In their book, The Game-Changer, P&G CEO A.G. Lafley and noted author and business advisor Ram Charan observed that “to prosper, companies need to do four things well: develop leaders of the future, improve productivity, execute strategy and create innovation.” Arguably, the first step must be done well if the prospect of succeeding at the remaining three steps is to have any chance of success.
Each year since 2005, Chief Executive has sought to identify those companies that excel in leadership development. In partnership with Chally Group Worldwide, a Dayton, Ohio-based sales and leadership talent-management firm, and with the Human Capital Institute, we canvas world-class companies through a questionnaire and interviews in order to learn what companies are doing to identify and nurture people three or more levels down the chain from the CEO.
The final, top-40 ranking consists of public companies with over $1 billion in revenue, and the top 10 on the list scored within several points of one another.
Rankings are affected by a company’s reputation among its peers, as a source for well-rounded talent. The percent of senior management recruited from internal talent pools is another criterion. Similar to 2013, some attrition among last year’s winners accounts for why previous winners did not appear on the 2014 listing. As a clear indication of the escalating importance of leadership-development processes, half of the companies on the 2014 ranking are new to the list.
Companies are scored on five key criteria:
- Having a formal leadership process in place
- The commitment level of the CEO to the leadership-development program, as measured by the percentage of time spent
- The depth of the leadership funnel, as measured by the percentage of senior-management positions filled by internal candidates, as well as the percentage of middle-management positions filled by internal candidates
- The number of other companies that report recruiting from the company being evaluated
- A shareholder value-performance metric based on 10-year growth or decline in market capitalization
P&G once again tops the list as the Best Company for Leaders, with IBM coming in second at just a fraction below and GE moving to a No. 3 ranking. These three, leading contenders have different but parallel methods of developing talent. P&G and IBM, for example, place a premium on developing people from within. All of P&G’s senior managers are judged on their abilities to develop those who report to them. Development includes both formal as well as informal training. Lafley himself mentors a group of high achievers several levels below. He also monitors the company’s top 300 executives and ensures that they are inculcated with the values of the firm.
The company often assigns some of its best up-and-coming executives to tough jobs—not just to test them, but to provide useful experiences that will come in handy in future. P&G also takes 150 promising leaders for leadership training at such off-site locations as the U.S. Military Academy at West Point or the Center for Creative Leadership (CCL) in North Carolina. “The challenge at P&G,” he remarks, “as at most every company, is to get the right balance between stretch goals and game-changing results.”
Likewise, IBM identifies those with early promise under its Basic Blue for IBM Leader program, where leadership competences are explored and guidance for career paths is given. As one might expect from a company of IBM’s pedigree, nearly everyone is tracked assiduously. IBM’s Chairman/CEO Virginia Rometty, like her predecessors, follows a range of specific individuals at all levels with “Chairman’s Reviews” with action follow-ups.
GE, which dominated the ranking in its early years, has undergone considerable change since Jeff Immelt took over from Jack Welch in September 2001. He believes that relatively simple actions, such as attending his own instructional courses at the company’s state-of-the-art John F. Welch Learning Center, located in Crotonville, New York, can have far-reaching effects. Crotonville has become the Annapolis and West Point of executive development. Activities there lead to selection and promotion, as they reinforce the creation of new operating mechanisms designed to drive innovation. In addition, GE encourages development by having its executives generate “Imagination Breakthroughs” during its twice-a-year meetings of senior executives. “Chances are, a lot of people have great ideas for growth and innovation,” Immelt says. “It’s up to us to develop a disciplined process to sort them out and encourage our talented people to generate them.”
New to the top-10 ranking are Accenture (4), Unilever (5) and Hormel Foods (9), which report impressive leadership-development processes. Of the companies surveyed, 84 percent have headquarters in North America and 57 percent have international operations. The majority of industries represented included Professional, Scientific, and Technical Services (21 percent), Manufacturing (19 percent) and Finance, Insurance, Real Estate (14 percent).