The hunt for oil executives

Tom Simmons and Jeffrey E. Hyler
Spencer Stuart
Houston

Finding the right people to fill the top slots is difficult but doable

Media covering the rapidly expanding resource plays are reporting in dramatic terms that there simply aren't enough qualified applicants to fill all the jobs that need to be filled in the burgeoning energy industry. The Fedgazette, a regional business and economics newspaper published in Minneapolis, recently posted an article under the headline, "Desperately seeking workers in the oil patch: jobs go begging in booming western North Dakota and northeastern Montana." The article notes that a huge demand for workers has been created, not just in the oilfields, but in a range of industries that serve the oilfield.

The same issue has surfaced in Alberta where the Canadian Press recently published an article claiming that the oil-sands workforce is expected to expand by 73% by 2021, meaning 14,600 new jobs and, with some workers retiring, a net total of about 21,000 vacancies to fill.

The need to attract the right top executives to run fast-growing energy companies receives somewhat less attention and fewer screaming headlines, but is even more critical. Decisions made and strategies executed by these top executives will play a huge role in determining the fate of the thousands upon thousands of energy industry workers and those in other industries who supply their needs—not to mention the fate of an energy-hungry world.

One of the major phenomena that has put the industry in its current bind with regard to adequate numbers of qualified leaders has been discussed many times, but the problem has not gone away. The infamous oil "busts" of '81, '82, '86 and '93 left huge gaps in the ranks of petroleum engineers and geoscientists, who would normally have been moving into top executive positions as early as 10 years ago and would now be running many companies.

A new bust is not currently foreseen (but it's never actually "different this time") because of the rapid growth of the economies of China and India and other countries. And the problem of the "missing generation" of engineers, geologists, and landmen, is already on the way to being solved in the long term, as students are currently entering petroleum engineering and geoscience programs in numbers not seen for years.

For the present, a number of CEOs and other top executives have stayed on the job past their desired retirement time due to the shortage of executives in the 42- to 55-year-old range, but this stopgap solution is nearing the end of its practical usefulness. Many of the managers who have postponed retirement will finally be leaving the stage in the next few years.

In the past couple of years a new problem has compounded the difficulties of finding the right executives. Some CEOs who invested disproportionately in natural gas have been removed because they failed to contingently anticipate the drop in natural gas prices resulting from the significant increase in shale production, and did not manage the potential for risk properly. These companies are looking for new leaders who will invest with a more balanced focus on gas and liquids. The new phrase now often applied to the search for these new leaders is "strategic agility"—new leaders who can pivot when needed and can plan with the practical, social, and emotional intelligence to prepare for all eventualities.

At the same time all these changes are taking place, the template for what is required of a modern-day business leader has also changed drastically. In contrast to the traditional image of the powerful, charismatic, and often autocratic boss, modern-day CEOs and other top executives need to know how to listen and influence, not just issue orders. They need to be able to accept and adapt other people's ideas when they have merit. They also need to be able to learn from their mistakes.

Recruiters of top executives today are looking for well-rounded leaders, not just skilled technocrats. The ability to communicate, to motivate, to inspire – and the ability to cope effectively with ambiguity in a changing world – are as important as any technical experience and knowledge. The increased presence of private equity in the energy industry has also intensified the demand for executives who are results-oriented and can perform at the speed of light.

On the other hand, whereas other industries may be able to bring in executives from a different sector of the economy who have a special expertise in marketing, for instance, or human resources, or information technology, the energy industry typically cannot draw from that broader pool of talent because of all the technical knowledge and experience that is required to handle most C-level jobs.

With all of these problems in mind—the rapid growth in the industry, the gap in middle-aged management talent, the technical acumen required, and the need to find leaders who display strategic agility and can reposition companies in some cases—how is it even possible to find enough experienced and gifted top executives to fill the need?

Just to complicate matters further, some major energy companies are separating exploration and production from their mid and/or downstream activities by dividing into two companies: they will require two CEOs, two CFOs, two COOs—perhaps a reconfiguration of two boards, and so on.

The only possible answer, whether searches are initiated internally by a company or with a search consultant, is to dig deeper than ever before, do more research, and identify more talented potential candidates who have not been "on the radar screen" before. Using the old familiar list of contacts and confining the search to the usual companies just isn't going to work anymore.

Companies need to look at talented managers who are "high potentials" – and plan ahead to give them the intensive training and on-the-job experience and seasoning they will need to take over a little sooner than might have been standard in the past. Companies are learning to build their talent bench one or two generations ahead, as opposed to searching frantically for someone to take over in an emergency or unplanned vacancy.

For a rising star in the industry, finding the right mentor may be an integral part of achieving, not only advanced technical ability, but the necessary level of maturity and sophistication to advance. A mentor can convey wisdom as well as knowledge and help protégés learn to identify and steer around the shoals along the way.

Because of all the factors listed above and because of the ever-increasing need for energy industry leaders to be well-acquainted with foreign cultures, many searches today include a requirement that executives have a deep global perspective, which increasingly might include having lived and worked abroad. Rising young executives are well-advised to seize opportunities to work overseas early in their careers, and the willingness to remain mobile and portable will, to varying degrees at different stages, probably be important to advancement throughout their years in the industry.

Americans are traditionally well-known for failing to learn foreign languages and simply assuming that everyone in business on a global level will speak English. Over time, this assumption must and will change. It is already a significant advantage for a rising executive to become fluent in a foreign language that is relevant to the industry, such as Spanish, Portuguese, or Mandarin Chinese. More and more, this will become an essential skill for any executive who wants to be effective on a global stage.

But, if the search for executive talent is to be truly global, which has the advantage of offering a much wider pool of potential candidates from which to choose, companies must have a means of investigating and vetting foreign candidates in terms of academic background, job experience, credit history, court record, and temperament, as thoroughly as they would investigate a domestic candidate.

Where are the high potentials who possess all of these gifts to be found? To begin with, those engaged in the hunt for talent should not always assume that excellent candidates who already hold good positions are so satisfied where they are that they will not be interested in listening to other offers.

Some leaders who hold an important position in a large public company may be tempted by the opportunity to serve in a senior role at a somewhat smaller private company where they may appreciate the greater sense of overall freedom and control, as well as the escape from the distractions that come with the public company spotlight—the constant need to keep dissident shareholders, other investors, regulators, analysts, and the media happy.

On the other hand, there are CEOs of smaller-sized companies who would be delighted to have the opportunity to play a slightly lesser role at a major company with a bigger global footprint and a primary position in the energy industry. It is a matter of what kind of challenge appeals to which individual.

In general, of all the elements in a new job that may entice a talented recruit at this level, compensation is unlikely to be the determining factor. In fact, experienced recruiters (whether internal or external to the company) learn quickly that if a potential candidate's first question to a query from another potential employer is about compensation, he or she is probably not the right person for the job.

Companies want to hire top executives whose laser focus is on the company and its assets, and the nature of the position, its responsibilities, and its opportunities. A sophisticated candidate will assume that compensation will be appropriate and that details will be forthcoming as the process unfolds.

The one compensation problem that does arise and can prevent a company from hiring a leading candidate is the issue of "golden handcuffs," which may include restricted shares or stock options that haven't vested yet or contractual obligations to return bonuses or other compensation if the individual leaves the position. A candidate will probably not want to make a major move without being assured that he will be "made whole" with regard to the compensation he is leaving behind at his old job.

Sometimes the process of making a candidate whole is just too expensive to manage, no matter how desirable the candidate, especially if he or she would be moving from a large public company to a smaller or privately held company. Even though the candidate is simply being compensated for losing equity he has already earned but which has not yet vested, the public optics that a company has overpaid to win a particular candidate may attract excessive criticism.

This article has focused primarily on what kinds of executives companies are seeking, where they might be found and how one might prepare to become one of these desirable candidates for advancement. But companies must also consider what they need to do to attract the best candidates. The search for the best candidates to manage the energy industry is also a competition. A star candidate is usually being courted by more than one suitor. Appealing to the best candidates has to do with much more than housing the company in a beautiful facility and offering a full suite of benefits and amenities. Candidates will be drawn to the company that offers the most exciting challenge and has supportive talent on board – or can acquire them – who are prepared to take on the task at hand.

Finding the right executives to run the energy industry in years to come will be a challenging mission with far-reaching consequences. But it's not impossible. It is simply going to require more hard work than was true in the days of a smaller, more insular industry when most good candidates were probably known to everyone.

The talent is there to be found, but only skilled and dogged research will uncover the best people so they can be recruited to help build the industry's future. OGFJ

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