Category Archives: succession planning

CEO Turnover vs. CEO Tenure: Two Takes

Interesting, somewhat divergent reports on CEO longevity appeared recently from some big-name research consultancies. 178083845--CEOsuccessionOne, a study from Equilar compiled for CNNMoney, shows tenure for S&P 500 CEOs has increased nearly a full year since 2005. As the CNN report states,

A decade ago, CEOs typically spent five years at the helm of one of America’s top 500 publicly traded companies. It might seem like a small increase, but it’s a notable shift from the Great Recession and financial crisis when a lot of executives got fired. Those who survived — or came on board in the new wave — are keeping their posts.

In fact, more specifically, according to Equilar’s report on the study it performed, “in 2014, the average S&P 500 CEO had served an average of 7.4 years, and 6.0 at the median. Ten years ago, those figures were 6.6 and 5.2, respectively.”

Equilar claims there’s “one simple explanation” for the rising average: a collection of long-standing CEOs at the top of the list, people like Berkshire Hathaway’s Warren Buffett, who’s held his post for 45 years, and L Brands’ Leslie Wexner, who sits at the top of the list with 52 years at his company. As soon as these top guns start to retire, you’ll see the average tenures start to fall, says Equilar.

But for now, they’re a full year higher than they were a decade ago.

Juxtapose that with the latest report from Challenger Gray & Christmas, as reported in the Center Valley Business Times — showing a jump in CEO departures toward the end of 2015. Specifically, December CEO exits were 33 percent higher than the 86 changes in November and 7 percent higher than the 107 CEO departures in December 2014.

(Despite the December surge, though, the yearly total of 1,221 CEO departures in 2015 was 9 percent lower than the 1,341 departures in 2014, according to the Challenger report.)

So are CEOs staying or going? Hard to say.

But whatever the numbers tell us, this post can also serve as a reminder that it’s never too early to put your best foot forward in devising the best CEO-succession plan for your organization. This post by me almost two years ago suggested then there was still much improvement needed in this area. (That March 2014 post also shows a decline in CEO turnover at the start of that year.)

At least we can say, with CEO turnover holding fairly steady and tenure on the rise, there’s some time, at least, to get succession at the top post right.

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Leadership Development Needs Sponsorship at Top

There has certainly been no dearth of studies and stories, both here at HRE and beyond, on the challenges and failings of leadership-82821233 -- business leaderdevelopment programs. Here, for instance, is our last look at this problem that Staff Writer Mark McGraw wrote about on Nov. 30.

In that piece, sources told McGraw a major stumbling block keeping most leadership-development initiatives from succeeding is the tendency for line leaders to hand the LD reins over to human resources without taking responsibility for the huge role they, themselves, play in steering those initiatives.

As Debbie Lovich, head of the Boston Consulting Group’s  Leadership and Talent Enablement Center in Boston, says in that story:

“As soon as [those reins are handed over, talent issues are] disconnected from the business. You see it happen when line leaders are developing plans for their businesses, and ownership for anything to do with talent goes to HR. … [T]he best-in-class companies don’t just throw it over the fence to HR.”

Now, the latest global study on this issue by Los Angeles-based Korn Ferry suggests the inherent problems with leadership development have less to do with who’s taking responsibility and more to do with who’s sponsoring the effort.

The study, Real World Leadership, which polled more than 7,500 executives from 107 countries, found a “lack of executive sponsorship” to be the chief barrier. Survey respondents not only indicated there was a general lack of active sponsorship, buy-in and support from the top, but they expressed disappointment in the programs altogether, with 55 percent of respondents ranking their return on such efforts as only “fair” to “very poor.”

“Executives have identified the crux of the problem,” says Noah Rabinowitz, a Korn Ferry senior partner and global head of leadership development. “The next step is to identify practical steps to create a solution.

“Given the central role leadership plays in the success of any organization,” he adds, “the view of leadership development has to shift from a ‘nice-to-have’ to a ‘must-have’ business process, as integral as the supply chain, marketing or IT.”

