As New Zealand emerges from the global financial crisis and its worst recession in decades, debate has shifted from the shortcomings that caused it to the deficits most likely to arise from it.

Predictably, the focus has been on current-account, trade and budget deficits.

But there is another emerging deficit that could prove equally detrimental to our future economic viability. If research is to be believed, New Zealand enterprises face an impending leadership deficit, with the pool of talent available for tomorrow’s top positions shrinking fast. ‘

‘It’s no joke,’’ says Don Jaine, a partner in management consultancy Seqel. ‘‘This is a loud wake-up call for every organisation in New Zealand.

‘‘The shortage of skilled executives, those with the abilities to be tomorrow’s leaders, poses a massive threat to our economy.’’

The concerns of Jaine, a former commercial lawyer turned management consultant, are based on Seqel research that points to an emerging chasm in the New Zealand leadership market of up to 40,000 people. Underpinning the research is the notion that baby-boomer business leaders and owners will leave the labour market in their droves over the next 15 years, hollowing out the country’s leadership capability.

The replacement pool is Generation X, those in the 35-50 age bracket. But this group, smaller than the baby boomers, already has insufficient top people to plug the gap.

Moreover, those with the skills and experience to succeed retiring babyboomers are heading overseas at the rate of 1500 a year, taking their earning potential and business acumen with them.

This shortage of talent, Jaine says, threatens the ability of businesses – not to mention public services – to achieve long-term strategic aims.

Too few organisations have developed succession plans or invested in fostering the future talent they need.

Part of the problem is an inherent failure – some say cultural – among today’s leaders to link succession management planning with a company’s strategic intent.

‘‘There needs to be an acknowledgement of the need to change, but instead there’s just reluctance and denial,’’ Jaine explains. When it comes to future planning it’s not simply about understanding the direction a business is heading, but rather who is best equipped to take it there. At the same time, the performance bar for leaders keeps being raised and the skills needed to drive tomorrow’s growth are different to those that served yesterday’s managers.

Business New Zealand chief executive Phil O’Reilly says that for firms to survive and prosper they have to keep re-inventing themselves, increase market share, launch new products and improve the quality of their service.

In short, standing still is fatal and has already been discounted by the consumer.

O’Reilly dismisses any suggestion New Zealand managers are lazy or stupid. He does, however, accept too many business owners get to the end of their career and simply choose to close their business.

‘‘There’s a poor understanding of how to efficiently exit [a business]. All too often the owners try to push it off on to an unwilling son or daughter, or they try to sell it quickly. In many cases succession planning and the need to identify new leaders is overlooked.’’

Illustrating this point, a recent survey by accounting firm Grant Thornton revealed 70 per cent of New Zealand business owners were counting on selling their firms in the next decade to fund retirement – nearly three times the global average of 25 per cent.

Grant Thornton chairman Peter Sherwin says it is a serious issue that needs reversing because New Zealand has hardly anyone to buy the businesses. New Zealand, like many other countries in the Organisation for Economic Co-operation and Development (OECD), is working its way through a demographic bubble, Sherwin says. This is characterised by a proportionately high number of businesses being owned by people approaching retirement age.

‘‘It’s a twin-edged sword. You have a bubble of people looking to sell their businesses against an economic environment with a low appetite for risk, and tight capital markets.

‘‘Ideally, it takes two or three years to groom both the company and potential purchasers,’’ he says.

Many argue New Zealand is too small to have enough private capital to give businesses options, while many leaders have a poor understanding of mergers and acquisitions, and equity financing as a means of growth.

Alternative funding such as finance companies and private equity has either disappeared or been pulled back in the current climate. While banks will lend, it’s on a reduced level from a couple of years ago.

Andrew Hamilton, chief executive of business growth centre The Icehouse, says the issue has been compounded by a reluctance among smaller businesses to accept outside help. While the numbers highlighted in Seqel’s research are ‘‘staggering’’, Hamilton says the leadership deficit could be cut if a proportion of New Zealand’s small and medium-sized enterprises opened themselves up to the concept of growth. Of the country’s 471,000 enterprises, nearly 320,000 are one-man bands without a single employee, and a further 145,000 hire between one and 49 staff.

It’s a cultural thing and, in many cases, a resistance to doing business with the outside world. But the more business leaders engage internationally, the greater their competency and capability to grow, Hamilton says.

‘‘The more people we can get doing that, the more we will lift our productivity, our export earnings, our international earnings and our GDP.’’

If New Zealand really is to haul itself out of the bottom half of the OECD rankings, improving productivity is key. Hamilton estimates the country is home to some 750 internationally capable and competitive companies – 300 exporters and 450 local firms. This number must grow four-fold in the next decade if the gap between our rivals is to be closed.

‘‘It’s a bit of a no-brainer: we need more talent, more capital and more resources. If we’re to achieve that then we need our most talented and capable leaders implementing the right efficiencies and strategies.

‘‘For that to happen I think we have to conquer some of the old attitudes that have presided over our organisations.’’

Often talked about, but all too often misunderstood, leadership is the essential ingredient of any successful organisation. From the rugby pitch to the boardroom, leaders are not just positions. Leaders are people prepared to hold their hands up and put themselves on the line. It’s their energy, passion and ability to get things done that separates them from the rest. Joline Francoeur, a director of the New Zealand Leadership Institute, says to understand good leadership is to debunk the myth that it is the nice side of management.

Rather, it’s about facing the nonregular problems that show up in organisations; regular problems can be solved by good management, processes and procedures.

In that respect, citing an impending leadership crisis based purely on a numbers game is flawed.

‘‘That thinking is fatal because it’s a demographic game as opposed to a leadership game. When we rely on [leaders] only coming from a certain level in an organisation, of course we’re always going to have a problem.’’

Francoeur is among a growing group that believes leadership is about addressing ambiguity and uncertainty, when enterprises are faced with unintended consequences from their decisions. There is a growing awareness that what constitutes strong leadership in one scenario – say, expanding a firm into overseas markets – will not always apply in another scenario, such as countering falling sales in a recession. To quote Albert Einstein: ‘‘You cannot solve the problems of today with the same level of thinking that created them. We must adjust our thinking and begin to see that there are many opportunities facing us every day.’’

View leadership with that kind of logic and there is no shortage of talent in New Zealand, Francoeur says. ‘‘Young New Zealanders are on to it. They are psyched, they are ready, but they’re not being supported and they’re not being recognised.’’

Why? Because they upset the thinking of the old guard and disrupt the status quo. But then the status quo consists of the leaders who have presided over New Zealand’s fall from economic grace and our tumble down OECD rankings. They are the generation looking to exit the labour market over the next 15 years to become more lifestyle-focused.

Employers and Manufacturers Association chief executive Alasdair Thompson: ‘‘Personally, I’d say we have suffered from too little good leadership in the past and we are likely to see better leadership in the future, but from younger managers.’’

We in New Zealand have, it seems, become good at managing things, but poor at leading people; our focus on compliance has stifled leadership.

With technology ensuring no two days are the same, there is a need to better understand, and appreciate, that future generations need to learn and react faster than baby-boomers.

‘‘That’s not going to be an easy transition in a country where we value people for their ability to do things themselves rather than inspire others to deliver,’’ says Ali Tocker, director of management consultancy Tocker Associates.

But there are increasing signs of a willingness to change. Institute for Strategic Leadership (ISL) director Geoff Lorigan says there is a growing awareness in the private and public sectors of the need to ‘‘reinvent your organisation’’.

And there is a growing sense of urgency; ISL’s previous two Strategic Leadership Programmes for CEOs and senior executives, have been oversubscribed and bookings for 2010 courses are filling fast.

The trend is mirrored by other training and leadership development organisations, while not-for-profit ventures such as Leadership New Zealand, the Halogen Foundation and the Sir Peter Blake Trust are reporting increased support from our bigger corporates.

New Zealand Institute of Management director Phillip Meyer says: ‘‘Today, there’s more of an acceptance among managers that you don’t necessarily have to work your way up to the top of an organisation to have something worth saying. ‘‘The levels of support being offered and the commitment to training and developing [tomorrow’s leaders] is as strong as it has ever been.’’

Whether the crisis lies in the lack of numbers coming through, an inability in tomorrow’s leaders to be heard today, or a combination of both, the message is clear: New Zealand Inc must change its ways to have any standing in the fast-emerging new world.

Leadership New Zealand executive chairwoman Jo Brosnahan sums it up best: ‘‘It’s a whole cultural problem we have to get over. We have to be proud of what we have, but we must remember we are what we make.’’

Rewards for being receptive to ideas and innovation

Businesses looking for evidence of what can be achieved when management has a clear strategy and instils a culture of leadership to achieve its goals need look no further than Mainfreight.

Seqel partner Don Jaine says the global freight and transport company is the ‘‘perfect example’’ of how small businesses can become successful global players when they embrace new technologies, innovation and acknowledge the need to keep reinventing.

‘‘If we’re to avoid becoming an economic wasteland we need many more successful intermediate businesses – we need a few hundred more Mainfreights in New Zealand if we want to avoid being ‘branchified’ by Australia.

‘‘Look at what Bruce Plested and Don Braid have achieved there by instilling a strong culture of togetherness and openness, which is backed up by decisive leadership and very clear goals.’’

Mainfreight was born in an era of heavy regulation which required all freight travelling more than 150 kilometres to be moved by rail. It was an environment dominated by a cartel of giant transport firms.

Mainfreight, founded by Plested three decades ago with a 1969 Bedford truck and $2700 in paid-up capital, today has 160 branches worldwide and global revenues of $262 million.

Managing director Braid says success stemmed from a clear international growth strategy built on three pillars: culture, family and philosophy. Those traits continue to stand firm today, inviting a leadership style that is more passionate, energetic and open to fresh suggestions than most.

‘‘We’re a bit unique and do things differently. We have openplan offices, eat together using meal-times for discussions, there’s promotion from within, and, most importantly, there’s no hierarchy or bureaucratic bullshit – that slows the business down.’’

Part of the Mainfreight philosophy is to uphold the notion that an enduring business is built by many different people, not a few; good leadership involves courting the ideas, opinions and skills of all involved. ‘

‘If people are given the chance they will grow and, in turn, their growth will be good for your business,’’ Braid says. ‘‘It’s about giving people the opportunity and responsibility, that’s the key.’’

Tall poppy syndrome keeps expat Kiwis away

Luring back New Zealand’s army of talented expats to work rather than retire is vital to halting the nation’s downwards spiral, warns Simon Monks, a partner in leading executive search firm Heidrick & Struggles.

Eloquently termed the ‘‘brain drain’’, globalisation has made it easier than ever for New Zealand’s brightest to land top jobs around the world, with an estimated 750,000 Kiwis living overseas.

Nearly a quarter of Kiwis with tertiary education live abroad, the highest rate in the Organisation for Economic Cooperation and Development, and the figure rises for academic high achievers, with half of them abroad at age 30, and 70 per cent having worked overseas by 45.

‘‘We need to attract this cohort of talented expats back here to work, not retire,’’ Monks says. ‘‘New Zealand should not be a country for rich people to come and die.’’ Just as emphasis must be placed on retention and development of New Zealand’s educated and skilled young, Monks says greater effort is needed to entice Kiwis home to increase living standards, grow wealth and lead the next generation.

‘‘New Zealand has a fifth column offshore, but it’s not a matter of patriotic duty that they return. We have to make it worth their while, but to do that we have to get off our arses and make this country worthy of them,’’ he says.

Part of the problem, Monks explains, is the ‘‘tall poppy syndrome’’ in New Zealand, where if you excel you become a target rather than lauded as an example of what can be achieved. It is an inter-generational flaw that has never gone away. Yet it has the effect of keeping people away.

‘‘The tall poppy syndrome is still rife in New Zealand today, which is a great shame because it only serves to keep people away,’’ former Brambles and Mainfreight director Emmet Hobbs says.

‘‘There are lots of people out there who we should be proud of, who we should be lining up to improve our enterprises, but if you raise your head above the parapet there are a sea of people who would like to pull you down, and I don’t know why.’’ Hobbs is a highprofile former executive trying to give something back by advising owners of medium-sized private businesses.

He believes there are huge productivity gains to be made by improving strategies and efficiencies in businesses employing 15-200 staff.

‘‘Our top talent head overseas because they’re the ones that really want to do something with their lives. If [New Zealand] truly wants to achieve something then I believe these are the people we need running our businesses.’’