Best Companies for Leaders

Only a handful of organizations have even begun to tap into their primary resource, their people, much less give them the means to do what they are capable of doing. Indeed, many take the opposite tack, disregard loyalty, prune rather than nurture and focus exclusively on the bottom line, forgetting that the only way to ensure continued profit is to develop people, particularly leaders at all levels. Management scholar Warren Bennis summed it up best in On Becoming a Leader, when he quoted former Apple CEO John Sculley: “Organizations can do a lot to assure that they don’t have good leaders.”

Because we have long believed that leadership development is one cornerstone of superior competitiveness, The Hay Group in partnership with Chief Executive has conducted its fourth annual study that identifies the top 20 companies across the world that demonstrate this organizational imperative at the highest level. To a large extent, each of the top 20 companies ranked in this continuing study, launched in 2005, is a learning organization. This is not surprising, since it is the learners who will inherit the future and it is they who are best equipped to transition from a world that no longer exists to one that in some measure they shape.

But it does not end there. In identifying companies seen by others as having higher quality leadership, we have come to appreciate that they are both learning and doing organizations. Many have become matrixed companies, where the conventional top-down chain of command has yielded to distributed decision making spread across business units whose executive teams have far-reaching authority.

In 2008, when the study was conducted, a total of 2,147 companies were considered for the ranking, of which 1,140 cooperated with the survey. (Companies that participated were headquartered in 89 countries. Thirty-nine percent came from North America, 23 percent from Europe including Eastern Europe, 11 percent from East Asia, 11 percent from Middle East/Africa and the remainder from other regions. Fifty-two percent had annual revenues under $500 million, while 12 percent had revenues over $10 billion.) The company’s respondents (senior executives as well as line and HR leaders) completed a questionnaire on the effectiveness of leadership development at their own organization in which they were asked to name three companies from which they would most like to recruit leaders. (Seventy-three percent of respondents feel that, compared to a few years ago, the urgency to develop leaders in their organization has increased.)

One adjustment to the historical methodology used in prior years is the greater reliance on peer-level assessment. In earlier years, academics and financial analysts were also canvassed. But this group, we found, was less directly knowledgeable and tended to gravitate to the names they knew. Peer companies had a more immediate grasp of the talent pools and com panies that nurtured them, perhaps because that’s where they poached.

As a result, 3M shot up from 15^th place in 2007’s ranking to first place in 2008. Procter & Gamble continues a tenacious hold on the close second place finish it has occupied since 2006, and GE slipped from its historic berth at the top spot to third in the current rankings. Not a great deal separates the top three companies in the rankings, in terms of what each does. All have formal, in-depth development programs for future potentials and practice coaching and mentoring followed by action learning with feedback and assessment. All created cultures that make leadership development a priority. Significantly, the CEO is directly involved at various stages, frequently teaching to selected groups. GE, for example, has a powerful internal review and selection process for identifying high potentials. P&G arguably has a better pipeline of mid-level executives, but 3M consistently and adroitly helps leaders two to four levels below the CEO transition effectively from job to job. (CE’s conversation with 3M CEO George Buckley elaborates on this point.)

“Since George Buckley became CEO [in December 2005], 3M’s leadership development has been deployed at deeper and broader levels in the organization,” says Sandy Tokach, the company’s vice president of talent development/organizational effectiveness.

Percent that value the characteristic most

1. Strategic Thinking

50%

2. Execution

40%

3. Decision Making

33%

4. Technical Competence/Expertise

33%

5. Team Work

30%

6. Inspiring Leadership

26%

7. Influence

17%

8. Emotional Intelligence

15%

9. Creativity

11%

10. Resilience

10%

11. Capacity to Learn

9%

12. Other

5%

All of the firms ranked have formal development processes and many offer action learning programs, where two to three times a year teams of leaders at different levels work on real-time competitive challenges. Both P&G’s A.G. Lafley and GE’s Jeff Immelt also teach courses on strategy and leadership. In addition to formal executive assessment, 3M emphasizes relationships and involvement with the company’s senior executives and programs where leaders teach leaders. This involves senior vice presidents, along with external thought leaders, teaching groups of six to eight in week-long programs. Some 400 corporate assets are identified from pools of 200 people from each of 3M’s 45 divisions. Whereas many large companies make a fetish of credentialism, one of the hallmarks of 3M culture holds that virtually every employee is considered a potential leader.

Interestingly, when comparing what organizations value in leaders with overall outcome measures used to evaluate the ability to develop a supply of quality leaders, some characteristics are negatively matched. Of the top characteristics, only “strategic thinking” is significantly positively correlated with the overall outcome. “Inspiring leadership” showed the highest significant correlation with overall outcome, but was only valued by 26 percent of respondents. The disconnect may result from the fact that the definition of leadership is itself changing in response to a changing world.

Hewlett-Packard sees the best way to develop leaders as through the leaders of HP itself, says Steffen Landauer, vice president of leadership development. “Our enterprise is centered around leaders teaching leaders,” he says. “People learn best through experience.” For example, one initiative, founded by CEO Mark Hurd, is a twoday program based on HP’s operating model. “This is a response to the company getting flatter. We need leaders at all levels,” Landauer says.

Participants were asked who they felt was the best business leader of this generation and why. More than 86 different people were mentioned. The following are typical comments concerning the most popular choices.

Jack Welch. He showed the way that talent when nurtured will nurture your organization by itself. He had the talent of identifying the best people and led the way for many other companies in building state of the art learning centers to develop talent within the organization.

Bill Gates.

He succeeded in retaining highly qualified key persons in his organization. He has also developed his organization as one of the most interesting places to work.

Richard Branson

—for being able to inspire people to achieve greatness in spite of the odds.

Pharmacy giant Medco teaches leadership skills early in a person’s career. “We don’t limit the number of high potentials,” says Kelly Webber, Medco’s VP of HR. Medco fills about 80 percent of VP and up openings with internal candidates. One way Medco fosters innovation is by asking the top 300 leaders to submit innovative ideas to the CEO. “From these ideas we form innovation teams. We look at things that could change the business,” Webber says. Ideas range from international expansion plans and drug utilization review systems to training for pharmacists to learn to see the “whole patient.”

One of the continuing challenges in leadership development is the ageold problem of authority vs. responsibility. This requires a high level of negotiation and networking skills as well as the ability to compensate influence with expert knowledge. The biggest hurdle is influencing others over whom one has no formal control. This requires more than just strong interpersonal skills. It demands trust and emotional maturity, elements that can be nurtured but not taught. It is not dissimilar to a CEO reporting to a board of directors with divergent goals or contrary agendas while maintaining the ability to lead.

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