An agenda for the talent-first CEO

Here is a brief excerpt from an article written by Dominic Barton, Dennis Carey, and Ram Charan for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

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In tumultuous times, a company’s talent is its most valuable and reliable asset. What does it take to lead an organization that truly unleashes its human capital?

In our combined 90 years of advising CEOs and their boards, the three of us have never come across a moment like this, when virtually every CEO we work with is asking the same daunting set of questions: Are my company’s talent practices still relevant? How can we recruit, deploy, and develop people to deliver greater value to customers—and do so better than the competition? How can I be sure that I have the right approach to talent—and the right HR—to drive the changes we need to make?

We sought to answer these questions in our new book, Talent Wins, which explores what it takes to build and lead a talent-driven organization. The list of critical priorities, which includes everything from continual, agile reorganization to the reinvention of HR and the creation of an external M&A strategy, is long—and it creates a complex set of challenges for the CEO. The experiences of CEOs at talent-driven companies such as Amgen, Aon, Apple, BlackRock, Blackstone, Facebook, Google, Haier, Shiseido, Tata Communications, and Telenor suggest that meeting those challenges requires a distinct set of mind-sets. As we show in the book, leaders at talent-driven companies are as focused on talent as they are on strategy and finance. They make talent considerations an integral part of every major strategic decision. They ensure that their own focus on talent is woven into the fabric of the entire company. And they are comfortable leading flattened organizations—often centered around the work of small, empowered teams—built to unleash the talent that will drive outsize value.

How do you become such a leader, and lead such a company? This article focuses on four key priorities for the CEO. The first two are moves the CEO must make to secure alignment at the top of the organization. Misalignment at the top is trouble for any company, but it is disastrous for talent-driven ones, where HR and finance must work in tandem and the CEO must oversee a complex, fluid structure. With that foundation in place, CEOs can turn their attention to the two most critical aspects of leading a people-first company: finding, recruiting, developing, and deploying key talent; and ensuring that talent is truly integral to every major strategic decision across the organization.

Lead with a G-3

The talent-driven organization needs a central brain trust, and all that we’ve seen argues for it being a “G-3” consisting of the CEO, CFO, and chief human resources officer (CHRO). Why these three executives in particular? Because deploying financial capital and human capital together is the key to success. “People allocation is as powerful as financial allocation,” explains Aon CEO Greg Case, who works closely with CHRO Tony Goland and CFO Christa Davies to make sure the company has the right talent to meet the challenges of the future.

By putting talent and finance on equal footing, the G-3 will change the way and sequence in which critical matters are discussed. This trio of top executives doesn’t turn to personnel and organizational issues only after having reviewed financial results and strategic initiatives across each business unit, as typically happens today. “We work together to make talent decisions and integrate solutions,” says Case. “Pure capital allocation is essential, but that’s not enough. Do we have the right talent in place? How should we think about talent development? If you have an opportunity to acquire a company, do you have the right people in place to do the deal and operate it afterward? It’s not a matter of getting input from my team so I can make a decision. The three of us work together as peers and answer those strategic questions as a team.”

“People allocation is as powerful as financial allocation.” —Greg Case, Aon CEO

The G-3 isn’t just focused on talent as some discrete item on the agenda. Instead, the G-3 ties talent to every item on the agenda. Consider the turnaround over the past few years at McGraw-Hill. In 2010, Wall Street was punishing then-CEO Terry McGraw’s company. The reputation of its S&P ratings service had been damaged in the financial crisis, and investors didn’t see any synergy with the conglomerate’s other assets, an educational publishing arm and a collection of media properties. McGraw relied on his new CHRO and CFO, John Berisford and Jack Callahan, to evaluate the company from their perspective as outsiders and tell him how to unlock value.

Working together and meeting constantly, both formally and informally, Berisford and Callahan were able to evaluate the company holistically. They discovered pockets where paternalistic practices had fostered bureaucracy at the expense of innovation. They also discovered that Wall Street was right—there were no real synergies between the divisions. With McGraw, they decided that the only way to unleash the talent within was to engineer a breakup—S&P as one company, education and media as another—and sell assets that didn’t fit. It was a plan that McGraw, who had been at the company since 1980, might not have been able to design without his CHRO and CFO. Once the board agreed, Berisford and Callahan led the exercise of splitting the company. Again and again, their respective experiences came together to deliver unified solutions to tough problems: compensation levels at both companies, the bottom-line impact of key personnel in critical roles, and a leadership structure for the stand-alone education business. Callahan got the facts, Berisford figured the human equation, and together with McGraw they arrived at holistic solutions. “If finance and HR aren’t talking,” says Callahan, “they aren’t creating new value.” While the education company is privately held, the market cap of S&P is four times higher than the value of McGraw-Hill in 2010, when Berisford and Callahan joined.

As the example suggests, CEOs in a G-3 will demand much of their CHRO, perhaps more than they ever have. Ed Breen, who turned around Tyco before signing on as CEO of DuPont, says, “You’re going to be more brutally honest. The CHRO and the CFO might have to tell the CEO that someone he’s very close to in the organization isn’t an A-plus player. That’s how you’ll come to better decisions.” Breen’s former CHRO at Tyco, Laurie Siegel, believes the CHRO of a talent-driven organization must be a great business person, not just a great people person. “The conversation with a CHRO,” she says, “is not, ‘We can’t do it.’ Instead it’s, ‘Here’s how we can get there.’ What you want is a CHRO who is a problem solver, not a deal killer.” That’s why line experience should become a central part of the career path of any HR executive who shows real leadership potential. And just as the CHRO must understand the key financial drivers, the CFO must understand the human drivers of value creation.

One word of caution: the success of the G-3 depends on the CEO’s commitment, attention, and care. It doesn’t just happen because the CEO hires a great CHRO and a great CFO. McGraw elevated the CHRO, set a tone of openness and intellectual honesty, fostered a close rapport in informal chats and formal weekly meetings, and gave the G-3 a mandate that was as broad as his own. The CEO is the lynchpin of the G-3. With his or her strong leadership and support, a G-3 is the best way to ensure that the value of talent is represented in every major decision.

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Here is a direct link to the complete article.

Dominic Barton is the global managing partner of McKinsey & Company and is based in McKinsey’s London office. Dennis Carey is the vice chairman of Korn Ferry. Ram Charan is an author and an adviser to CEOs. This article is adapted from their book, Talent Wins: The New Playbook for Putting People First (Harvard Business Review Press, March 2018).

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