Study Shows Need for New Oil and Gas Leader Mindset

After conducting a year-long analysis of energy industry leadership, the global executive search and consulting firm Heidrick & Struggles recently concluded that oil and gas leaders need to demonstrate a new mindset to help their organizations survive and thrive.

“The oil and gas industry demands a new kind of leader, creating a unique opportunity for progressive, agile, and innovative leadership,” Les Csorba, Houston-based partner with Heidrick & Struggles and a member of the firm’s Industrial and CEO and Board of Directors practices.

Csorba and fellow Heidrick & Struggles Partner Dave Pruner co-authored a paper based on surveys of energy leaders. Some of their key conclusions from the early 2021 surveys include:

• The top issues facing the industry over the next decade include:
  • capital discipline (72%)
  • energy transition (52%)
  • balance sheet flexibility (40%)
  • environmental, social, and governmental (ESG) compliance (39%
  • innovation and digitization (33%)
• 97% of leaders surveyed see the regulatory pendulum swinging more toward greater government intervention
• Two-thirds of leaders surveyed see the industry’s progress on diversity and inclusion (D&I) as “below expectations” or “poor.”

“Countless CEOs and directors have told us that they are concerned whether they and their teams are prepared to meet the challenges of the next decade – to navigate the energy transition, to be best-in-class on ESG performance, to innovate and seize opportunities for growth,” said Csorba.

Csorba also pointed out that companies should use this period of recovering and stabilizing commodity prices to re-invest in leadership development programs, rigorous 360 assessment programs, and coaching.

“These leaders must also lean in on D&I initiatives, not only because it is the right thing to do but because it drives business performance,” continued Csorba. “The real competition in the industry in the next decade won’t be for customers alone, but for leaders who can anticipate, meet any crisis, develop agile and inclusive workplace cultures, and build companies and industries that last.”

Csorba also offered Rigzone additional insights that he and Pruner gleaned from the survey, along with observations about broader changes underway across the energy industry landscape. Read on for his perspective.

Rigzone: First off, have you observed a definitive shift in energy leaders’ thinking on oil and gas recruiting amid the dramatic changes that have occurred in the industry since early 2020?

Les Csorba: Following the tumultuous events of 2020, energy leaders have become more strategic and forward-looking with intent and focus on both business planning and talent and leadership development. The game has shifted from a pure execution play to a strategic play where leaders are now asking the right questions:

• How do we pivot in this disruptive time?
• What investments do we make in the energy transition?
• What is our role in reducing emissions and methane intensity and capturing or sequestering carbon?
• What is our compelling narrative to investors to attract new investment and capital?
• How do we attract and retain the right people from both inside and outside the industry to help us thrive in these changing times?

Energy leaders must develop and maintain this long-term view and strategic mindset, or what we call, “ripple intelligence,” which is like visualizing stones thrown into a pond and watching the ripples in the distance. Energy leaders need to keep their eye on the long-range ripples and use them as an early-warning alarm system of what may lie ahead.

Finally, there has been a shift in board oversight where directors are holding management more accountable for both financial and ESG performance. For far too long, boards in the sector have been largely deferential to their CEOs especially with respect to strategic issues. More boards, perhaps because of a combination of stronger shareholder-minded directors and pressure from Wall Street and activist investors, are beginning to lean in with more rigor.

Rigzone: How have external factors such as shareholder involvement and Executive and Legislative branch changes in Washington, D.C., influenced energy leaders’ mindset?

Csorba: Energy leaders no longer have a choice about learning the art of diplomacy. As one of most closely watched and regulated industries today, the energy leader – from engineer manager to asset manager to CEO and corporate director – must be prepared to engage like an ambassador with all stakeholders. Moreover, developing the skill of agility and contingency planning is even more critical in light of the increasingly challenging regulatory operating environment (e.g., stocking up on oil and gas leases, creating a compelling social license to operate, or exploring new revenue lines such as capturing carbon and sequestration). This new mindset must also include a new boldness and moral clarity in articulating how the oil and gas industry is evolving for the future.

Rigzone: How might this change in mindset affect what oil and gas leaders expect from employees, and vice versa?

Csorba: While oil and gas employees are being asked to do more with less in a more disciplined cost environment (and may need to display even more resiliency and agility), this may actually create the beneficial effect of stretch assignments, greater development opportunities, and more upside for next-generation leaders. Equally, senior energy leaders (CEOs, executives, and board members), will need to model a new humility to reshape corporate cultures and behavior that encourage and embrace dissent and diversity of thinking. Moreover, employees will expect, even demand, that their leaders model the change that is required in the years ahead and adopt the new skillset: think like an activist, relate like a diplomat, serve as an advocate for the business, and develop a new humility.

Rigzone: Let’s compare key leadership attributes traditionally associated with oil and gas execs with those that the analysis revealed. What are some longstanding attributes that will likely continue to serve leaders well, which attributes might they need to rely less on, and which attributes should they expect to develop to succeed going forward?

Csorba: Having survived – even thrived – in a cyclical commodity business for decades, the energy leader is perhaps the most resilient and pioneering among all industries. Energy leaders, however, must understand that they are operating in a secular downturn, which requires not only greater resiliency but transformation and innovation. Generally speaking, energy leaders score relatively high on the execution side when it comes to developing and producing oil and gas. Looking ahead, there will be a much stronger focus on leaders who can develop transformational skills, which includes things like leveraging big data and artificial intelligence (AI) to further enhance operational efficiency and capital discipline. Moreover, just as many energy leaders have served as champions of safety for decades, they also will need to become champions of ESG performance. This can’t be done as “a check the box” exercise, but rather to create real and long-lasting competitive advantage.

Rigzone: Which findings from the analysis were most surprising?

Csorba: Surprisingly, energy leaders, scored lower in almost every leadership accelerator category in our META (Mobilize, Execute and Transform with Agility) framework when compared to leaders across other industries. Additionally, despite innovations like horizontal drilling and hydraulic fracturing, energy leaders scored lower in “execution” and “transformation” than all the others. This tells us that energy leaders need to be even more innovative while remaining focused on capital discipline, namely, resisting the temptation to outspend cash flow as prices recover.

Additionally, we saw opportunities for the energy sector to attract and retain top talent and especially improve the diversity of their workforce, but to make this shift they will need to better articulate real purpose and meaning in their work. Most survey respondents agreed that industry leaders will need to develop the moral clarity in explaining the benefits of providing plentiful, reliable, and cheap energy sources, while also doubling down on reducing greenhouse gas emissions, and becoming more responsible stewards of the environment and their communities.

To contact the author, email mveazey@rigzone.com. Csorba and Pruner’s report, The new energy leader: The essential attributes of US energy leaders for the next decade, is available on Heidrick & Struggles’ website.