Stephen Morse leads the Houston-based global energy and natural resources practice at Russell Reynolds Associates, an executive search firm. He helped lead the recruitment of Marathon Oil Corp. CEO Lee Tillman and Helge Lund, who takes over as BG Group CEO next year. He discussed how his firm helps select who is fit to lead the world's largest energy companies. Edited excepts follow.
Q: What are the skill sets most important for energy industry leaders?
A: We did a survey of our energy clients and asked them: "What are the competencies and skills you're needing for your organization?" One of the most important competencies is "conceptual thinking skills" - individuals that are strong in terms of analyzing and using independent thinking to create unique solutions. You see this going on in the Permian and the mid-continent. There are businesses being built in parts of the country where we didn't have the infrastructure to find oil and gas. If you've grown up in a certain environment that's been process-oriented, and your role has not been to create and originate strategy, it's hard to succeed in these environments.
Q: What's on the horizon for the energy workforce?
A: Individuals with 12 to 15 years of experience, up until about 25 years of experience, are the next generation of leaders. We're spending a lot of time on "designate" roles - recruiting them into jobs preparing them for the next role. Think of it as a developmental position. A company will come to us and say we're looking for 25 years of experience in a certain area. If they can't find it - maybe they've lost it to retirement - they'll go to the next generation down and develop it. You can tie the demographics of the industry to the fallout in oil prices in 1982. That first graduating class would be in their mid-50s now, basically with 35 years of experience. We have an eight-year gap, essentially starting this year, for executive level down to director level talent. It's a perfect storm with people coming into the early stages of retirement, along with the advent of technology that's outpacing the industry.
Q: How have workplace cultures changed in the energy sector?
A: What's important to understand is the talent management strategies for large corporations back in the 1980s and 1990s have changed very much. We came from a centrally managed oil and gas industry. You'd drive down the processes from the top. In Silicon Valley, you look at some dot-com startups, and you see a lot of entrepreneurial drive. That doesn't mean you don't see that motivation in energy - but what you see is a stronger bias toward results and leadership. You have policies, procedures and established norms of behavior. As the industry has decentralized with the advent of shale, companies have had to find ways to create entrepreneurial cultures in the field, to feed data up to management and make better decisions. Companies like Noble Energy and Anadarko are examples of highly decentralized structures that have outperformed many of their peers. If you look at the companies that have excelled in exploration success, one of the root causes is the culture they work in.
Q: How do you decide who's a good fit for a company?
A: We go in and measure the workplace culture, looking across five different categories, and see where the gaps are. Then we test the people coming in to see how they calibrate against it. I do this job because I really want to help people. We're a pretty analytical firm, and we're good at matching cultural fit. What we focus on with the client is understanding the gaps - then we try to look at individuals with the background to fill them. Everyone has a natural curve. The first step in developing people is understanding what their core competencies are. No one is strong at everything. The process is driven by the board's nomination committee, composed of independent directors that help review the specifications of what they're looking for in terms of functional skills. The board identified these attributes, and we identify individuals we think have these skills and bring forward a list of candidates. We do an online questionnaire, designed by our Ph.D. psychology team. It's designed to be a quantitative process. Once the candidates are measured, we do behavioral-based interviewing, plus referencing. You get a pretty good picture of somebody.
Q: What made Lee Tillman a good fit for Marathon?
A: The board wanted a candidate that brought a lot of strong, independent thinking skills. Tillman came from Exxon. It's a great organization. He identified exceptionally high independent thinking skills. That was an asset they sought in their search. In the case of Exxon, with Tillman, many people were surprised that as Marathon was becoming an independent, they would hire someone from the largest integrated oil company. But what we demonstrated was an executive with certain psychometric core competencies could be distinct from the organization they come from.
Q: What drew BG Group to Helge Lund?
A: It was Helge's experience over 10 years in transforming the culture at Statoil. The business was in great need of change, and BG Group needs a CEO who is good at change management and who's good at establishing transformational leadership processes. Helge's also known for being strong at setting strategy. And he has extremely deep governance experience as a sitting CEO.
Q: How does a company decide whether to hire internally or externally for a CEO?
A: The way most companies work, when they go externally for a role, they have internal candidates too. That's important to understand. They have a process where they compare an external candidate to an internal candidate in a standard form. They'll compare them side by side. That's part of what we help them on, creating an objective framework. It's like people you're close friends with. You have a predisposed view of them. We give them a specific benchmark to show the differences.
Q: What leadership qualities are unique to millennials?
A: The newest generation of leaders has different needs. They want to be exposed to more as they progress through an organization. Young talent is seeking out many different types of experiences.The way they progress is by zigzagging across an organization as opposed to up and down movement. They're also extremely interested in entrepreneurial endeavors in the energy business. A lot of young people want to get into private equity, small-cap energy companies or newly formed regions. There's a lot of interest in small startups, as opposed to saying, "I want to work for the large, safe company."