Listen: How can industry find its next generation of leaders?

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Vincent Valk:

Hi, and welcome to the Chemical Week podcast. I'm Vincent Valk here with some of what we've got our eye on over the next couple of weeks. As you've probably heard, last week was a wild ride for equity markets. The S&P 500 index fell nearly 3% on August 5th, largest single day drop since 2022, but most of those declines have reversed themselves at the time of this recording, and chemical stocks fared somewhat better than markets overall, possibly because the industry already had a weak operating environment priced in. Still with economic sentiment growing more bearish, we'll be watching where things go in the coming weeks.

Our next print issue takes a look at digitalization in the industry, a sure to be hot topic as AI's role continues to grow. And early September we'll be publishing our billion dollar club ranking of the industry's top companies by revenues, so keep an eye out for that. This week's podcast episode features a discussion between our own Rob Westervelt and Louis Besland, partner and head of chemicals practice at executive search firm Heidrick & Struggles. Rob and Louis talk about talent management issues facing the industry, including diversity and best practices for building the next generation of leaders. Let's give it a listen.

Rob Westervelt:

Hello, I'm Rob Westervelt, editor of Chemical Week welcoming you back to the Chemical Week podcast. Today we'll take a look at how chemical makers are managing CEO succession, how board CEO and leadership roles are changing in response to industry growth challenges, greater emphasis on sustainability and climate change and political uncertainty. And to explore this, I'm delighted to be joined by Louis Besland, a partner with Heidrick & Struggles, an executive search and management consulting firm. Louis heads the firm's work in the chemical sector. Louis, thanks for joining us today.

Louis Besland:

Thank you, Rob, for having me talking to you today.

Rob Westervelt:

Let's start with a broad question. What's the profile of a chemical sector CEO today and how do you see that changing or not with the next generation of leaders?

Louis Besland:

So we analyzed the profile of roughly 130 CEOs around the world that represent companies over 2.5 billion. And on this basis we have looked at their profile and how things are evolving. We talk a lot to CEOs and board every day, and so we are good observers of this. What we've seen is that first the appointment age for CEOs in the chemical industry is 53 as compared to the other industries, less than 50 years old. So the industry tends to appoint CEOs at a later stage. We also see that CEOs in the industry have less prior CEO experience than in other industries, so they come more from business unit leadership, division leadership rather than from CEO or prior CEO experience as compared to other industries. We also see that there are less non-nationals as CEO in this industry, meaning non-nationals defined as being from a country rather than the country where the company is listed.

In this industry, there are 17% that are non-nationals, whereas in other industries is more than a quarter, so less diverse in a way. And what we see, and that's a bit of an unfortunate trend, I would say, is that there are less and less women who are CEOs of chemicals companies. In the recent years there are only 4% of CEOs of chemicals companies that are women. If you look at the appointment in the last 18 months, out of 52 CEOs that have been nominated in this industry, only one was a woman. And so that's a bit of a worry, and I think that's something that probably needs to evolve in the future and the boards need to be ready to build a more diverse bench to ensure that the future CEOs are in that way a bit more diverse.

Rob Westervelt:

And when I think of a chemical CEO, obviously chemical engineering backgrounds seem to be the dominant background, how does that compare with other sectors? Or part of what you've outlined here is that driven by just... Obviously it's driven by the pipeline, but if you look at other industrial sectors is the share of people with engineering backgrounds the same or similar? How does this and doesn't it differ from other industrial sectors?

Louis Besland:

Yeah, I think you're right, there are probably a bit more engineering background in this environment, and that's probably linked to the intangible skill sets that are needed for this industry, safety, operational excellence, and it's an asset-intensive industry. And so coming from that end is very important and it will still be very important in the future, even if you go further down the value chain towards more specialty chemicals, it's still an asset-intensive industry and so this will still be important. Obviously the customer orientation, the marketing, the sales skills also important. And as I said, the more you get to the specialty side of this business, the more important it is, but I think from that perspective this is probably the reason why you find more engineering background there.

Rob Westervelt:

How is the skill set required to lead a global chemical maker changing or evolving? How do you see that playing out?

Louis Besland:

So as I mentioned, there are some intangibles. You need to be able to have the safety, understanding the operational excellence, understanding the CapEx discipline that is required for this environment. Managing cost and optimizing cost is something that is also absolutely key in this business. Obviously more and more customer orientation, more and more customer focused, being more market driven becomes more important, but I would say the two essential skill sets that are required that's really the evolution in the industry is agility on one hand and innovation for the sustainable industry to build a sustainable industry.

Agility is because the world is changing so fast, it's so complex, those leaders need to be adaptable, they need to be curious about the new technology, the new things that are happening, they need to be resilient towards the change, but also they are building the future. This is the industry of industries, so they need to build the future in terms of a sustainable world, and that means expanding their skill set towards new area, new technology, even AI of course plays as industry, a key role there, but building partnerships with companies and industries that they are not used to build the partnership with. So it's really expanding the skill set towards those two areas, agility and the innovation, for a sustainable world.