Dési Kimmins, Korn Ferry’s principal consultant, had some very specific and practical advice for HR leaders seeking executive buy-in for leadership development:

“The first step … is to start with strategic business needs. Executives must examine what challenges the organization currently faces, where the business is going and the leadership profile that will help the company get where it needs to go. This process starts with the C-suite, and must sustain that level of endorsement and sponsorship to be successful. The most senior leaders need to engage in the development strategy and insist the impact is regularly measured and reported.

“People assume that development happens naturally, but that’s not necessarily the case. A CEO, for example, not only has to run a business but also [has to] deal with a large number of external stakeholders, such as shareholders, the board of directors, business partners and even the media …  . That’s why stepping into the CEO role is sometimes described as a career change, not just another step on the career ladder. Development and feedback even at this level are essential when so much is at stake.”

Even more specifically, the report lists tips for increasing the effectiveness of leadership development and creating a robust and sustainable leadership pipeline:

  • Embed leadership development in the culture and strategy, ensuring it is consistently sponsored by top executives.

  • Embrace the idea that leadership development is a continuous process and not just made up of one-time classes or one-off events.

  • Make leadership development more relevant and engaging by focusing programs on the organization’s current strategies and business issues.

  • Roll out relevant and appropriate development for all levels in the organization, including senior-most executives and the C-suite.

  • Don’t cut back on investing in leadership development when times get tough. That is the time to double down on efforts.

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BJ’s Gets Boost to Promote from Within

Jeannine Loy, director of talent development at BJ’s Restaurants, took the podium Monday at the 18th Annual HR Technology Conference and Exposition® to tell her story of the Huntington ThinkstockPhotos-479406580Beach, Calif.-based restaurant chain’s mission to maintain a culture of promoting from within, no matter what.

Paired with Kirsten Helvey, senior vice president of client success at Cornerstone OnDemand, it was a story of retooling and rebooting several years ago — with Cornerstone’s help, of course — to ensure such a commitment to internal promotions could support and sustain a trajectory of growth that’s gone from a small one-room pizzeria in Santa Ana, Calif., in 1978 to 159 restaurants across the United States today.

“I’m really proud we’ve been able to promote this culture,” Loy told listeners at the session, titled Driving Talent Retention With Succession and Internal Mobility at BJ’s Restaurants. “We even call our corporate office the ‘Restaurant Career Center.’ We take team members’ individual success and growth very seriously.

“We want everyone to learn and improve and develop who they want to be, and how they want to get there, for their careers, not just for BJ’s,” she said. “A lot of people at BJ’s in management and senior management started as hourly workers. This is the story we’re especially proud of.”

The problem was, several years ago, the company was still handling the tracking of employees very manually, with Excel spreadsheets, for the most part. Managers couldn’t get real-time access to data on their employees fast enough to make the decisions they had to make to send worthy candidates up the ladder and “back-fill” the old positions, Loy said.

Now, using Cornerstone’s learning, connecting, performance and succession systems, the company has enabled managers — and managers’ managers — to see, in real time, who should be next in line; how much each and every team member has completed in necessary compliance, and learning and development work; what their career preferences are; who’s a low performer with high potential; and who’s a flight risk.

“We have talent visibility at each level for every position now,” Loy said. “You have no idea how much this has boosted our engagement numbers as well. People now know their successes are visible to top leadership. That is huge.”

And instead of being behind the eight-ball, she added, “we already have people in mind for succession and for back-filling those positions left vacant into Q3 and Q4 of next year.”

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Tapping an HR Exec for That Top Job

Some of you may recall that back in June we published a cover story titled “Could You Be the Next CEO?” It was based, in part, on an article appearing in the Harvard Business Review under the headline, “Why Chief Human Resource Officers Make Great CEOs.” (University of Michigan’s Ross School of Business Professor Dave Ulrich and Korn Ferry Senior Client Partner Ellie Filler authored the piece based on study they conducted.)

ThinkstockPhotos-462411043Through their research, Ulrich and Filler discovered, to their surprise, that the traits of highly successful CHROs closely matched those of CEOs. As Ulrich explains in HRE’s cover story, “CEOs must have skills to meet financial, customer and operational requirements. The differentiator of effective CEOs in globally changing business conditions comes from their ability to manage organization issues around talent, leadership and culture.”

The story makes the point that the ideal corporate leader is one who understands the traditional guideposts of profit-and-loss statements, yet also knows how to get the most out of people—the skills that also define a best-in-class CHRO.

