For someone who feels perfectly safe in the company of sharks when scuba-diving, Julio A Portalatin comes across as having his feet firmly planted on the ground. The president and chief executive officer of Mercer candidly admits that the looming global war for talent is going to be a tough battle for CEOs - including himself - with a winner-takes-all stake.
As the boss of a US$4 billion company, he's all prepped up for the battle and is also willing to help others do the same with the unique set of skills that his company brings to the table. Mercer is a global consulting leader in talent, health, retirement and investments.
Mr Portalatin feels that most CEOs understand that talent is a primary source of competitive advantage and an essential element of every core business function. "However, many leaders still cite the lack of an adequate talent pipeline as among their most critical business challenges."
In conjunction with the World Economic Forum (WEF), Mercer published the Talent Barometer Survey last year. The global survey came up with some very interesting findings. Some 60 per cent of the respondents said that they are investing more in talent today than they had been in the past. While that's a very predictable data point, it gets interesting at a more granular level.
According to Mr Portalatin, out of that 60 per cent, nearly 80 per cent said that they have a workforce plan in place but only 12 per cent confirmed that they have a strategic five-year workforce plan. "Typically, a business plan stretches out to between three and five years. And if talent is an important component of success of the business plan, why doesn't the workforce plan also go out three to five years?"
This disconnect stems from the fact that the notion of capital is changing. As the report notes, in the past, companies' chief sources of competitive advantage were financial capital and land, buildings and machines that they owned or managed and they did not rely heavily on institutions and systems outside of their control for success.
"Yet today - when human capital is the main determinant of success - many organisations are leaving the education, health and development of their talent pool largely in the hands of external systems and forces, which is causing gaps in their talent portfolios."
There are companies - few as they are - that do strategic talent planning. "If you look at these companies, then you would see that they are winning the war on talent and are expanding themselves very fast and positioning themselves to maximise profits," Mr Portalatin observes.
Citing the survey, he notes that companies that are doing well in the talent war have adopted a proactive approach to education that develops skill sets they need as opposed to a reactive approach that relies on outside education infrastructure. "These companies are coordinating with local governments and universities in developing advanced as well as basic programmes to help institutions design skills-based education to match the type of skills that are necessary and in demand today."
Mercer is part of the US$12 billion Marsh & McLennan Companies, which is a global professional services group that provides advice and solutions in risk, strategy and human capital. The group is made up two types of business - risk and insurance, such as Marsh and Guy Carpenter, and consulting, of which Mercer is the largest.
Marsh, which has revenue of US$5 billion, and Mercer (US$4 billion) are the two biggest companies in the group, accounting for 75 per cent of the turnover. Mercer has 21,000 employees (out of 52,000 for the group) in 41 countries. Mr Portalatin sums up: "We (Mercer) enhance our clients' ability to maximise the return on their most valuable asset which is their people. We do this in the area of health, wealth and performance . . . And we do that quite effectively because we are recognised by many respected evaluators; in many areas, we are ranked as the No 1 global HR (human resources) consultancy company in the world."
The company's operations are divided into three regions - North America; continental Europe, Australia and New Zealand; and the so-called growth market region, Asia, the Middle East and Latin America. There are 22 markets in the last region. "We expect the growth market (region) to be our growth driver in the years to come as most of the world's GDP (gross domestic product) growth will come from this region."
Mr Portalatin has marked out the top 10 things he wants to accomplish as CEO this year. The first item is expansion into this newly formed region. Being the Asia hub office where a large number of its regional specialists are located, Singapore is central to this initiative, he adds.
To a question on the grouping of Latin America with Asia despite the geographical distance, the Mercer CEO says that in order to maximise the opportunities that growth economies offer to the company's particular line of business, "we had to look for ways where we can synergise solutions without taking into account geographic boundaries".
"If you were to look at the types of countries we are in and where these countries are in the maturity curve, you would find a lot of similarities that are not necessarily bound by geographical definitions. You would find, for example, that in certain countries, the pension fund maturity level is at the same whether they are situated in Latin America or in Asia.
Winning the talent war
"You would also see that the talent curve and the war on talent across all growth economies are very similar and, consequently, solutions that allow you to innovate in one country can be replicated in another with the same maturity level, though it may be situated in a different geography."
He gives another important reason: there was a time when companies looked at growing economies as being receivers of best practices that worked in the developed world. "But over time, that has changed. Now you see that a lot of innovation is taking place in the developing world and being transported to other markets in the developing world and eventually even into the developed economies."
Mercer rates countries in different tiers according to its assessment of the level of maturity in relation to the products it sells. For example, says Mr Portalatin, China and Indonesia are both bunched in Tier 1 within the growth market. "The growth parameters of both these markets are similar. (Of course, there is no comparison in absolute population size between the two countries.) They also have a composition that is similar wherein they have major urban hubs where a lot of urbanisation is taking place. So, similar types of dynamics are happening in both these places even though the scales are different. Hence, there are synergies in the type of solutions they require for things like pension funds, medical benefits and acquiring and retaining talent."
Coming back to the issue of talent, Mr Portalatin notes that when companies look at talent solutions, there should be no boundaries, meaning that talent needs to be sourced globally. And there should be no boundaries as to the type of solutions that could potentially apply to retain and nurture this talent. "Say I'm in the retail business and I want to expand in a certain part of the world where the basic skills to even be a retail store clerk doesn't exist. So how do I expand in this market? The solution is working with local governments who also have a vested interest in improving the skill-sets of the population.
"I would work with the government to put together an academy or school that would graduate people with the necessary skills. That's an example of partnership between the government and private sector to improve the skill-set of the population."
