The year is still young, but already it’s shaping up as another brutal one for CEOs. Management gurus may opine on the possible causes of so many corporate meltdowns, but the theorists seem to overlook one common thread-the boss was simply out of touch. The CEO did not have his or her finger on the pulse of what was happening in the market, or was isolated from key constituencies: employees, customers, shareholders and directors. “We all fall into the CEO trap,” says George Fisher, former chief executive of Kodak and Motorola.
Fisher was one of America’s most distinguished CEOs during his years in the saddle, and no one would accuse him of having engaged in the patterns of behavior that have brought down so many executives lately. Now a director of Delta Airlines, General Motors and Eli Lilly, and chairman of the National Academy of Engineering, Fisher believes he escaped entrapment-most of the time-by persistently courting employees and customers.
His point is well-taken. CEOs who barricade themselves in fortress-style offices or sink into seductive cocoons of meetings and yes-men find themselves at risk of making mistakes. The CEO Trap is an accumulation of many small things that prevent CEOs from seeing or feeling the harsh pinch of reality. It can be exacerbated by flying aboard the executive jet, getting fussed over by attentive staff, having fancy offices set up exactly to their liking and enjoying a boatload of perks. They may feel they’re on top of the world, but in reality, their information sources are drying up and their relationships with customers are atrophying.
Why does it matter? “It doesn’t matter in good times, I suppose,” says Fisher. “But when you really need your employees backing you is in tough times. If you just show up asking for things, pretty soon you’re going to notice that you’re a leader marching onto the battlefield with nobody behind you. That’s a pretty bad place to be.”
Employees need to see their CEO being visible, having integrity, and as someone they can relate to, says Robert B. Catell, chief executive of KeySpan, an energy company serving the Northeast. “CEOs get too far from their employees and don’t remember where it all happens. There’s a danger that you can become isolated and get yourself in an ivory tower.” Catell has one big advantage: An engineer by training, his first job with the company was working outside, laying pipes.
Staying engaged with employees is messy, because it often means cutting through layers of senior managers who seek to preserve their own versions of the truth. It also can be tricky to maintain direct ties with customers, because that may threaten sales reps who want to “own” the relationship. Experts say CEOs are more careful to stay in touch with their directors because if they don’t, the results are immediate-they’re out of a job.
The good news is, there’s a lot that CEOs can do to stay out of the trap. Some stay on top of their businesses by holding regular retreats with their most promising managers. Keyspan’s Catell has a special ombudsman who keeps his ear to the ground for him. Gillette CEO James Kilts has a performance management system which is simple but effective: Kilts gives himself and his senior staff grades.
And of course, there’s the tried and true way to stay humble: spending time with the spouse and kids. Says Jonathan Klein, the CEO of Getty Images, a $460 million digital photography company in Seattle: “You can be a god at the office, but at home you’re just the schmuck who takes out the garbage.”
The heroic myth
The biggest part of the CEO Trap is ego, says Robert W. Rogers, president of Development Dimensions International, a human resources consulting firm. While CEOs need to have strong egos, having too big an ego can hurt them, says Rogers. “I’ve given talks on why leaders fail,” he says. “One big reason is that they’re not receptive to feedback because their egos are too big.”
CEO Trap Quiz
For the past three years, signs of out-of-control CEO egos have been everywhere. The worst offender may be Dennis Kozlowski of Tyco International, who got caught avoiding $1 million in taxes on a Renoir while he was busy splurging on resort homes, a pricey Fifth Avenue apartment, yachts and parties in Sardinia and $43 million in philanthropic contributions that put his name in lights, not Tyco’s. Then there is Bernard Ebbers, the ex-CEO of WorldCom, who felt confident enough to shell out $74 million on a Savannah, Ga. yacht building company and $65 million on a 500,000-acre cattle ranch in British Columbia, while WorldCom ended up disclosing massive accounting fraud and went belly-up.
“A lot of these people may not be from money, and suddenly they can buy their way into anyplace they want to go, like Washington or Hollywood,” says Robin Cohn, author of the PR Crisis Bible. “Ken Lay got to play with the President.” Adds Robert Boyden Lamb, a professor at New York University’s Stern School of Business: “They start to see themselves on a world scale, on a bigger canvas. They don’t get down in the trenches as much as they used to.”
