How to Fill the Leadership Gap

Since the talent gap will be most significant at the top, corporate boards need to take a defining role in how their organizations build and sustain their leadership pipelines. A key part of the board’s overall responsibility is to ensure the company’s continuing success, so directors must focus their own and management’s attention on meeting the leadership challenge.

Unprecedented shifts in the age distribution and diversity of the global labor pool are currently under way. In fact, according to the Bureau of Labor Statistics, the workforce population between 35 and 44 years old—the prime executive development ages—is suffering a steady decline (see chart). Many companies’ human resources managers are unprepared for this makeover to the workforce profile.

Throughout the coming decade, as baby boomers retire and fewer skilled workers are available to replace them, companies in industrialized markets will face a labor shortage and brain drain of dramatic proportions. Companies ignore these shifts at great peril.

Several unprecedented demographic phenomena are driving these shifts in the workforce: The disproportionate size of the baby-boom generation. According to the U.S. Census Bureau, nearly 76 million people—one-fourth of all Americans—were born between 1946 and 1964. This population has contributed greatly to the economic health and output of this country over the past few decades. As baby boomers reach traditional retirement ages, how will companies offset the widespread loss in knowledge, skills and experience?

Increasing longevity. As a result of advances in technology, health care and general lifestyle, more people are living longer. Consequently, common milestones are occurring later in life. How will this shift affect the work environment? When is the “standard” retirement age? When are workers no longer productive?

Declining birthrates. Studies show that after a peak in the 1950s, the average number of children born per woman has declined to about two in the U.S. Declining birthrates in other industrialized nations are even more dramatic and are below the population replacement age of 2.1 children per woman.

Few organizations are truly prepared for this transformation in the workforce. Boards must pay closer attention to these trends and their implications as they affect talent at the top.

A recent survey of senior HR executives attending a Chicago conference on leadership development shows that the higher one goes in the leadership ranks, the more severe the talent shortage grows (see chart). In this study, fully 100 percent of participants acknowledged the need to find and develop talent at the enterprise-wide managerial level as a “very serious” or “critical” concern. By contrast, less than 20 percent gave the same response for talent at the first-line supervisor level and roughly 50 percent at the senior functional leadership level.

Why will it be more difficult to recruit and retain talent at senior levels? One reason is that strategies to alleviate the crisis at lower levels won’t work at the top. Companies have already begun to adopt strategies for dealing with the talent issues at lower levels, including making work more flexible to draw on the pool of talented women; getting retirees to stay on and/or do project work; increasing wages; and improving automation and productivity.

Unfortunately, these approaches will not help at the highest of levels. Some seasoned leaders may be enticed to stay for bigger compensation packages. But many others, having achieved financial freedom and wanting to pursue other interests, will go.

A second reason the problem is more serious at the top is that companies will continue to have more difficulty hiring managers from the outside at senior levels and successfully onboarding them. For corporate boards, hiring senior executives from the outside will play a necessary, albeit limited, role. Additional analysis of the Chicago study data reveals the very high percentage of senior talent that companies expect to hire from the outside to cope with expected shortages. The survey results present a sobering prospect: It’s simply not possible for all these companies to hire that many people from the outside. Even if there were enough supply to meet the demand, success rates for executives brought into senior positions from outside are exceptionally low. According to the Center for Creative Leadership, 40 percent of senior-level external hires fail within the first 18 months of their transitions. Potential solutions fall into three core areas: