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Issue 17 : Performance Issue


An Interview with John Thompson


john thompson
heidrick

John Thompson serves as Vice Chairman, Global CEO and Board Practice at Heidrick & Struggles. He is recognized as one of the most respected CEO and Board consultants in the nation, having completed over 200 CEO searches in the last 26 years. His public company clients have included Akamai Technologies, Apple, Brocade, CA Technologies, CSC, Dell, Disney, DirecTV, Google, Intuit, McAfee, McGraw Hill Education, Oracle, Polycom, Salesforce.com, SAP, SRI, Univision, and Verifone.

John has been active in working with both public and private boards in recruiting new directors as well as serving as an advisor on major board restructuring projects. His recent directorship clients include Adobe, Autodesk, Coherent, Corning, Dell, DirecTV, Flextronics, GE, Google, Juniper Networks, Nielsen, NIKE, Salesforce.com, SanDisk, Seagate, SunEdison, and Western Digital.

In 2010, John was the first recipient of Heidrick’s Global “Lifetime Achievement Award.” John joined Heidrick & Struggles in 1989 as a Partner and previously was a Partner with a regional executive search firm. He was formerly the Corporate Director of Organization Development for Atari and previously employed with The Williams Companies as Corporate Director of Organization Development. He serves on the Advisory Board of the Stanford Institute for Economic Policy Research.

John received a BA in economics and an MBA from Virginia Tech.


You’re currently the Vice Chair of Heidrick & Struggles’ Global CEO and Board of Directors Practice. Tell us about your current role and what your top priorities are in helping companies.

John Thompson: At Heidrick, we do director and executive-level search, but more and more we are helping boards with CEO succession—helping them to assess internal candidates and outside candidates via a continuous and comprehensive mapping process of identifying high-quality executives who might be able to be a successor candidate in either a planned or emergency scenario.

Interesting. Has this shift toward CEO succession affected your relationship with your clients?

John Thompson: Our business has morphed into focusing on developing broader relationships with companies. In many cases, we have ongoing retainer relationships with companies so that we can be more helpful to them on a consistent and regular basis. This allows us to have a much deeper relationship with our client companies so that we can effectively advise on critical, strategic issues.


"Succession planning is one of the most, if not the most, important priorities and responsibilities of any board."


As you mentioned, there has been a growing emphasis on CEO succession planning. With your experience in this area, can you offer any insight into important skills and/ or characteristics companies typically look for in a candidate? Have those changed over the years? Are there any that are becoming more important or less important?

John Thompson: Characteristics that have become increasingly more important include agility of thought—that is, having a real mental agility and a nimbleness. Being self-aware, authentic, genuine, and relatable are also important for engendering trust, building a followership, and establishing connections with stakeholders.

Of course, domain expertise is always important, and while boards may think they are willing to take someone who does not have the relevant domain experience, the reality is very few do when it comes down to it. One example of this is Dave Calhoun at Nielsen, who had no real media experience, but he had the soft leadership skills mentioned above to quickly diagnose what was going on and then to make the necessary leadership and strategy adjustments to effectively drive the transformational changes to further empower the business.

In your opinion, what can most boards improve upon in the succession planning process? From a strategic point of view, are there any general words of wisdom you can offer to all companies, regardless of their present succession planning needs?

John Thompson: : Succession planning is one of the most, if not the most, important priorities and responsibilities of any board.

Boards should think about implementing a board mentoring process and program for internal candidates. This is something all companies can do. In theory, a board will assign a director mentor who would build a relationship with and work with the identified internal candidate. This relationship would serve two major and very helpful purposes. One, it would allow for the board to really assess the strengths and development areas of the internal candidate via real-time, practical interactions and one-on-one experience. Second, this type of program would also allow internal top talent an opportunity for coaching by statured, experienced executives. This can also be helpful in retention as employees are more likely to stay if they feel senior management/the board is making an investment in their careers.

In summary, it is a very mutually beneficial and symbiotic relationship, with the key being that this is an ongoing and continuous process that will be hugely valuable to the long-term health of the company, the immediate responsibilities of the board and the development, and the retention and morale of the internal candidate.

With the rising number and popularity of corporate transactions in the past few years, what is important to consider in the midst of a merger or spin-off compared to a more typical situation?

John Thompson: A robust plan allows you to have a qualified and pre-vetted candidate ready—it is important to have people identified and assessed because if you have to recruit somebody, it can be problematic and a lengthy process. Especially in a merger or spin/ separation situation, pre-planning is very important. Being able to tell people—employees, investors, customers, suppliers, really any stakeholder—who the CEO is will reduce some of the anxious feelings. This will allow for a smoother transition and less disruption to the business.

A key tool in effective succession planning, especially in a merger or separation event, is the ability to determine quickly what competencies you need in the new CEO and at the board level. We help clients very quickly realize what they need, what gaps they currently have and what gaps they may have post the corporate event by creating a matrix of key competencies and comparing the existing leadership and board, as well as other internal/ external candidates, against those. This helps the current board effectively determine what is needed moving forward—what new board profiles are required from a composition perspective, how many additional seats need to be filled, etc.

Can you touch upon some of the challenges you have faced in these types of situations and what are best practices?

John Thompson: In a spin/separation situation, the board needs to think carefully about how to tackle building the new company board. We see two common approaches.