Both our cover story (written by Will Bunch) and the HBR piece obviously came to mind when I read earlier this week about Nintendo’s promotion of the firm’s chief HR officer Tatsumi Kimishima to president. Kimishima succeeds the late Satoru Iwata, who passed away on July 11 as a result of a bile duct tumor.

Analysts told the Wall Street Journal that Kimishima’s appointment “signals that Nintendo seeks continuity as it pursues a strategic shift begun by Iwata.” The piece quotes Tokai Tokyo Securities Co. Analyst Osamu Kamada, who notes that Kimishima has been “ ‘watching Iwata closely for a long time and therefore makes a safe choice to implement steps laid out by Mr. Iwata.’ ”

Yesterday, I asked Jason Hanold, managing director of the Evanston, Ill.-based executive search firm Hanold Associates, to share his thoughts on Kimishima’s selection.

Hanold speculated it probably has more to do with Kimishima’s relationships than the way the HR function might be viewed as Nintendo. “Often times,” he said, “the head of HR [at Japanese companies] is not a classic HR officer, but one who holds strong relationships with other senior members of the organization; who is given responsibility for HR and perhaps other aspects of the role. Therefore, while they think highly of the ‘head of HR,’ it doesn’t necessarily mean they think more highly of the HR function,” even though they apparently consider it a key functional rotation.

In the specific case of Nintendo, Hanold said, management clearly viewed HR as a key rotational assignment for executive development. “Tatsumi Kimishima was hired originally as a CFO, and then progressed through operational roles, only most recently in HR,” he explained adding that it was quite similar to Mary Barra at General Motors.

To be sure, Kimishima is going to have his work cut out for him as Nintendo’s new president.

As a recent article in Fortune noted, “[Nintendo’s] Wii U is in a distant third behind Sony’s PlayStation 4 and Microsoft’s Xbox One, and portable gamers who were previously willing to buy company devices, like the Game Boy or the Nintendo DS, have turned to smartphones and tablets.”

Guess time will tell whether Kimishima’s HR experience proves to be an asset as he attempts to move the organization forward. I’d like to think that would be the case.

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Do HR Leaders Have What It Takes?

This past Tuesday, I had a chance to hear Bill Conaty, HRE’s 2004 HR Executive of the Year, share his insights on how chief HR officers can be more effective leaders during the National Academy of Human Resources’ 13th CHRO Academy, held at the Yale Club in New York.

Bill Conaty, speaking in New York on Tuesday. (Photo by Robert Knowles)

Bill Conaty, speaking in New York on Tuesday. (Photo by Robert Knowles)

Conaty addressed his remarks to about 30 CHROs attending a dinner at the two-day, invitation-only event, which is held annually and specifically focuses on the needs of CHROs who are new to the job, have moved to a new employer or have a new CEO. As far as I know, there’s nothing comparable in the field today. (The faculty for CHRO Academy primarily consists of NAHR Fellows.)

A Distinguished Fellow in the NAHR, Conaty retired as senior vice president of HR at General Electric in 2007, but still remains quite active in the field and advises business leaders on a wide range of HR issues through his firm Conaty Consulting LLC.

In his talk, he touched on a number of important topics—but for purposes of this post, I’d like to specifically focus on his comments about what it takes to be a strong HR leader today. His list was based on the specs he had for his own job while at GE and reflected many of the qualities he was looking for in his own successor, though he was quick to point out that he didn’t necessarily fulfill each and every one of the items himself. Whether you’re new to the CHRO role or not, perhaps they might prove helpful in elevating your own game.

First on Conaty’s list: Ensuring that there’s a good fit between the CHRO, CEO and CFO posts. Conaty shared how CEO Jeff Immelt, one year, did something at GE that hadn’t been done before: He asked to take a close look at the CEO, CFO and HR leader in each GE business. “What he was looking for was styles and fits,” he said, “If you had a CEO who was a hammer, a CFO who was a hammer and an HR leader who was a hammer, employees had no chance.”

Stressing the importance of having the “right balance,” Conaty said the exercise resulted in “changing a couple people out.”