By no means are CEOs the only ones to blame. They often have an army of enablers who are passionate about keeping the top guy or gal in relative isolation. Accountants, journalists, investment bankers, public relations gurus, lawyers, consultants and even architects all want to hitch their wagon to a CEO’s fame and can overwhelm a top exec with adulation. After a while, you start believing what people are saying. “They project a larger- than-life persona. We want that in our leaders. We buy into the heroic myth,” says Jeffrey A. Sonnenfeld, associate dean at Yale School of Management. “As we promote it, with the princely wage, media attention, and our aristocratic, royal treatment, they think it may be true.”
What’s really happened, according to Sonnenfeld, is that the CEO has lost him- or herself in this myth of greatness. “There’s a complete blur of their identity with the identity of the firm. Their name is hyphenated with the name of the business they run,” he says.
Given that, it’s no wonder some top guns think they deserve larger and larger sums of money. “Big ego and greed are the same thing,” says DDI’s Rogers. One reason so many CEOs fell into the CEO Trap in the late €˜90s is that they were distracted by riches beyond their wildest dreams, thanks to the bull market and stock options. “Excess CEO pay was a function of the stock market,” says Bruce R. Ellig, the retired head of human resources at Pfizer and author of The Complete Guide to Executive Compensation.
Many boards awarded CEOs massive amounts of 10-year options at the beginning of the ’90s bull market. Today, some 90 percent of CEO compensation is now in stock options, a huge increase from earlier years. “Pay is how CEOs keep score,” says Ellig. “They get trapped into thinking that pay is the only way of being measured.” A better way to gauge one’s own performance, Ellig suggests, “is to go into one of the shops where a worker has grease on his hands and hear him say, €˜I think you’ve done a good job.'”
Most encounters between the chief and employees tend to be carefully stage-managed and scripted. “Nobody wants to bring bad news, particularly to the CEO,” says Keyspan’s Catell. “So sometimes you can get isolated unless you can establish a mechanism to get to what people are really thinking about.”
Unfortunately, honesty can be tough to find in the corporate structure. Most employees behave differently around the CEO-without even being aware they’re doing it. “It’s like another level of consciousness that people adopt when they go into a room,” says NYU’s Lamb. “Suddenly, the CEO becomes a king.”
Eager to please, the echelons misread signals from the CEO. Consider the parable of the chairs, as told by the chief executive of MetLife, Robert H. Benmosche. During a meeting in a new MetLife conference center in Long Island City, he struggled visibly to figure out how to lower the height of his brand new chair. He never said a word to anyone, but about a week later, Benmosche got a call from the manager of the conference center. Much to his surprise, the manager asked whether he should replace all the brand new chairs in the conference room. “Someone just saw that I couldn’t lower my chair,” he says. “And they said, €˜Oh, he must be unhappy about that,’ without ever asking me.”
What Benmosche-and others who’ve had similar experiences-have learned is that, like it or not, the chief is always under the microscope. “CEOs have to be very careful about how people read their body language,” says Benmosche.
Some CEOs can get swept up in the notion of belonging to a group of peers. NYU’s Lamb says that many CEOs care too much about what other CEOs think, thanks to what he calls “the phantom club of CEOs.” “Suddenly they’re in a world of their own,” he says. “They literally look to each other for ideas, advice, pay scales, how they’re managing, what are the hot topics. They sit on boards together, meet at charity events. It’s not only incestuous, but part of the problem is they separate themselves to a degree from their own troops.”
Physical isolation is another aspect of the CEO Trap. Take Kodak’s headquarters in Rochester, N.Y., which was built by George Eastman in 1914. It cloisters the corporate brass on the top floor and doesn’t allow for interaction between different echelons in the company, says Fisher. “Unfortunately, I never changed that. We were physically stuck with that” due to the prohibitive cost of moving, Fisher says.
A CEO can cut himself off by the design and location of his own office. Jacques Nasser, the former CEO of Ford, built his own mini-shrine at Ford headquarters in Dearborn, Mich., that resembled a vault at Fort Knox. Even though Ford family scion William Ford sat right across the hall, Nasser’s office was protected by heavy plate-glass doors, a reception room where a receptionist sat behind a high wooden counter and another door into the inner sanctum. Once inside, visitors found that Nasser had created a cocoon, with aroma candles burning, soothing New Age music, handsome Brazilian paintings and a wall covered with TV monitors. The net effect was that Nasser was cut off from Bill Ford and many other executives, which helped cost him his job.
