Filling the talent pipeline A challenge for the …...Filling the talent pipeline A challenge for the Mexican energy industry R509106 - rr-0068 - Mexico Paper - Filling the Talent

Filling the talent pipeline

A challenge for the Mexican energy industry

R509106 - rr-0068 - Mexico Paper - Filling the Talent Pipeline - DRAFT 08.indd 1 30/09/2015 18:23

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Executive summaryThe Mexican government is in the process of opening the country’s long-closed energy markets to private investment, including oil and gas exploration and production, electricity, midstream, downstream and the retailing of fuels. For more than 75 years, the sector has been dominated by two government entities—Petróleos Mexicanos, or Pemex, in oil and gas and the Comisión Federal de Electricidad (CFE) in electricity. Companies investing in Mexico will face a number of important challenges, including depressed oil prices, lack of or aging infrastructure, complicated profit-sharing contract structures, security concerns and the rarely mentioned talent shortage.

Companies attempting energy operations in Mexico are confronted with the difficult tasks of finding, hiring and retaining appropriate executive talent. With only two large companies dominating the sector and a handful of private service companies actively participating, Mexico’s market for world-class talent in energy is limited. Furthermore, the very active and booming manufacturing industry in Mexico has a multi-decade lead over the energy sector in talent recruitment and development.

Russell Reynolds Associates recently conducted an in-depth talent analysis of the Mexican energy industry. We focused on analyzing the profiles of energy chief executive officers (CEO) and chief operating officers (COO) from both Mexican and comparable U.S. companies. We found that these executives, in general, had significantly less experience than their U.S. counterparts, with much of that time spent within the rigid corporate culture of the Mexican state-owned entities. Many of these executives represent promotions from within, limiting their breadth of experience.

We also found, perhaps not surprisingly, that Mexican energy executives at the C-level are not diverse, being 100 percent male. However, they do tend to have a wide breadth of educational and functional expertise relative to energy executives in the United States.

To tackle the expected shortage of leadership talent, we recommend five key actions for companies wishing to enter the energy sector in Mexico.

ThE MExicAn EnErgy MArkET: opEning for businEssThe Mexican government has embarked on an aggressive process to open the energy sector. In doing so, it hopes to create competition, improve the quality of service and strengthen the country’s finances. However, the government faces a number of issues as it attempts to reform the sector, including the need to understand today’s complex oil market dynamics and to react appropriately. It also will have to modernize its Pemex and CFE energy businesses, establish competitive contracts and rules, and encourage the buildout of the necessary transportation and storage infrastructure to carry the industry into the future.

Go hunting in Mexico and use training to fill gaps

Be flexible and bold in taking calculated risks on diverse individuals

Import talent selectively by bringing in executives from other geographies

Look inward and coach and incentivize existing talent

Start early to identify executive talent


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New companies:

The search for talentDespite the challenges for government reform, a number of companies are preparing to invest in the Mexican energy industry. Many are divisions or branches of foreign energy companies, while others are consortiums of these companies supported by private investors. All of the largest oil companies in the world have shown an interest, whether individually or in partnership, and a number of wealthy Mexican nationals are preparing to invest.

These companies and investors face the daunting tasks of finding and hiring appropriate executive talent to fill their top roles. The number of senior energy professionals with experience at the highest levels is limited, primarily due to Mexico’s energy sector concentration in just two companies. The cluster of organizations expected to compete and innovate in an open energy sector is not to be found. The select number of companies outside the two monopolies typically represents a niche innovator or an entity in a symbiotic relationship with Pemex or the CFE. These companies, however, are far smaller than the two energy giants (Exhibit 1).

Adding to the shortage, Pemex and the CFE have a significant number of executives nearing retirement age, with few professionals being groomed for the top positions. In fact, we found that the two industry leaders have generally underinvested in talent over the years, as they felt little pressure to innovate or expand.

For foreign energy companies, transferring leaders from the head office will help at first, but these organizations will optimally want to appoint executives with experience in Mexico or in other regions of Latin America. They will want to find Spanish speakers, those with a deep background in the energy sector and those who know how to bring about the success of a startup operation.

Companies naturally will have the option of hiring executives from outside the industry and training them. However, this path will be complicated—especially at the mid and younger levels—by the current renaissance being enjoyed in the broad manufacturing sector in Mexico and, in particular, in automotive and aerospace. We see this trend in manufacturing continuing due to lower commodity prices, improved economic conditions in the United States and a recent devaluation of the Mexican currency (Exhibit 2).