Also on Conaty’s list is being able to earn the trust and confidence of the entire senior leadership team. “I’ve heard a lot HR folks say ‘I have a phenomenal relationship with my CEO—I’m in,’ ” he said. “I’ll tell you how long you’re in for: about 18 months. And then you’re going to get sucker punched and you’ll never know where it came from. The CEO is going to say, ‘Bill, I love you but no one else does—so we’re going to need to wrap this game up.’”

As the CHRO, Conaty said, “you have to work the whole 360.”

Other qualities Conaty cited included being a “talent magnet,” a great assessor of talent, someone who is able to operate in a global marketplace, a clear thinker and a change leader.

CHROs, he said, also need to have the ability to think through business issues and a capacity for complex problem solving. “You’ll still get some of the easy treadmill ones,” he said, “but you’re probably also going to confront things you haven’t confronted before … .”

His list also includes attributes such as operational savvy, decisiveness and the courage to make the tough calls, along with the need to be a continuous learner. You don’t want a person in the role who says he or she’s “ ‘been there, done that. I’ve seen it all,’ ” he said. “I never saw it all in my 40 years at GE. It was always a new day.”

At the end of the day, Conaty said, your job is to take [issues] off the CEO’s desk, not add to the pile. Conaty said he made it a point to never add to CEO Jack Welch’s pile. (I’m assuming the same was true when Immelt took the reigns.) If an issue arose that he felt Welch needed to be aware of, he said, he would bring it to his attention, but then tell him that he would take care of it and, if he couldn’t, would then get back to him. If you follow this approach, Conaty said, you’ll be “a welcomed face when you stick your head through that door.”

And who wouldn’t want to be a welcomed face when he or she entered the CEO’s office, right?

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Sizing Up Succession Management

successionIt’s a fact of corporate life, and it happens all the time: executives leave companies, just like employees at every other level do.

In fact, we’ve seen two CEOs depart from large, high-profile organizations in just the past nine days.

On Jan. 28, the Oak Brook, Ill.-based McDonald’s Corp. announced that CEO Don Thompson would retire at the end of February. That news came just two days after Mattel Inc.’s Bryan Stockton resigned from that company’s top post.

Both of those organizations looked within their own walls to replace erstwhile chief executives. Chief Brand Officer Steve Easterbrook will take the reins at McDonald’s, while  longtime Mattel board member Christopher Sinclair was named the El Segundo, Calif.-based toymaker’s chairman and interim CEO.

Korn Ferry’s new Succession Matters report suggests that most executives favor such an approach to executive succession; one that relies more on “building” (developing from within) than “buying” (hiring from the outside) when sourcing leadership talent.

More specifically, the poll of 1,009 C-level respondents found most executives reckoning the right mix of “build” versus “buy” should be 2:1. Nevertheless, close to half of the survey’s respondents—from companies ranging in size from 500 to more than 50,000 employees—said their organizations depended more on outside hires to fill leadership positions.

And, looking more broadly at succession management, it seems many executives have issues with their companies’ efforts that go beyond where they’re looking for C-level talent.

Overall, just 36 percent of executives said they were “satisfied” or “very satisfied” with their company’s succession-management programs. Less than one-third (23 percent) reported having a solid pipeline of “ready now” candidates for leadership roles.

Part of the problem is that many succession-management programs “don’t go deep enough into an organization” in search of executive-caliber talent, says Jim Peters, lead for global succession management at Korn Ferry.

For example, the study finds 78 percent of executives saying their organization’s succession-management programs only include the title of “vice president” and above.

“I often say to CEOs: ‘There are several potential CEOs within your organization; you and many others at different levels in the leadership pipeline, with one being an individual contributor in Mumbai,’” says Peters. “[I ask these CEOs] ‘Do you know who she is? And if you know who she is, what would you do to ensure that she would have the skills and capabilities to lead the enterprise 15 or 20 years from now?’”

Building a “world-class” succession-management program requires integrating talent processes that make the whole “much greater than the sum of its parts,” adds RJ Heckman, president of Korn Ferry’s leadership and talent consulting business.

“Companies that do not have a ready supply of leaders leave talent processes separate and unintegrated,” says Heckman. “Recruiting is not related to performance, is not related to learning, is not related to succession … and lo and behold, you don’t have a ready slate of candidates when the proverbial emergency hits and you need candidates [for] senior positions.”