Another facet which is inexorably linked with the talent question is longevity - people are living longer and so need better healthcare benefits. "Every part of the world is ageing, and thus health cost is going to be more of a burden on society," Mr Portalatin notes. "If you have government-sponsored healthcare solutions, then that's going to be a burden on the government. If it is a private solution, then it's going to be a burden on the private carrier.
"If you live in an area where you have private sector healthcare solutions today, the cost parameter has to be contained in some way as we move into the future . . . Thus, you will see solutions like that being contemplated in the US in which you have a solution where, as an employer, you could demarcate how much you are spending per employee, and be able to give that amount to the employee who will be able to opt for a marketplace solution and pick the type of coverage he or she feels most comfortable with."
He adds that in less mature markets, where the government looks after health benefits, there will be more sharing of the cost with the citizens. "There will be a move from a public type of solution to a shared private and public offering; there are different dynamics of what the government would want to continue to do and then offer different options for that portion that they do not want to continue. There is a lot of movement in the health area and that's why it's one of the fastest-growing solutions that we have." With people living longer, pension funds have also acquired a new degree of importance. And yet, these funds are reeling from the prolonged period of a low interest rates.
"Previously, this (prolonged) situation of low interest rates was never seen to be a long-term situation. What has been factored in till now is more of a historical type of movement where you have downshifts and upshifts over a period time. Once you factor in the flattening out of low interest rates over a long-term period, then the solutions you need to deal with are different from what have been used till now."
In most countries, large pension funds are under-funded today - anywhere from 20 per cent to as high as 40 per cent - because of this low interest rate environment. "In the past, this was dealt with by extending the period by which you had to meet the funding requirement with the recognition that the interest rate would rebound and take care of the under-funding."
However, notes Mr Portalatin, this is no longer a 100 per cent foolproof solution - they still do it, but eventually you have to deal with the under-funding.
"In a private sector pension fund, companies have to put in additional money to bring the funding level up. In a public funded pension fund, it usually means running at an under-funded level - something that, traditionally, has not been done before with the hope that one day interest rates will start going up."
In the private sector, Mercer offers solutions of a de-risking nature. They promote a very active management of pension programmes, he notes.
"Traditionally, pension programmes would decide once a year how the money would be invested: 'We would be heavy in bonds; We would be heavy in equities or hold off for a year'.
"Now, dynamic de-risking calls for a more active management of these funds against several indexes that give you solutions based on different 'What if?' scenarios. Then, whatever the probability curve says in today's environment would dictate the type of assets you have, not necessarily for one year but for some period of time. The company is effecting these dynamic de-risk solutions more now than in the past in trying to minimise the risk.
"Can you take away the risk totally? No, you cannot. You cannot fight forever against a very low interest rate environment coupled with a rather volatile equity environment and a demographic environment that's also changing rapidly; not just longevity but also gender dynamics which also impact calculations significantly because longevity is different for the female gender as opposed to the male gender. As more women are coming to the work place, you need to factor this in."
Mr Portalatin notes that there is no silver bullet to solve the problem. But there is a need to incorporate the services of an organisation which can give "What if?" scenarios in almost a real-time basis.
To compound the crisis in demographic shift, age dynamics do not just affect one side of the equation, they affect both sides. As he observes, if you have lower birth rates, you will have a lower number of eligible contributors (to pension funds) which ultimately means that the basic structure of the way we remunerate the pension structure has got to change.
"You cannot have these dynamics and expect to keep the same formula that you've always used. In essence, that means that governments will be re-evaluating their liabilities not just for today but for tomorrow as well. Same is the case for the private pension funds. And thus, there is going to be inevitably more of a sharing of that funding between the public and private sectors and within the public and private sector individuals, as well as entities - whether government or company."
Pension liability is on the front burner of every company because it is potentially a significant liability and hence it is on the top of a CFO's (chief financial officer) list in understanding what the dynamics are and what the potential solutions are.
Mr Portalatin was born in New York in 1959 - the son of immigrants from the Dominican Republic; his father had fled after falling foul of the dictator Rafael Trujillo. He still considers himself to be young and thus has no personal worries about his own pension fund.
Right from early childhood, he knows what it means to be different. However, instead of letting the difference get to him, he used it to his advantage and he feels that this has not only helped him enrich his life but also of those who came in close contact with him over the years.
"I learnt how to speak Spanish before I learnt how to speak English. Not many Americans have to go through that. I didn't learn how to speak English before I went to school. My mother till this day will speak to me only in Spanish. That's the kind of background I come from."
In New York, he went to a private high school where he was the only "non-majority member" in the school.
Fight instead of flight
"I was dealt many challenges early in my life on how to deal with such an environment (and thrive) - where I was a lot different from everybody else. You have an opportunity to make a difference in those circumstances by allowing people to see that those differences are nothing but physical as opposed to any other way . . . I chose not to flee but to stay, and I think it made a big difference in the lives of the people I interacted with."
Hopefully, that showed them how to interact with people from different backgrounds. "In fact, when I was in my junior year, I was still the only non-majority person in the school and yet I was elected to be the president of the student council. That wouldn't have happened when I was a freshman. So I grew and they grew, and that experience really positioned me to face a lot of circumstances that I had to deal with in life."
After graduating from college with a business management degree, Mr Portalatin went to work in the insurance industry and, after several top jobs, took up his present position as CEO in February last year. "I took on the opportunity with Mercer because I saw a great company that could be greater. I saw the opportunity for greatness."
To a question on what makes a CEO successful, Mr Portalatin says that it's not rocket science, and that it's not just working hard. Instead, it's working hard at the right things.
"Always look to surround yourself with people who are going to make you better. When you hire people, you should hire people who can do that work better than you. You also have to get up every day and ask yourself how you can make a difference today. That opens up a world of innovation, efficiency and outperformance. That's all it takes to be a successful executive."