for leadership roles, what they are looking for in emerging leaders, and how they can appeal to a new generation of highpotential talent. Interviews with several top executives both reinforced those findings and shed new light on the future of the C-suite and the organizations they lead.

Our findings suggest that leaders are focused on broad executive succession planning, and are working under increasing pressure. Our respondents project a high level of anxiety related to how they and their organizations can grapple with the pace and nature of change, and how to determine who will be best equipped to lead their organizations through that change.

That pressure is compounded by the fact that the clock is running out on the transfer of leadership. Baby Boomers are aging out of the workforce. As recently as 2015, 68% of CEOs were Gen Xers, demonstrating the leadership transition in progress. But even if younger Gen Xers can be fully prepared for executive leadership, that generational cohort simply isn’t big enough to fill the gap left by retiring Boomers. Millennials, regardless of their relatively fewer years in the workforce, will have to take on some of those roles.

Organizational leaders are trying to ensure that the next generation of leaders— Gen Xers and Millennials—will be prepared to step into executive roles by the time they are required to lead.

Survey Overview

Over 850 executives from around the world, representing a wide range of business sectors—from technology to professional services, from non-profits to 100 year-old industrial firms— contributed to the research. The survey sample included familyowned and operated regional enterprises to large, multi-national corporations. Across these broad ranges, we found that many of the executives surveyed are already employing recruitment, retention, and professional development strategies tailored to a new kind of emerging leader. The responses suggest that business leaders have anticipated what the latest research is telling us about what motivates next generation talent.

When asked ‘Why is building the next generation of executive talent important for your organization?’ the several-hundred open-ended responses from executives around the world covered a wide range of answers, including the growth and sustainability of the organization, continuity and succession planning, competition, and even survival. Some executives answered that building next gen talent was important for building culture and empathy, building a better world, and to both face, and create, disruption.

Other key questions addressed in the survey include:

1. What can you do as a business to attract and retain top Next Gen executive talent?
2. What are the top priorities in your organization related to developing Next Gen leaders?
3. What are the top three leadership qualities of the Next Gen of executive talent that could enhance your organization?
4. How can executive search and leadership advisors help you build Next Gen executive talent in your organization?
5. In your industry, what are some of the challenges next gen leaders will face in the future, and what are the skills, experiences, conditions and/or resources that will help them face those challenges?

Setting the stage: What research on the next generation is telling us.

While our survey is focused on organizations and Next Gen executive talent, there is a growing body of general knowledge about the cohorts that will eventually replace the existing generation of executive leadership. These insights will provide a foundation for our understanding of Next Gen leaders.

EY GLOBAL GENERATIONS 3.0: “Gen X is the least likely to trust among the generations.”

DELOITTE MILLENNIAL SURVEY 2017: “38% of Millennials globally would leave their jobs within two years.”

PwC’S NEXTGEN, A GLOBAL GENERATIONAL STUDY: 60% of Millennials would like to have the flexibility to occasionally work from home, and shift their work hours.

2011 STUDY BY THE CENTER FOR WORK-LIFE POLICY: “Nearly a third of high-earning Gen Xers work 60+ hours a week.”

FINANCIAL TIMES, 2015: The global average age of CEOs is 55 years old.

The talent pools from which next gen executives will arise have characteristics that influence what kinds of organizations they find attractive, how they can be retained, and what qualities they are most likely to possess. The generation currently leading alongside Baby Boomers, and closest-in-line to future executive roles, is Generation X.

Next Generation is more open to change & adapting new ideas, which is important for companies to keep evolving and growing in today’s world.

Tamara Erickson of Right Management observes that several countries have a name for what North Americans call Generation X, “many of which reflect a sense of disenchantment or disenfranchisement, including Generation Bof (whatever) in France; the Burnt Generation in Iran, representing those most negatively affected by the political and social consequences of the 1979 revolution; and the Crisis Generation in some Latin American countries, reflecting those who came of age during the recurring financial troubles in the region.”

Economic uncertainty and domestic social change were common themes in many countries during Generation X’s formative years. Gen Xers learned to be resourceful, consider multiple options, and adapt. Generation X has been dealt life experiences that prepared them for navigating uncertainty.

The children born to Generation X were most likely to experience two-income households, divorce was on the rise, with the resulting single-parent households and therefore this generation learned to be independent. The waves of economic upheaval they experienced through the 2001 dotcom crash and the 2007 global economic crisis may have contributed to Gen Xers’ resiliency and adaptability, as well as their focus on developing job skills they can carry with them.

