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Forget capital, strategy, R&D. In today’s fast-paced, global economy, the most important criteria for success may well be a robust, active process for identifying, developing and retaining leaders three or more levels below the CEO.
The role talent development plays in a company’s success is hardly news. After all, a smooth succession is the mark of a world-class chief executive and widely viewed as the most important duty performed by a leader and his board. But despite the intense attention paid to the selection of and transition to a new CEO, succession is a far from perfect science. In any given year, chances are good that you can find one or more headline examples of a troubled transition. Witness Howard Schulz, who recently returned to the helm at Starbucks to perk up the flagging coffee company. Or Michael Dell, who reclaimed the top seat at his namesake company early last year, looking to pull a Steve Jobs-style founder recovery effort. In fact, with Jack Welch ripping into his anointed successor for missed earnings, even the much-celebrated GE succession story is looking less than stellar.
That companies falter at even this most critical of leadership development endeavors underscores the challenge CEOs face in nurturing new leaders—whether for the CEO post or for leadership roles two to three levels down the line. What’s more, it’s a challenge growing ever more complex as global expansion both heightens the need for executives with transnational capabilities and brings potential leaders from different cultures and with different native languages into the talent pool.
While human resources and managers throughout the company play significant roles in developing talent, responsibility for meeting that challenge ultimately rests with the CEO, agreed business leaders participating in a roundtable discussion held in partnership with RHR International.
“Part of the CEO’s role is to ensure that the development of top talent fits the culture and values of the company—the culture as it is and the culture as it needs to be,” notes Tom Saporito, president of RHR International. “That’s a very sacred responsibility.”
What can CEOs do—what should they do—to influence the development of critical talent? Often, companies best known for producing leaders share a common trait: assiduous involvement of the boss. P&G’s A.G. Lafley takes time coaching regional leaders one-on-one to be “courageous and inspiring.” GE’s Jeff Immelt personally teaches up and comers on leadership style.
Personal involvement is also key for Ed Ludwig, CEO of Becton, Dickinson, who sees spending time with top employees at the company’s BD University as a way to both communicate the company’s values and to directly interact with potential leaders. “Our [high potential] employees attend a program called ‘Leaders as Teachers’ where top executives get involved in teaching the leadership development programs,” explains Ludwig, who usually spends four to five hours with each class himself. In addition to educating employees about the company’s expectations of leaders, the program serves to align employees strategically, adds Ludwig. “If you’re out there saying ‘this is what matters,’ chances are you’re going to walk that talk.”
Global, Mobile Talent
For an international company with a workforce spread out across the globe, building alignment is no easy feat, points out Bill Mitchell, CEO of Arrow Electronics.
Mitchell says uniting far-flung teams around a common goal is a crucial part of his role as CEO; he emphasizes that it requires nurturing a relationship of trust. “To do that, you’ve got to be out talking to people and having dinner with them,” he asserts. “You have to make it safe for them to tell you what’s really going on—the good and the bad. It can be complicated and messy, but if you can get alignment, a lot of good things start happening.”
At a time when people change companies more frequently than ever, alignment around a central culture and strategic mission is an increasingly elusive goal, agrees Saporito. “We are in a much more mobile society—there’s a whole new generation of people saying, ‘It’s about my career and where I want to move.’ How do you build a franchise when people are free agents willing to move from team to team?”
Some CEOs view a workforce of free agents as an opportunity. “The GE model—exporting four or five CEOs every year—does not work for most of us,” notes Sunil Kumar, CEO of International Specialty Products. “Most of us are importers of talent. To me the biggest aspect of leadership development is recruiting. There’s more risk, but it’s a bit like adopting grownup children. There’s some value to that.”
Three Obstacles of Assessment
Identifying potential leaders and providing them with the guidance they need to grow into new roles may seem a straightforward enough task. But three common pitfalls often derail CEOs’ efforts to cultivate talent, says Tom Saporito of RHR International.
Over-relying on experiences. There is no checklist that ensures someone is ready for a leadership role. “When people have all the right experiences, it’s tempting to make the assumption that they’re well prepared,” notes Saporito. “But that’s simply not true.”
Looking back instead of forward. Leaders tend to look to the next generation for the same experience and qualities that made them effective, but leadership requirements change with the business environment. “You’ve got to look over the next hill and say, ‘What are we becoming and what does that mean in terms of the kind of new leadership required?’” asserts Saporito.
Overprotecting a legacy. CEOs often struggle to accept a successor who is different from themselves. “They protect their legacy and try to create people in their own image,” says Saporito. “Often, that’s what makes succession fail.”
“I would argue that it’s a big risk, albeit a necessary one depending on your size and scale,” counters Saporito. “How do you have a high degree of confidence that the people you bring in will have the ability and the orientation and inclination to align with the philosophy, value and culture that make your company unique?”
Metrics and Incentives
Ideally, both managers and employees will also make development a priority, adds Glenn Fosdick, CEO of
The Nebraska Medical Center. “At our organization we started really making progress when the people at the level below me started looking for and attracting the best and brightest,” he says. “The whole program can’t depend on the CEO.”