The first approach is to separately recruit for each new board just prior to the separation. While this approach seems the most straightforward, it can be difficult to attract potential directors to a new public board without the opportunity to become familiar with its operations, governance structure and processes. Directors will often need an NDA to review appropriate detail, and they will have to build rapport almost immediately, in addition to getting to know the company while simultaneously dealing with the challenges created by the separation.

The second approach is to temporarily expand the current board until the separation event and then allocate the board members appropriately. While this approach may require more pre-planning and a larger advance time, it affords new directors the opportunity to get to know the company, the governance structure, their peers, and the culture—which often translates into more informed decisions regarding allocation and board composition being made at the right time. Also, the new independent board members can assist with decisions on related party transactions, assets, debt, and other costs between the separated companies, which can minimize risk.

Not to focus completely on CEO searches, you also help companies find the right directors to serve on the board. What skills do you see as different or similar for a successful director compared to a successful executive?

John Thompson: There are some differences between the two. That is certain. When looking for a director, boards like someone with domain experience. They are looking for someone who understands the challenges and complexities of the company’s ecosystem. These characteristics can help to avoid groupthink or colluding with the management team about what the strategy is. Successful directors effectively challenge and push management and their other director peers. They ask questions, and they hold themselves and each other accountable. More and more, boards are involved in shaping the strategy rather than just accepting it.

More and more board members may be representative of the customer base. For instance, if you do business in Asia and you do not have anyone familiar with the Asian market, or if there are other key demographics identified as critical to the company’s long-term success, it is often incredibly helpful to have that representation and insight at the board level.

Finding specific skills like that sounds like a time-consuming part of the process. Could you perhaps touch on other unique challenges to finding a good director?

John Thompson: Some of the unique challenges that boards face are the limits set by proxy advisory services such as ISS or Glass Lewis. Current line executives, including CEOs, are only allowed two outside public boards per these organizations. Additionally, as boards continue to focus on improving diversity, this poses another challenge as, unfortunately, the population is still thin. Until you generate more women and ethnic candidates in the executive ranks, boards need to be willing to think more broadly about the profiles they seek and/or consider stepping down a level from the most commonly sought CEO or CFO profiles. Today, CEOs and CFOs remain the top sought-after profiles, but very good boards will think creatively about their needs and will consider how to get that valuable expertise through a broader approach to their recruiting practices.

And, of course, conflicts always pose a challenge—whether those are stated and common competitive or supplier conflicts or whether they stem from a candidate’s personal or ethical bias, these remain a top challenge. And even if the conflict is not a documented or clearly established and defined legal conflict, if there is the possibility of a perceived conflict, this could also prevent a board from recruiting a highly qualified director.


"Silicon Valley boards are clearly looking for a director to bring something—experience, stature, global connections."


As you are based primarily in the heart of Silicon Valley, can you touch upon some of the main differences between what companies are looking for in a candidate in this highly competitive and fast-paced arena versus elsewhere?

John Thompson: In Silicon Valley, companies are most focused on finding qualified directors who are not conflicted. Even more common in the Valley, directors have to be concerned about not just SOX conflicts but also perceived conflicts. Even though there may not be a legal conflict, if it could potentially upset a customer—on either the board’s or the candidate’s end—the board and/ or the candidate most likely will not continue the recruiting dialogue.

Silicon Valley is a unique environment. The companies that are grown and nurtured here have a very unique and special ecosystem that is specific to this region. Because tech companies tend to grow so quickly, they do have unique issues. Unless you are a larger technology company, it is unlikely companies will have a structure that supports individual P&L’s because it is an expensive way to organize. This is in vast contrast to larger multinational companies like GE, Danaher, Honeywell, Emerson, etc.

What are some of the unique challenges technology companies in particular face in effective succession planning? This can be for either directors or CEOs, if there is a difference.

John Thompson: One of the challenges that stems from this environment, and the tech sector in general, is that companies have to be willing to accept a higher amount of risk when considering candidates for internal succession planning. Because these companies are growing rapidly, leadership is often a first-time GM or CEO. Boards need to be able to assess what those risks are, compensate for those and mitigate them. This could be done by who you bring on your board—a non-executive chairman or an executive chairman. You can moderate this risk by having qualified executives on the board who are available to coach and mentor a new CEO.

For directors, Silicon Valley boards are clearly looking for a director to bring something—experience, stature, global connections. They’re also interested in director candidates from non-tech companies if they have certain qualifications, such as experience with a similar customer base or market. I did a search for a major tech company interested in consumer experience, and so we looked for directors with specific consumer market expertise rather than a technology-centric domain expert.

Specifically, there is a difference in the Valley in terms of the velocity of change and the general state of mind. The notion that you can fail, get another chance, and not have it be career-ending is really unique to this area. There is an ecosystem where small companies can look larger, and there are investors willing to invest and take risks. This level of excitement and energy is really attractive to people who are not in the Valley, and by serving on these boards, they can learn and apply those lessons back at their own companies.

Do you have any final advice you think companies should know when considering looking for a new director or executive?

John Thompson: When boards look for new director candidates, I advise them to think beyond hard skills and to consider the softer leadership skills and attributes as well. I encourage them to ask, “Can you work with this person in good times and bad?” Also, boards need to fully vet candidates for fit and style. You do not want what I call a “shadow CEO.” You do not want someone who is really trying to run the company from the boardroom. An effective board member is humble but appropriately assertive and confident.

In terms of executives, I believe self-awareness, situational awareness and mental agility are very important.

And for both directors and executives, I believe truly successful candidates have excellent pattern recognition, which can help mitigate risk.

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