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CHRO = CEO?

Based on the results of a new study, you CHROs out there might want to start measuring the drapes in the CEO’s corner suite. The CHRO CEOUniversity of Michigan’s Dave Ulrich (whom we often feature as a source in our news and features) and Ellie Filler, a senior client partner in the Swiss office of executive-recruiter Korn Ferry, examined several sets of data pertaining to the C-suite and concluded that the executive whose traits were most similar to those of the CEO was the CHRO.

“This finding is very counter-intuitive — nobody would have predicted it,” Ulrich told the Harvard Business Review.

Based on their findings, Ulrich and Filler recommend that companies consider the CHRO when looking to fill the CEO position.

Of course, it shouldn’t be news to HRE readers that today’s CHROs are a far cry from the HR honchos of yore. Many report directly to the CEO, as Ulrich and Filler note. They often serve as the CEO’s key adviser and make frequent presentations to the board.

The data they examined to arrive at their conclusion included the salaries for CEO, COO, CFO, CMO and CIO. They wanted to determine the importance of the CHRO relative to other C-suite positions. They found that CHROs are the third-highest paid executives, second only to the CEO and COO, with an average base pay of $574,000. That’s 33-percent more than CMOs, the lowest-paid executives on the list.

Ulrich and Filler also studied proprietary assessments administered by Korn Ferry to C-suite candidates to uncover leadership traits. They examined scores on 14 aspects of leadership, grouped into three categories: leadership style, thinking style and emotional competency. They then assessed the prevalence of these traits among the different types of executives and compared the results.

Of course, not all CHROs would be good candidates for CEO, say Ulrich and Filler. Those who’ve spent their entire careers in HR, for example, probably won’t make it to the top. Instead, CHROs with well-rounded business experience, such as running a business division, have a much better chance of assuming the CEO mantle. They cite CEOs such as GM’s Mary Barra and Xerox’s Anne Mulcahy, who served from 2001 to 2009, as leaders who served stints overseeing HR.

In their white paper, Ulrich and Filler include testimony from CEOs who agree the CHRO could be a contender for their role.

“It’s almost impossible to achieve sustainable success without an outstanding CHRO,” Thomas Ebeling, former CEO of Novartis, told them. “[The CEO] should be a key sparring partner for a CEO on topics like talent development, team composition [and] managing culture.”

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Leadership-Development Spend Up Again

Figure I might finish off the week with some positive news received a couple of days ago from Bersin by Deloitte.

New research from the Oakland-based consulting organization shows that U.S. organizations boosted leadership spending 14 percent on average for the second consecutive year. That translates to an estimated $15.5 billion in 2013. (Smaller organizations enjoyed the largest increase.)

466169293As I write this, we’re putting the finishing touches on our annual “What’s Keeping HR Up at Night” survey that we’ll be sending out soon. And if the findings of 2014 survey are similar to last year’s or the year before that, leadership development will end up somewhere near the top of our list of issues HR leaders are most worried about (in 2013, it was the second-most-cited issue).

Well, if the Bersin study (Leadership Development Factbook 2014: Benchmarks and Trends in U.S. Leadership Development) is any indication, HR leaders are busy translating some of that worry into actual initiatives.

In addition to a 14 percent rise in spend, the research found employers are beefing up their staffs in the area of leadership development, with a 12 percent overall increase at U.S. organizations. It also found emerging leaders are getting a healthy dose of the funding, with 17 percent of leadership-development budgets going to high-potential professionals who have not yet reached an official managerial role.

On a more sober note, the study also revealed first-level managers were receiving the lowest per-person funding in leadership development. For example, within large organizations, these leaders each receive, on average, $2,600, or 34 percent less than emerging leaders and half the amount of mid-level leaders.

Considering the impact this level can have on engagement and performance, it would be nice to see this group get a bigger piece of the T&D pie.

Companies also continue to fall short when it comes to “priming the pump” as far as their leadership pipelines are concerned.

The research indicates that successors have been identified for just 10 percent of their first-level leaders and 19 percent of their mid-level leaders. The pipeline at higher levels also looks weak within these organizations, with successors identified for just 24 percent of senior-level positions and 36 percent of executive positions.