Gen Xers are innovative and entrepreneurial, and the cohort includes the founders of some of the world’s most disruptive companies, including Dell, Twitter, PayPal, Google, eBay, and Square.

According to financial planning industry expert Michael Kitces, Gen Xers “will vet you in three or four places online, so before they ever meet you they’ll know what you do, what you say you do and how much you charge. If you say something on your website that’s wrong or misleading, you’ll lose their trust forever.” Gen Xers are skeptical, so in order to attract and keep them, brands should be authentic and transparent.

We need leaders beyond the C-suite to actually drive change...Talent from the Next Generation is more capable of understanding what is currently happening.

As for the next generation in line, it is worth remembering that Millennials are digital natives. They are the first generation to grow up with many of the technological advances that were hugely disruptive in the experience of the previous generation, and their employers: including cell phones, streaming video, social networks, online shopping, and the Internet.

Perhaps the near-immediate and constant feedback through “likes” and “shares” on social media has influenced Millennials’ preference for frequent feedback and affirmation in the workplace? The PwC study revealed that Millennials place a high value on being “supported and appreciated in return for their contributions.”

Perhaps the ubiquity of information on organizations, their behaviors, their values, and their performance, and even ratings by customers and employees has influenced how Millennials choose their employers? According to Henrik Bresman, associate professor at Insead and Academic Director of the HEAD Foundation, “The fundamental reason we can expect the Millennial generation to be different, and in a dramatically different way from previous generations, is the information revolution now unfolding and the explosion of possibilities this presents.”

1.1 What can businesses do to attract next gen executive talent?

According to PwC’s “Future of Work” research, “opportunities for career progression,” and “competitive wages and other financial incentives” were the top factors that made an organization an attractive employer to next gen talent.

David Vargas Zepeda is Director of Human Resources with Atento, a leading global provider of customer relationship management and business process outsourcing services (CRM/ BPO). He said, “Basically we have changed our approach to the next generation. The recruiting process, now, is through social media channels, with more information about our industry, our company and the positions that we offer available online. Another improvement in place is the automated hiring process that uses technology among all the stages. We call it ‘Prehiring.’”

In addition to speaking to next gen talent in their own language and leveraging familiar tools, executives also appeal to potential leaders’ interest in the job security afforded by a growth-company with a focus on development. Clay Callan is the former Chief Operating Officer at Cornerstone Healthcare Group Holding, Inc., a diversified healthcare company based in Dallas, Texas, operating 18 hospitals in six states.

Callan said, “We typically outline the growth potential of the company and the development potential of the individual. We provide them with challenging work assignments, 360 degree-feedback and collaborative goal-setting sessions. Our goal is to put individuals in a role where they can be successful, and then we provide them with coaching and assistance as needed.”

Competing for executive next generation talent is just the beginning. Organizations who successfully attract next gen leaders must give them reasons to stay.

1.2 What can businesses do to retain next gen executive talent?

The majority of respondents answered the AESC survey question “What can you do as a business to attract and retain top Next Generation executive talent?” with “provide strong development opportunities” followed by “build a diverse and inclusive leadership,” and “build a mission-driven culture.”

Companies that are unable to provide their Millennial leaders with promotions over time may lose their best and future leadership talent.

According to The Conference Board, “the formula for continuous loyalty consists of a variety of elements, including compensation, promotion, development, work-life balance, and a sense of belonging to a community at work.” These features are valued across age cohorts.

While compensation often ranks at or near the top, many executives must find alternatives to out-compensating the competition for emerging executive talent. For example, Vargas said, “The industry just finished a market survey, and in almost all categories, retention, operations, we are at the top, even though we are not the company that has the best compensation. I have to find different ways to compensate people—we have motivational events almost every month on a Rally Cycle—a winners day to celebrate the best performances, thematic days like pajamas, Halloween—and family days, pizza days, sports events—whatever is possible, we do it.”

Next generation leaders are ambitious, and find opportunities for promotion very attractive. Christoph Szakowski is Chief Operating Officer with AsstrA Associated Traffic, AG, a Switzerland-based, multinational transport and logistics provider. He said, “We at AsstrA provide development opportunities for supply chain talent along the East–West traffic routes in the Eurasian logistics market.”

AsstrA’s approach is consistent with what studies identify as a common driver for next generation talent—advancement. “Our philosophy allows strong, internal career progress for the best people in the international market environment. In particular, the most talented people receive expanded roles in one of the 16 countries where we are located,” Szakowski said.