Exhibit 1ThErE is A liMiTEd pool of sEnior ExEcuTivEs wiTh ExpEriEncE in MAnAging lArgE EnErgy coMpAniEs in MExicoMExicAn EnErgy coMpAny rEvEnuE1 2014

1 Approximate numbers2 Sempra Mexico, Iberdrola Mexico,

Weatherford Mexico and Noble MexicoSource: Annual reports

US$99B

US$4B

US$26B

The next four largest

companiesin total2

CFEPemex

Exhibit 2EnErgy coMpAniEs will fAcE significAnT coMpETiTion froM rElATEd indusTriEs in hiring Top TAlEnTEMployEEs AffiliATEd wiTh MExicAn sociAl sEcuriTy insTiTuTEExcludes government employees, Pemex and the CFE

Source: Mexican Social Security Institute, 2013

107.9K 137.2K

4.8M

132.9K 151.2K

Water andelectricity

Extraction (mining and oil and gas)

Manufacturing

3.6M

20142009

Compound annual growth rateShare of total employees

28.0% 0.8% 0.9%

5.6%

4.9% 4.9%


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Survey findings:

More experience and diversity Given the current situation, gathering the breadth and depth of executive leadership talent required in Mexico to compete in the global market may be difficult. Russell Reynolds Associates recently conducted an analysis of the profiles of 55 senior energy executives—29 CEOs and 26 COOs—from 15 Mexican and 20 comparable U.S. energy companies. Our analysis explored the dynamics of these executives’ appointment to their current role and the leadership experiences of each individual across the course of his career.

Experience required

As we looked at the profiles of existing CEOs and COOs in Mexico, we found that nearly 40 percent have less tenure in their given executive role than their U.S. counterparts, with an average of just 2.8 years, indicating that Mexico’s executives may be less experienced in the sector and role than those in the United States (Exhibit 3). In addition, this experience tends to have taken place in state-owned entities with a relatively rigid corporate culture. We also note the majority have been in shallow-water operations, transportation or refining, while executives with deepwater operations experience are not readily available in Mexico.

At the same time, we found that what Mexican energy executives lack in direct industry experience often make up for in education, as Mexican executives typically are better educated than those in the United States (Exhibit 4). In addition, Mexican energy companies currently bridge top-level talent gaps by hiring executives from industries such as banking and management consulting (Exhibit 5). These findings indicate that the necessary executive talent may be available in the country but require coaching and mentoring from senior leaders within the business to provide specific energy industry expertise.

Exhibit 3MExicAn EnErgy ExEcuTivEs hAvE A shorTEr TEnurE in ThEir rolE ThAn ThEir u.s. counTErpArTsAvErAgE nuMbEr of yEArs in rolE

Exhibit 4ovErAll, MExicAn EnErgy ExEcuTivEs ArE highEr EducATEd ThAn ThEir u.s. counTErpArTsMExicAn EnErgy ExEcuTivEs

u.s. EnErgy ExEcuTivEs

Exhibit 5ouTsidE-indusTry ExpEriEncE of MExicAn EnErgy ExEcuTivEs is prEdoMinAnTly froM ThE bAnking indusTry

Mexican executives American executives

2.84.5

17%

26%

31%

22%

4%

Ph.D.

Master's and M.B.A.

M.B.A.

Master's

Bachelor’s only

63%22%

15%

M.B.A.

Master's

Bachelor’s only

Consulting and other professional services

43%

29%

14%

Transportation and logistics

Mining

Banking

14%


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diversity gapInterestingly, our analysis also indicates that the Mexican energy sector has a broad diversity gap at the executive level. We found that 100 percent of the senior energy executives we analyzed are male and 72 percent are Mexican (Exhibit 6). A high percentage of the engineering and science graduates in Mexico are women; we, therefore, believe that not enough effort is being made to develop or retain them by today’s energy businesses. We concede there is some diversity in the energy sector by nationality, as 23 percent are U.S. nationals and 5 percent are Spanish. However, all of these foreign nationals have been brought into the country by international companies doing business in Mexico, often under contract to Pemex or the CFE.

In addition, we found the vast majority of Mexican energy executives have been promoted from within, with only 29 percent hired from outside industries—although higher than the 17 percent found in the United States—limiting their diversity of experience and breadth of knowledge (Exhibit 7). And this lack of internal diversity is only getting worse, as all executive appointments made within the last two years have been internal.

These additional findings reinforce our belief that it will not be easy for companies entering the market to find the breadth and depth of executive leadership needed to compete globally and understand state-of-the-art energy technologies, helping to build a nascent sector from the ground up. While the current industry slowdown will affect the number of companies interested in stepping into the sector based on conditions today, we believe even a small increase in demand will meet with difficulties in finding appropriate talent. And when a number of newly created energy companies eventually begin to participate in the market, we anticipate a significant shortage. Should economic conditions improve substantially, this deficit could escalate into a full-scale war for talent.