By taking an active and visible role in nurturing leaders, CEOs can help inspire managers down the line to do the same. Several participants also reported that having a structured process in place to develop talent, using talent development criteria in performance evaluations and tying those criteria to compensation prove effective in instilling a culture that prioritizes development.
For Craig Rogerson, CEO of Hercules, a formal assessment process is the cornerstone of the specialty chemicals company’s ongoing effort to fix a “bench string” problem created when the company downsized several years ago. “We took a big head count reduction out of the middle layer, and now we’ve got to address that [gap],” he explains.
But metrics for evaluating development efforts can be murky, warns Mitchell. “We ask every senior manager in our company to identify what they will do in terms of talent development, and part of their compensation is based on how well they do that,” he says. “We try to hardwire it as much as we can. It doesn’t always work, but we have quarterly reviews with people about how they’re doing with those objectives. I find those to be very rich conversations.”
Leading Learning Helping high-potential employees grow is a complex endeavor, requiring exposure to the right experiences at the right times, as well as the necessary feedback to help them interpret and grow from those experiences.
“At the end of the day, there are three components to how talent gets developed in an organization,” points out Saporito. “First, people have to have the right experiences. Second, they need some kind of mechanism to process those experiences. And third, they have to have the inclination to learn.”
Despite that positive experience, Rogerson sees the concept as potentially problematic. “It’s very tough to take that risk at a public company today, because if it blows up on you, how do you defend taking a sales executive and letting him run your most important plants?”
Bring in the Board
Calling upon experienced and involved board members can be a less risky way to provide growth experiences for up and coming leaders. Several CEOs reported making a point of bringing senior executives in front of the board on a regular basis, both to familiarize board members with potential leaders and to give the executives board presentation experience.
At The Nebraska Medical Center, senior leaders are also encouraged to visit with board members outside of board meetings to discuss challenges and ask for feedback. “We urge them to meet one-on-one outside of the office,” reports Fosdick. “Our board members are willing to take that time and we’ve found that our managers enjoy it and really good things come of those meetings.”
At Vermont Electric Power, board members sometimes take on a more involved role, in one case even chairing a working unit assigned to address an operational issue. “I take issues that we have and send one or more executives out to visit a board member and discuss it,” says CEO John Dunleavy. “It’s good exposure for everybody involved.”
For Craig Rogerson, CEO of Hercules, assessing the next generation of leaders has always been a “real challenge.” And now that challenge is intensifying with the company’s growth in international markets. “I believe that a lot of our good talent is outside of the U.S., but I don’t know how to assess their leadership capability,” says Rogerson. “Our assessment process is done by a panel that works in English, and I think the people from Korea, from Brazil, from France going through the process in a second language are at a disadvantage.”
For Sunil Kumar, CEO of International Specialty Products, the assessment process must be adapted to the individual employee. “If we’re assessing someone in Korea, we want the assessment done in Korean,” says Kumar. “Even if the person speaks fluent English, they probably think in Korean. So we want all the interviews, the 360 evaluations, everything done in Korean.”
Tougher to address, says Kumar, are the cultural differences that can color perceptions of an assessment team. “To some extent you can do that by using a local team, but the metrics are still off,” he says.
“We’re better at getting exposure for American expatriates getting broadening assignments outside the U.S. than we are at bringing international executives into the U.S.,” agrees Alan Wilson, CEO of McCormick and Company.
To compete for and retain top global talent, companies will need to develop an inclusive evaluation and development processes. After all, “intercultural facility” will be an essential capability for future leaders, notes Allen Parchem, CEO of RHR International. “There’s got to be a discipline to be inclusive and give serious consideration to the people in countries where you operate,” he says. “And that will mean going out into the field, whether it be to France, Germany or wherever, to see people who have been identified as [having potential].”
J. P. Donlon is editor-in-chief of Chief Executive Magazine.
John Donleavy is president and CEO of Vermont Electric Power, an electric power company based in Rutland, Vt.
Glen Fosdick is president and CEO of Omaha, Neb.-based The Nebraska Medical Center, which owns a 687-bed teaching hospital and portions of facilities in Iowa, Missouri and Nebraska.
Edward M. Kopko is chairman, president and CEO of Butler International, based in Ft. Lauderdale, Fla., and chairman, CEO and publisher of Chief Executive Magazine.
Sunil Kumar is president and CEO of International Specialty Products, an $8 billion chemicals manufacturing company based in Wayne, N.J.
Ed Ludwig is president and CEO of Becton, Dickinson, a $7 billion medical technology company based in Franklin Lakes, N.J.
Bill Mitchell is CEO of Arrow Electronics, a $16 billion distributor of electronic components, systems and products based in Melville, N.Y.
Al Parchem is CEO of RHR International, a global management consulting company based in Wood Dale, Ill.
Tom Saporito is president of RHR International.
Craig Rogerson is president and CEO of Hercules, a $2 billion global specialty chemicals com pany based in Wilmington, Del.
Alan Wilson is CEO of McCormick and Company, a $3 billion seasonings and specialty food manufacturer based in Sparks, Md.