What Boards Can Do About Brain Drain

Not only are individual companies and industries battling for talent, but countries are, too. In the global competition for top talent, emigration of highly skilled workers —brain drain — can result in an especially pernicious drag on the source nations’ talent pools. Many countries are susceptible to flights of talent and experience its deleterious effects.

We wanted to take a deeper look at this phenomenon, so we chose a country that has been experiencing substantial losses of highly skilled talent for many decades: New Zealand. In fact, the Organization for Economic Cooperation and Development (OECD) estimates that almost a quarter (24.2%) of all New Zealanders with university-level educations have emigrated. Among OECD nations, only Ireland has suffered as much brain drain.

Consider how the talent exodus is playing out New Zealand: between 2012 and 2013, the country’s researcher headcount (per million of the population) dropped by almost 11% and its ranking in the Global Innovation Index dropped four slots. Given that innovation can be a highly influential driver of competitive advantage, how can New Zealand build or maintain any advantage while losing so many of its best and brightest?

As labor markets continue to open up and nations and the corporations they house chase ways to stem the talent drain and retain their skilled workers, we wanted to know how those at the highest level of industry — corporate directors — viewed the problem and what, if anything, they were doing about it.

Global Disconnect

In 2012, we surveyed (in partnership with WomenCorporateDirectors and Heidrick and Struggles) more than 1,000 board members in 59 countries including New Zealand. To facilitate a deeper dive into corporate governance in New Zealand, we administered the survey to a second wave of New Zealand directors between December 2012 and March 2013 to increase the sample size. We analyzed the data along several dimensions and for this analysis compared a breakout of New Zealand directors with their global counterparts.

Our analysis found that “attracting and retaining top talent” was their number one strategic concern as it was for directors across the globe.  “Innovation” and the “regulatory environment” were top concerns for both groups, but in what seems to be a strategic non sequitur New Zealand directors were substantially less concerned about global competitive threats than directors globally. We found this surprising given that brain drain leaves the flight country vulnerable to competitive threats.

Biggest Challenges Chart

One other difference of note: although risk management was somewhat more of a concern for New Zealand than global directors, a substantially smaller percentage of New Zealand board members (13% versus 29% globally) indicated that their companies had a Chief Risk Officer in place.

We also asked the directors to assess their companies’ performance on talent management by evaluating the following nine practices:

  • attracting top talent
  • hiring top talent
  • assessing talent
  • developing talent
  • rewarding talent
  • retaining talent
  • firing
  • aligning talent strategy with business strategy
  • leveraging diversity in company’s workforce

To gain advantage in the war for talent, companies should execute superbly on each of these dimensions, but when talent is fleeing outstanding execution is essential. Therefore, we were not interested in uncovering the percentage of directors who thought their companies were doing an adequate job but rather the number who could say their companies were doing a great job — those who “strongly agreed” their companies were performing each practice effectively.

Our analysis revealed very low scores for both New Zealand and global companies. In fact, not more than 20% in either group could say their companies were doing a great job on any one practice, and, further, the percentage of New Zealand directors who described their companies’ talent management as “great” was mired in the single digits for six out of the nine practices.

Although the New Zealand and global scores were similar for most practices, there were two with a noteworthy difference: retaining and rewarding talent. When we consider these differences within the context of the ongoing brain drain from New Zealand, they make sense. And although many factors influence the rate of talent flight, the lure of higher paying jobs and greater earning potential outside of the home country is a very important factor and has played a role in the emigration from New Zealand of its highly skilled workers.

Talent Management Chart

 Talent Trouble at the Board Level

In addition to uncovering a considerable deficit of outstanding talent management practice in New Zealand companies, our analysis also revealed that New Zealand boards are not doing a great job managing their own talent. Fifty-eight percent said they did not have an effective board succession planning process for directors, fully 60% said there were skills missing on their boards, 42% said their board did not have an effective means to address poorly performing directors, 25% could not say that all board members were well prepared for meetings, and only 35% agreed that their boards provided effective training for new directors

Board Practices Chart

Do Board Practices Work? Chart

We also discovered that, on average, New Zealand directors served on more boards during their careers, sat on more boards concurrently and served for longer periods than their global counterparts. Although more research is needed to better understand the factors influencing board service, these differences might suggest that, in addition to closed networks, New Zealand boards are drawing from a smaller talent pool because of brain drain, that is, many New Zealanders who would be qualified to be directors have left the country.

Board Service Chart

In order to keep their companies viable and competitive, our research revealed that corporate directors in New Zealand, like their global counterparts, were most concerned about attracting and retaining top talent. Yet, as our data made plain, directors said their companies were not doing a great job on retention. Although the global scores for executing well on retention were very low (17%), they did not even reach double digits in New Zealand (8%), a country blighted by talent flight.

If one of the keys to successful hiring is successful retention, the key to implementing great hiring and retention practices is great corporate governance. But it is unlikely boards will be able to improve their companies’ talent management practices until they fix their own. As our analysis uncovered, boards need to improve many of their key talent practices, e.g., succession planning, identifying and appointing directors with the skills their boards need, effectively onboarding and training new directors, and managing board dynamics.

Change starts at the top and boards need to be the exemplars for their organizations by providing leadership, stability and effectively executing their own talent management practices. It seems that some boards may, unfortunately, not be offering solutions within the realm of their gigantic talent management problems, but rather, contributing to them.

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Methodology

We surveyed more than 1,000 board members in 59 countries. Groysberg and Bell administered the survey to a second wave of New Zealand directors between December 2012 and March 2013. We analyzed the data along several dimensions including geography and specifically for this analysis we did a New Zealand and Global breakout.

Talent and the New World of Hiring
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