Vargas said, “We show them a career path from the beginning, and they take e-learning tools to learn, to grow in the organization. They can take different training courses in different technical and managerial skills. They have a coach to support this training, and when they are certified, they become eligible to be promoted. More than 85 percent of our positions are promoted from within.”

Investing in professional development carries risks. “We’ve trained people, and some found opportunities outside the company; we made them more valuable, and they elected to leave,” said Callan. Additional observations from The Conference Board indicate that fewer than 25 percent of millennial leaders feel they’ll be able to climb to higher leadership levels within their current company. “Whether a misperception or a reality, this is a lingering retention risk for organizations unaccustomed to offering rapid—or creative—movement, which will leave Millennial leaders to feel that their once-rapid progress has stalled.”

Callan recalls a particular individual at Cornerstone Healthcare Group. “He was the director of operational excellence, and he did multiple projects across multiple hospitals, driving improvement. There was an internal vacancy for a hospital CEO role, and he ended up taking that role and now he has been promoted from a internal consultant to a single hospital CEO.”

“My philosophy is this: if we have the right culture and we try to train and develop these people, that should create an environment where people want to stay,” Callan said.

Advice from the Korn Ferry Institute: “Prepare for high attrition rates as the new normal. Millennials transition between companies more frequently. Build this into your manpower planning rather than force fit loyalty.”

2. What are the top priorities related to developing next gen leaders?

AESC survey respondents chose “empowering top talent,” followed by “succession planning to accelerate next generation leadership” and “include next generation talent in decision making.” These answers align closely with what researchers Strauss and Howe learned about Gen X decades earlier. “Their accelerated contact with the real world gives them strong survival skills and expectations of personal success.” And they “generally make their own way, rather than follow established patterns.”

Next generation talent is always critical—you have to identify the high-potential candidates and ensure they have a solid cross-section of experience to prepare them for their eventual roles.

At AsstrA, Szakowski said, “We believe that empowerment and decision-making authority should start with the staff— operations and mid-management—and that is possible once main objectives are clear, and measurable targets have been agreed upon. For developing new talent, we offer a special tutorship program for every beginner, with a broad range of trainings and get-together occasions. The team spirit is one of the points which keeps our talent loyal to the company.” Vargas said, “We believe we have to train them faster than in the past, and not just in technical tools. We invest time and money to develop their managerial skills in a blendedlearning model. In addition, we offer a career path that includes small promotions in a short amount of time (three or six months) and lateral opportunities. This helps us retain these people and develop the next generation.”

In fact, in the The Conference Board research, both Millennial and Non- Millennial leaders identified “development assignments” and “coaching” as the most effective leadership development methods. Callan said, “In some instances we will pair a more experienced manager with someone less experienced for an informal peer-to-per mentoring relationship. Mentoring peer-topeer has been very positive, and it’s rewarding to see someone take on new responsibilities, and see them become successful. I am constantly amazed and impressed with how folks take these different inputs, and come up with their own way of doing things.”

The top priorities for developing Next Gen talent from our client survey:

1. Empowering top talent - 36%
2. Succession planning to accelerate Next Gen leadership - 25%
3. Include Next Gen talent in decisionmaking - 23%
4. Access internal talent and provide meaningful coaching - 20%
5. Creating more diverse and inclusive leadership -19%

The combination of the Boomer generation approaching retirement and the expectations of next generation leaders to grow or go, puts increasing pressure on organizations to make sure the next generation of executives is ready to lead.

3. What are the top leadership qualities of the next generation of leadership talent that could enhance your organization?

“Mainly, we are looking for individuals who have the right energy level, and a desire to learn and try new things, Callan said. “Being entrepreneurial and the ability to lead change are the most important in the industries I’ve been in—manufacturing, services and health care — with private equity portfolio companies that were either distressed or needing to change.”

We want to have clear career and development plans so that we can fill our senior positions with our own capabilities & take along the history of our company, while with new talents from outside the company we bring diversity and … innovation.

He added, “Leading change cannot be effective without critical thinking skills and a certain amount of emotional intelligence. You can have great analytical skills, but if you can’t connect with the people, it’s very difficult to lead change. You can have a lot of entrepreneurial thoughts but you’ve got to be able to get the organization to follow you, and you’ve got to be able to articulate that vision well.”

