April 2014

Executive viewpoint

Changing times call for new leadership in oil and gas
Frank R. Lloyd, PhD., / Cox School of Business


The energy industry continues to face global challenges that require new skill levels for effective leadership. Key challenges are unprecedented leadership turnover, the increased significance of the service sector, ongoing industry consolidation, and persistent demands for socially responsible leadership.

The industry’s aptly named “great crew change” comes at a time when many firms lack sufficient younger talent to backfill, due to the inability to recruit over the past 20 to 25 years. The management model has been described as a “barbell” with a bulge at one end of the bar representing new hires, and, at the other end, a similar bulge of retirement-eligible baby boomers. The challenge is to accelerate younger workers into new levels of leadership.

The service sector is gaining increased importance within the industry. Service firms represent the bulk of R&D spending. Service firms also represent the bulk of industry hiring, adding jobs at three times the rate of E&P firms.

Financial markets understate the value of many energy company stocks, paving the way for continued consolidation that requires more sophisticated levels of financial and organizational leadership.

Words and actions of opinion leaders in media, government, academia, and even business, continue to imply that the industry is focused solely on profits for shareholders. Accounts of high-profile news events, such as the deadly oil train derailment in Quebec, indict the industry along with the individual operator’s approach to managing safety and risk. Journalists and politicians mute their enthusiasm over the shale revolution’s impact on jobs and energy security by questioning the effects of transforming densely settled areas into “heavy industrial sites.”

Energy executives, worldwide, have expressed concern about the impact of these negative industry perceptions on efforts to accelerate talent development among their ranks, and to attract and recruit younger workers. A Nigerian professional’s comments while attending an SMU seminar illustrate this trend: “It is a privilege to be in a higher institution of learning. My learning here will help me grow in my company role, and give me the knowledge to find and develop new and younger workers.”

To address these trends, leadership development must go beyond typical approaches. Traditionally, leadership development has focused on understanding oneself, leading groups and leading organizations. The new level of leadership does not displace these skills; it adds to them. General business knowledge must be distributed throughout the organization. New leadership skills take professionals outside their organizations. Founded on purpose, ethics, and value for multiple stakeholders, this added leadership dimension requires an expanded set of competencies to express the organization’s larger purpose, social legitimacy and ethical responsibility.

Firms are taking new approaches to the methods they use to develop and deliver training, including the items below.

Professionalizing learning and development. Many firms are bringing in learning and development experts with sophisticated educational backgrounds and strong corporate or consulting experience outside the industry. One mid-major E&P firm that SMU Cox has worked with for many years recently hired an experienced outside consultant to lead its learning function. Another SMU Cox client, a major player in shale gas production, constructed a new training center at its headquarters and brought in an outsider with a PhD in organizational development to lead its learning and development organization.

Learning from the industry. The industry is exercising its long-time preference to learn from itself as never before. Industry experts must serve as credible instructors to orient, develop and align new talent, particularly when more people are sourced from outside the industry. Spectra Energy, one of SMU’s mid-stream clients, was recognized by Chief Learning Officer magazine as one of 2012’s “Learning Elite.” This firm’s elite practice was senior executives’ participation in its leadership program’s capstone and project reviews. The company’s leaders also serve as part of a facilitation team. Such innovative practices are selected for balancing priorities, increasing efficiency, and contributing to their organization and industry in ways that enrich the learning industry.

Building strong partnerships with universities to advance high-potential leaders quickly and effectively. Spectra Energy worked with SMU Cox to implement its leadership development program. The goals were to retain good people, identify high potentials for succession planning, and create management bench strength to support promotion from within. A high priority was to spread a new language of leadership throughout the organization. The new leadership model included competencies that spanned all dimensions of leadership: developing direct reports, interpersonal savvy, conflict management, team building and managerial courage.

The firm realized significant long-term benefits. Most participants were promoted to more senior roles or were given expanded responsibilities. Decision-making became faster and more efficient.

By taking actions like these today, firms are equipping new energy leaders to navigate the uncharted global landscape of tomorrow. These leaders will possess the business acumen to make decisions, based on sophisticated financial knowledge and risk analysis. They also will be able to counter perceptions of the industry as focused solely on profits for shareholders. They will recognize the interests and welfare of other stakeholders: employees, suppliers, customers and the communities in which they operate. This new breed of leader will retain and attract the best talent into the industry. wo-box_blue.gif

About the Authors
Frank R. Lloyd, PhD.,
Cox School of Business
Frank R. Lloyd, PhD., is associate dean of Executive Education for SMU’s Cox School of Business. He joined SMU’s Cox School from Thunderbird School of Global Management, where he most recently served as vice president of Executive Education.
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