Further proof that companies still have a lot more work to do on this front.

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Paying CEOs to Find Their Replacements

successorWant to pave the way for the organization’s next leader and light a fire under your current chief executive in the process? Rewarding your CEO for helping to find and groom a successor may be one way to go.

A recent Wall Street Journal article calls this practice the “hottest corporate fad,” citing firms including Avnet Inc., Intel Corp. and Marriott International Inc. as examples of large companies offering incentives to chief executives for their efforts in ensuring a smooth transition when they eventually turn over the organization’s reins.

Motivated at least in part by “investors’ anxiety over rocky corner office transitions,” these and other companies have taken to linking CEO performance awards to succession planning, with 16 Fortune 1000 firms disclosing such links in their latest regulatory filings, the article notes.

At the Santa Clara, Calif.-based Intel, for instance, now-former CEO Paul Otellini has received $4 million in stock and cash since January 2013 for his part in bringing along Brian Krzanich, who took over Otellini’s old post in May of last year, according to the Journal. Otellini, who has already gotten $1 million in cash, can sell half of his $3 million worth of shares this May.

Other organizations are taking a slightly different tack. Phoenix-headquartered electronic component distributor Avnet is basing chief executive Richard Hamada’s next annual raise partly on his succession planning prowess. Promoted to CEO in July 2011, the 56-year-old Hamada told the Journal he “hopes to run Avnet for a total of eight to 10 years,” but noted that he now gives detailed succession updates at every board meeting.

Board members at Marriott International believe that “continuity of management is critical,” David Rodriguez, the Bethesda, Md.-based hotel chain’s CHRO, told WSJ.  As such, CEO Arne Sorenson’s ability to secure the board’s approval of his CEO transition agenda factored into the amount of his bonus in 2012, according to Rodriguez. He estimated that roughly 10 percent of the nearly $1.95 million bonus bestowed upon Sorenson reflected such individual achievements.

The Journal article may describe the practice as a fad, but, as directors become more involved in grooming future leaders, this type of reward system “will be commonplace in a decade,” Dennis Carey, vice chairman at Los Angeles-based Korn/Ferry International, told the paper.

In fact, the number of companies taking this approach is poised to triple in the next five years, according to Patrick McGurn, special counsel for proxy advisory firm Institutional Shareholder Services Inc.

Time will tell if that prediction is on the money, but McGurn makes a compelling—not to mention concise—argument for tying a CEO’s pay to his or her role in succession planning efforts.

“Nothing tends to focus CEOs’ attention,” he told the Journal, “like … good, swift kicks to their incentives.”

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An Eye to the Future

As I’m sure many of you are aware, HRE has published a fair share of stories on the need for HR leaders to pay closer attention to their own talent pipeline.

159252853In light of this, I’d like to once again call your attention to an initiative introduced by the National Academy of Human Resources a number of years ago aimed at raising future leaders in the profession: The NAHR Ram Charan HR Essay competition, which is now open to undergraduate and graduate students majoring in HR, industrial/labor relations or related fields.  In addition to the priceless prestige that goes with being selected a winner, award recipients also receive handsome cash prizes of $20,000, $10,000 and $5,000. The deadline for submissions is Aug. 1.

This year’s topic ….

Performance Management – A Very Real Issue for Employers and Employees.  Students are asked to identify a new way to measure and improve employee performance that is efficient, effective, and will be embraced by employees because they view it as a fair system that is helpful to them in their career.  The new process must be measurable for effectiveness, contributions to the success of the organization, and reassure management that the right people are being rewarded.”

If you know of anyone who might be interested in participating in this competition, please pass on the above link.

And if you’d like to get a sense of some of the original research and thinking that resulted from last year’s competition, check out the first, second and third place winning entries, submitted by Tiffany Scheff and Josie Trine of Cornell University’s ILR School; Joseph Redlitz of Rutgers University, and Indranil Dey of the Asian Institute of Management in the Philippines, respectively. Their topic: “How are electronic technology and social media affecting the employment relationship between employers and employees; and the roles, responsibilities and contributions of HR organizations?”

I suspect those of you who do will walk away feeling a bit better about the profession’s future.

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