AESC client survey respondents largely agreed, ranking “entrepreneurial” at the top, followed closely by “leading change,” “emotional intelligence,” and “critical thinking.”

According to BridgeWorks, a research and management consultancy specializing in generations, “While Millennials often get credited as the tech generation, it was young Xers who first learned to navigate new technologies, including the computer and video game consoles… They became highly adaptable to change, a trait that served them well when they entered a floundering job market. Their adaptability to change, coupled with a distrust of traditional institutions, created ideal conditions for a generation of entrepreneurs.”

Vargas said “Due to the deep transformation of our business model that we are facing, innovation should be the top quality of our next generation of leaders.” To foster innovation, Vargas said, “We create an environment that brings people together from different areas. All the important new processes, new projects or new customers have a special team that links financial people, HR, operations, IT and other areas to develop solutions. It helps us have more innovation, because the people on the team know what happens in our facilities, what happens in our support areas, what kind of tools are we using in IT area. This collaboration drives new and innovative solutions for our customers, and improvements to our internal processes.” He added to the most sought after qualities of next and people who are team-oriented and inclusive.”

CEOs believe the most effective employees are those who are agile, curious, and have the ability to collaborate with others to achieve the greatest results. These skillsets are among the hardest to recruit.

For Szakowski, next gen leaders “will have to use analytics and listening skills, and see the dynamics of the market as an opportunity, not a barrier. The skills they need are empathy, being able to listen to clients, and being able to realistically see what the company can provide to the client—searching for opportunities to help them with entry to new markets, streamlining the supply chain or supporting their trade with value-added solutions.”

Essential to third-party logistics companies are “international leaders with a high level of education, and diverse experience in different market segments” as well as “good project management skills and the ability to create and offer value to clients, partners and suppliers.” Szakowski adds, “Logistic companies are digital, and we need people to cope with IT, and cope with clients. They need to be okay with technology and be a people manager.”

In the not-too-distant past, highperforming subject matter experts with superior technical skills looked like ideal prospects for executive roles. “Today, we need leaders who can tackle new and complex situations, cultivate ‘game changing’ teams, and leverage the power of many for the benefit of the overall organization,” according to Heidi Gerhard, Director, Talent Acquisition & University Relations at BOSE. “By focusing on breadth of experience, aspiration to tackle interesting problems and bring fresh perspectives to our many businesses, we are able to cultivate a robust pipeline of executive talent,” she says.

“In this VUCA world, we are highly focused on learning agility and the ability to inspire and motivate others to perform at their best. We also look for those with humility, openness to feedback, ability to foster a diverse and inclusive environment, and those who continuously challenge the status quo.”

4. How can executive search and leadership advisors help you build next gen executive talent?

Vargas said, “We have been working with advisors to attract executive talent because we do not have the internal capabilities to do it. We see that in the short term, the industry will require more support for these people inside the company, that will allow them to be more productive in a shorter period of time—ASAP.”

Szakowski said, “For some positions we do work with executive search, but we do a lot of the work internally – we like to develop leaders from within the organization, first. For me, personally, it is important to find the best people you can hire at the given moment, and then develop them. We have been searching for various positions in the company spanning the whole geography from Shanghai to Antwerp and from St. Petersburg to Istanbul. I believe there is a gap between what the market is searching for – international candidates who understand the work and are able to work with people, and what’s available. Executive search can accelerate the whole search process and make hiring simpler.”

With any strategic change that might require competencies that are not available internally, we are open to working with executive search, and with leadership advisors that can show us competencies in the market that could be developed,” Szakowski said.

5. In your industry, what are some of the challenges next gen leaders will face in the future, and what are the skills, experiences, conditions and/or resources that will help them face those challenges?

“77% of CEOs find it difficult to get the creativity and innovation skills they need.” 2017 PwC CEO survey

We asked the clients we interviewed this direct question. Their answers are different, and equally illuminating.

Conclusion

Eventually, a new generation will lead our organizations, and another generation after that.

Current Gen X leaders play an interesting role in serving as a bridge between Millennials and the older generations at the top of most organizations. Soon enough it will be up to Gen Xers to develop and prepare the youngest Millennials to take their turn in the C-suite. As surveyed by Deloitte, Millennials in leadership positions today already have career advice to pass along to the next generation, Generation Z.

That advice: learn as much as possible, work hard, be patient, be dedicated, and be flexible. Generation Z would also do well to cultivate the essential qualities businesses need to leverage today and in the future.

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