Exhibit 6All AnAlyzEd ExEcuTivEs ArE MAlE, And ThE MAjoriTy of sEnior EnErgy ExEcuTivEs in MExico ArE MExicAn

Exhibit 7MExicAn EnErgy ExEcuTivEs hAvE MorE ExpEriEncE froM ouTsidE ThE indusTry ThAn ThEir u.s. counTErpArTsMExicAn EnErgy ExEcuTivEs

u.s. EnErgy ExEcuTivEs

72%

23%

5%

Spanish

American

Mexican

100% 0%

71%

29% Other industries

Energy industry only

83%

17%Other industries

Energy industry only


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overcoming the talent challengeWith a pending gap in the number of experienced energy executives available for hire, new companies entering the dynamic Mexican energy sector, and those already operating there, will need to be both analytical and creative. They will have to expand their executive ranks and look for leaders who can drive results, find innovative solutions to overcoming roadblocks—of which there will be many—and take the calculated risks required to conquer those obstacles.

what to look forBased on Russell Reynolds Associates’ work in analogous situations, we believe there are certain experiences and competencies these companies should look for—and attempt to develop—as they pinpoint executives to fill current and future senior roles. As this occurs, we also recommend a comprehensive evaluation of any given individual’s competencies, experiences and achievements, as well as a careful assessment of their cultural fit within the company. A clear understanding of capabilities and fit will improve each individual’s ability to influence and bring about change, ultimately contributing to the success of the entire organization.

how to stay aheadWe recommend that companies remain open to all possibilities, looking beyond the leading energy companies for executive skills and experience. In addition, the lack of diversity at the highest levels of the energy sector in Mexico tells us that businesses need to recruit “outside the box,” including tapping into the large potential talent pool of female professionals. Not only will these executives bring the same skills as men from outside the sector, they will bring a diversity of perspectives and insights that could only benefit an industry—and a country—in transition.

Finally, we recommend companies take the following five actions to stay ahead of the competition:

1. Start early. Quickly identify executive talent. If necessary, bring professionals on board before you actually need them in order to groom them for their role.

2. Look inward. Executives who already are on your team may have less depth of experience in energy but strong executive competencies. Take advantage of the resources you have on hand, offering comprehensive coaching, mentorship, incentives and promotions.

3. Import talent selectively. Bring in executives from other geographies, especially those who speak Spanish, bring valuable expertise, and/or have the ability to train and develop your local team.

4. Be flexible and bold. Take calculated risks on diverse individuals and talent from other industries such as automotive and aerospace, looking for the desired competencies from a leadership perspective. Work from the ground up to train executives who speak Spanish and have other relevant experience.

5. Go hunting. Poach executives from existing energy businesses in Mexico and train them in order to fill any gaps in skills or groom them for the private sector.

We suggest hiring executives in the newly opened energy market who have the following experience:

ɳ Worked in engineering, infrastructure or manufacturing

ɳ Gained direct experience in emerging markets

ɳ Led or managed complex infrastructure projects

ɳ Worked with the Mexican government ɳ Worked in a startup or entrepreneurial

venture

We suggest looking for the following key competencies in energy executives:

ɳ Resilience ɳ Creativity ɳ Negotiation skills

ɳ Team-building skills ɳ Entrepreneurship ɳ Networking ability

ɳ Results-oriented personality ɳ Business acumen ɳ Cultural sophistication


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© Copyright 2015, Russell Reynolds Associates. All rights reserved.

Russell Reynolds Associates is a global leader in assessment, recruitment and succession planning for boards of directors, chief executive officers and key roles within the C-suite. With more than 370 consultants in 46 offices around the world, we work closely with public, private and nonprofit organizations across all industries and regions. We help our clients build teams of transformational leaders who can meet today’s challenges and anticipate the digital, economic, environmental and political trends that are reshaping the global business environment. Find out more at www.russellreynolds.com. Follow us on Twitter: @RRAonLeadership.

globAl officEs

Americas

ɳ Atlanta ɳ Boston ɳ Buenos Aires ɳ Calgary ɳ Chicago ɳ Dallas ɳ Houston ɳ Los Angeles ɳ Mexico City ɳ Minneapolis/

St. Paul

ɳ Montreal ɳ New York ɳ Palo Alto ɳ San Francisco ɳ São Paulo ɳ Stamford ɳ Toronto ɳ Washington, D.C.

EMEA

ɳ Amsterdam ɳ Barcelona ɳ Brussels ɳ Copenhagen ɳ Dubai ɳ Frankfurt ɳ Hamburg ɳ Helsinki ɳ Istanbul ɳ London

ɳ Madrid ɳ Milan ɳ Munich ɳ Oslo ɳ Paris ɳ Stockholm ɳ Warsaw ɳ Zurich

Asia/pacific

ɳ Beijing ɳ Hong Kong ɳ Melbourne ɳ Mumbai ɳ New Delhi ɳ Seoul ɳ Shanghai ɳ Singapore ɳ Sydney ɳ Tokyo

AuThorsjAiME pAdillA is a member of the firm’s industrial and Natural Resources Practice. Jaime is based in Mexico City.

jorgE goMAr is a member of the firm’s industrial and Natural Resources Practice. Jorge is based in Dallas.

susAnnE suhonEn is Global Knowledge Leader of the firm’s industrial and Natural Resources Sector and is based in London.

EunicE bii is a Knowledge Associate within the industrial and Natural Resources Sector and is based in New York.


RussellReynolds.com


Documents

Filling the talent pipeline A challenge for the …...Filling the talent pipeline A challenge for the Mexican energy industry R509106 - rr-0068 - Mexico Paper - Filling the Talent