Rob Westervelt:

Obviously the industry right now faces growth challenges and longer term you mentioned the innovation element, but sustainability climate and other issues are changing the roles and the skills required of industry leaders. What impact is that having on boards and companies themselves, incumbents, and how they manage the pipeline go about CEO succession? What are the changing expectations? How is that impacting CEO succession planning?

Louis Besland:

So in a way, the impact is twofold. There is the impact coming from the internal world, the colleagues, the new workforce, and this new workforce, especially the generation Z is much more demanding, I would say, wants purpose, wants different work organization. And so that's one hand. And on the other hand, externally, there are more and more stakeholders to deal with, and including stakeholders that might have contradictory expectations. So the regulators around sustainability, for instance, and the investors that need short-term results. And all that means that the future CEO or the new CEO need to first be very strong communicators. They not only need to be the traditional, very technical, you mentioned, they come from engineering background, but they need to be good communicators to explain the journey they are with to explain, to define purpose for their company, to explain how they are building the future of this industry both internally and externally.

Rob Westervelt:

You mentioned in your research that the industry relies less on external hires, also a relative lack of recent women appointments. How do companies go about building a more diverse pipeline and even making the sector more attractive to external hires? What should boards and companies be doing to improve there?

Louis Besland:

First, as you mentioned, they need to build the internal pipeline and a very diverse pipeline in a way. And that starts very early in the career. That starts by making sure that the trajectory, the career path of future leaders is well managed. We see some companies, for instance, that ensure that their future leaders have done several functions in the company, have gone through at least three functions in the company, have worked in at least three countries or three regions, and have been into three different businesses as part of the portfolio. So building this diversity of experience internally is a very important trade. If it's not enough, and that's what we see at the moment given the low pipeline within the chemical industry, we see companies trying to hire outside as well at top level to build this diversity, so of experience of diversity, cross-border multifunctional, multi-sectorial diversity, that then come from the outside. Obviously it has to be managed very carefully given the sensitivity of the industry and the difficulty to manage this industry, but bringing outside leaders could also strengthen the bench from that perspective.

Rob Westervelt:

And I want to step back, and someone who is on a career earlier in their career, what are the skills and experiences that they should be looking to develop if they want to be on a leadership track, if they're looking either broader leadership track, even the CEO track, what should early career professionals, what should they be focused on in terms of the experiences and the skills required to continue to advance up the ladder?

Louis Besland:

And you're right, they should start to think about that relatively early on and be willing to do that, be willing to grow up the scale and even up to the CEO it's something that you need to be willing to do because it's tough, there is a lot of pressure, there is a lot of constraints. So they need to be willing to do that. Then they need to be willing to, as I mentioned before, build a diverse experience. So not be stuck into one function, I'm an operations guy, I am a plant manager, and I will be a plant manager for all my life. There are ways to go on the side and to build additional experience either in the engineering dimension, in the innovation space, or even in the commercial arena, or in other functional arena like HR, like finance, and like this area.

So it's building this diversity of experience, being ready to go abroad, and being open in a way to opportunities, because at the end of the day the opportunities for someone who is willing to develop their career, taking the opportunities when they come to you is probably the best way to develop yourself.

Rob Westervelt:

For the industry as a whole, how well are boards and companies managing the talent pipeline and building the next generation of leadership? As you look at chemicals compared to other industrials, what do they do better and where can they improve?

Louis Besland:

Well, that's a good question, Rob, because that's probably the most important question we have when we talk to boards at the moment. There are obviously a number of strategic issues at board level, but talent pipeline becomes a very important strategic issue for boards, and the chemical industry is neither better nor worse than the rest of the industry from that regard. I would say some companies have started to really build strong succession plans that start really two, three levels below the CEO, they put in place the right incentive to motivate the talents that they want to stay in the company, but more importantly they put in place a good career track that is transparent, that is clear for future leaders to build their skills over time, and they keep track on their performance, they keep track on their progress within the company. And I would say quite a number of companies are doing that, but not enough, and they start to do it more and more.

Rob Westervelt:

Just to wrap up, actually to follow on on this, as you look at CEO succession specifically, what are the lessons that boards and incumbents should be following? What are the pitfalls that you've seen? What are the things they really need to be mindful of that would enable them to successfully manage a big change like CEO succession?

Louis Besland:

There are two aspects. First, before the transition, before a CEO transition, as we mentioned, they need to build this diverse talent pipeline. So that means identifying the potentials and actively managing the high potentials in the organization. And probably some have not leveraged that tool enough in the past, but it is also looking outside, leveraging experience from other industries that have gone through changes that the industry is facing now. And I would say another area is there has been a tendency in the past to copy, paste the profile of the incumbent CEO. And that's one thing that given the changes, given the future, and the boards need to focus on what is needed for the future and not trying to just have the same kind of profile as the one they have had for decades.

Rob Westervelt:

Great. Well, Louis, thank you very much for joining us.

Louis Besland:

Thank you, Rob.