How are regulators influencing hiring?

How are regulators influencing hiring?

Executive Grapevine
Executive Grapevine | Executive Grapevine International Ltd


Per Ardua Associates consider some of the key concerns and implications for Financial Services that result from the growing link between regulation and attracting talent.

Q
Will the increase in regulation have an impact on the supply of high quality senior executives and non-executives to Financial Services firms?

In a word, yes. Direct experience tells us that senior individuals are becoming much more cautious and discerning. For some, the traditional progression from executive to non-executive is now less obvious. They are much more focused on the personal risk and, in some cases, on the massively increased time commitment. There may also be others, particularly those who have created financial independence for themselves, for whom the opportunity/cost and risk/reward of being a non-executive director in Financial Services no longer adds up; these people may well look elsewhere for their directorships.

Q
Is it simply the growing personal risk from regulation which will influence a firm’s ability to attract top talent?

It is more complicated than that. On the Board side, there is a growing supply and demand imbalance as well. Not only is regulation keeping some people away from the Board table on the one hand, it is also requiring an increasing number of entities – often subsidiaries – to appoint additional independent directors on the other. At the same time, the time requirement for a Financial Services board has increased significantly, meaning that those who do want to sit on Boards may hold fewer directorships. Furthermore, there is growing competition for senior talent from other parts of the industry such as private equity and, increasingly, FinTech. Although still minimal today, there is some evidence that senior Financial Services executives are being attracted out of the sector as well. While the financial reward can be less, the lure of an opportunity to be creative, innovative and impactful in a more lightly regulated industry should not be underestimated in the future.

Q
To what extent is the regulatory impact on reward affecting hiring?

The effect of regulation on reward is obviously far-reaching – and too complex to explore here. There is every suggestion though that these changes will impact hiring at senior levels right across Financial Services. In a recent survey conducted by Per Ardua Associates of Chairmen and Chief Executives, one Chairman commented that “a lot of pay will be deferred for five years. It will have a huge impact both for executives and the Board”. In the long term the risk will die out as the next generation accept the new rules as normal. In the coming years, however, the impact will be very real.

Q
Is there a danger of regulation stifling creative hiring?

There is a very great danger that the regulatory requirements around any designated function will mean that innovative or lateral appointments are sometimes far harder (or impossible) to drive through. Equally on the non-executive side, particular skills and experience around, for example, risk, audit or finance, will be essential to pass the regulatory hurdle and, increasingly, client or (activist) shareholder due diligence. This can potentially stifle creative input at the strategic level. As well as making creative hiring more difficult, it is also in many cases likely to mean that senior leadership roles become ever more about governance, documentation and reporting than they do about driving growth or change or innovation. In other words there is a very real risk that the appeal of many senior roles in Financial Services diminishes as they become less ‘fun’.

Q
Are firms having to make changes in the type of skills and capabilities in their HR departments in order to cope?

Many businesses will have to consider whether there is sufficient dexterity in HR to support and drive a culture that is compliant and yet still appealing to the best talent. In any event, the link between HR and other areas such as compliance will need to be strengthened. Good HR Directors will increasingly be elevated to the Group Executive Committee and will be looked to for thought leadership around some of these issues as a result. Another development will be where Boards are particularly sensitive to risks around remuneration or the difficulties of ensuring that they are compliant with SMR; in this scenario we expect to see more senior lawyers being appointed to the HR Director role.

Q
Is diversity an important part of this debate?

It is a critical part of the debate, and yet there is still too little genuine progress being made. Whilst not yet enshrined in regulation in the UK, other parts of the world have taken a much more direct approach (consider Germany’s Equal Participation Act for example) and we should be clear that although no formal regulation is yet in place, the industry needs to take a better lead. Chief Executives and HR Directors should be looking to their trusted executive search partners for genuinely innovative solutions to help them create a well-balanced, diverse business. Quotas on shortlists may have a place, but more dynamic, longer-term solutions should be sought. We have completed two major female talent acquisition exercises for global clients; there should be more of this.

Q
Are there positives to come out of these changes in the context of hiring and talent?

Absolutely there are, but it is the people caught in the transition period who will find it the most difficult. A growing focus on retaining existing talent and managing careers more effectively internally is emerging, and new reward structures are being designed with a closer link between success for the client and an individual’s own compensation.

Secondly, the regulatory aim of forcing businesses to focus their approach much more around the interests of the customer is a good thing, and is having an impact on how potential new recruits are assessed. There is a far greater focus on culture now, and a great deal of effort to examine how individuals think about creating a culture in their own teams that will focus on and benefit the customer. Equally, if it is true that the interests of the customer are best served by ensuring that the culture of a business is genuinely aligned with and protective of the customer’s best interests, then this emerging approach to talent should mean that people who do not feel able to subscribe to this new normal may have to migrate elsewhere.

Q
What should Executive Search firms be doing to support their clients in this new environment?

The ability to search effectively for, and acquire, new talent in this regulatory environment becomes more important than ever. Executive search firms need to have excellent knowledge of the regulators and to understand what requirements and concerns they may have in the context of a particular type of role, or in a specific situation. Fostering the right relationships, taking the time to invest in a proper understanding of evolving regulation and strengthening their position as a trusted advisor must all be seen as part and parcel of operating at the top level. There should also be an increased onus on search firms to conduct deeper and more thoughtful candidate due diligence than ever before. This has become the era of the high end specialist search firm. The added value is in that specialist knowledge and understanding.

Q
Are Chairmen, Chief Executives and their Boards sufficiently aware of this emerging risk to their business?

They are indeed. Our recent survey showed that 63% felt that SMR would either definitely or probably deter people from seeking top Financial Services jobs. It is clearly identified as an emerging risk to the business for many firms, and will require very serious thought and planning to avoid becoming a real issue in the long term.

Conclusion

The landscape is changing too quickly to expect companies to have a complete understanding of, or a definitive solution to, the question of how to ensure you can attract the best talent into the right roles and still keep people motivated and feeling appropriately rewarded. Most firms can, however, position themselves to evolve their hiring to keep ahead of regulation – the good news is that the right talent is out there to meet those needs.

About Per Ardua

Per Ardua Associates Limited is a UK-based executive search firm focused on Board and Senior Executive opportunities in financial services. The company started in May 2008. There are seven practices: insurance; asset management; consumer financial services; corporate officers, HR, FS Real Estate and the Board practice. The Company has global coverage through its membership of IIC Partners, an international network of boutique firms.

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