The longer a CEO is on the job, the less information flows to him, says David A. Nadler, chairman of Mercer Delta Consulting. For one thing, CEOs quickly figure out which information sources are most useful, which results in a narrowing of the scope of information they look at. Second, the more established they become, the less approachable and open to information they become. Third, the job is so demanding that later in a CEO’s term, fatigue or boredom can set in and the idea of doing one more employee forum becomes loathsome.
How can a CEO avoid the trap? Chairman’s Forums are one way, says Nadler, who credits Scott McNealy at Sun Microsystems with the idea. Make sure the CEO spends some quality time on a regular basis with his best and brightest underlings. This way, the CEO can figure out who the best people are, build a team and make sure the CEO hears from others beside his immediate protective coterie.
Xerox held its Chairman’s Forums twice a year between 1992 and 1998, in which about 100 employees participated. At each two-and-a-half-day session, 12 “high-potentials,” some three or four levels below the CEO level, went away to Nantucket or to a ski resort with the CEO and one other senior executive. The dozen managers were instructed to imagine they were running the company and were given a particular problem to tackle. There was also time for skiing or sailing, along with dinners and discussions.
Anne Mulcahy, now the CEO of Xerox, helped set up the Chairman’s Forum when she was head of human resources, while also identifying the key people and running the program. “Most of her key team came through the Chairman’s Forum,” says Nadler, a consultant for Xerox.
Gillette CEO Kilts uses a performance management system that drives the company’s strategic plan. He has been using the system for 20 years, during his career as CEO of Nabisco and as head of the $27 billion Worldwide Food group of Philip Morris, where he combined Kraft and General Foods. Kilts takes about 40 hours every quarter and evaluates his own performance and the performance of his 15 direct reports. Kilts decides on a grade of one through five, which are the same as F through A, based on whether each staff member meets quarterly priorities. What did he give himself in 2002? “A C+,” he says. “In my career, I’ve had very few 5’s.”
Keyspan’s Catell has an ombudsman in his human resources department who gives him employee feedback. It helps that the ombudsman is a former Catholic priest with plenty of experience talking to people in confidence. Catell also gives out a CEO Award each year to a worthy employee, has a dinner honoring the person and even goes away for a weekend to a resort with the employee and his or her spouse. And when he hears of an employee who has done a particularly good job, he picks up the phone and calls. “They start off by not believing it’s me,” says Catell.
Another technique many CEOs use is the good old-fashioned walk-around. DDI’s Rogers says he doesn’t hesitate to walk into meetings and sit down for half an hour, something he learned from a three-star general in the Air Force. One time he did this and saw an employee crying. He probed the matter and learned that the employee was upset about her opportunities for career advancement. It brought the matter home to Rogers.
Consultant Ellig recalls the former CEO of Pfizer, John McKeen. Anytime McKeen got into an elevator, he would ask the person standing next to him, “What are you working on?” followed by, “Well, how’s it going? Any problems?” One time McKeen walked in on a middle manager and demanded to know, €˜What are you doing about the back order of penicillin in Clifton?’ The manager hadn’t even heard of the problem. “John bypassed the layers,” says Ellig. “He got your attention.”
Getty Images’ Klein avoids the trap by reinforcing the Getty culture. He does a detailed survey of 70 employees twice a year and prints up all comments without attribution. Klein’s direct reports give him a rating. He does a live Q&A broadcast every quarter with all 1,800 Getty employees, scheduling it late in the evening (Pacific Time) so that European employees can participate. And he constantly reinforces his leadership principles. “You actually don’t have any power at all. You only have the power to create an open environment-where people feel comfortable-and not a culture of fear,” says Klein.
It does indeed seem possible that the many small things a CEO does-whether he eats in the company cafeteria and whether he actually knows the names of long-time employees, for example-can help create a style and a tone that affect how information flows to the top. Breaking out of the CEO Trap, or avoiding it altogether, could be a key to improved success rates in the corner office.
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