CORPORATE GOVERNANCE A Question of Succession – How boards can select the best CEO

Who gets to be the next chief executive is often vexed question for boards. One of the more common problems is that they don’t have enough objective data to make their promotion or selection systems work. Add to that, the notion that the candidate with an exemplary operational record may not necessarily be the best pick for the job.
Bob Rogers, president of Pittsburgh-based Development Dimensions International (DDI) and an organisational change expert, says the message he carries is one of identifying future leaders and their potential.
“A lot of organisations think potential is directly correlated to current performance, and it isn’t. It’s very different,” says Rogers, who was in New Zealand on short speaking tour organised by Sheffield.
“They are wrong about two thirds of the time, because there are other factors that determine potential at higher levels [of management] that have to be considered in the equation,” Rogers says.
“Probably the biggest mistake we see in organisations in terms of promotions is that they will put very good operational leader into strategic role.”
That person may have run division, perhaps manufacturing, and were good at it. “But now we are going to ask you not to be an operational leader. Now we’re going to promote you to the executive committee and we want you to be strategic.
“We want you to think three to five years out. We want you to think differently, and sometimes as an operational leader you get too locked into the data and you don’t have high tolerance for ambiguity.
“If you are not conceptual thinker, if you can’t let go of the day-to-day operations and deal with the much broader strategic issues, you are going to be failure at this strategic job,” he says.
Good companies have way of identifying future potential leaders. “There’s been lot of research about people with potential versus good performers,” says Rogers. “It gets in to number of factors that people have that are very difficult to alter.
“What makes us tick is developed when we are kids, not when we are 35 or 40 years old.” Qualities such as authenticity, integrity, learning orientation, ability to think conceptually, strategic thinking and willingness to step up in leadership vacuum to take leadership role are determined in childhood.
“For most of those things, we can’t give you them if you don’t have them.
“We can give you planning or decision-making skills, or even some of the interpersonal skills or communication skills. We can develop those, but not these other things,” he says.
Receptivity to feedback is key area for senior executives, and Rogers says this is where the difference between big ego and strong ego comes in.
“Big ego leaders want to be on the front cover of Fortune, they want to take credit, they want to be centre stage, they want to be famous and when something goes wrong, they turn around and want to know who screwed up,” he says.
The strong ego leader has the same degree of drive – the drive to succeed and the drive for results. “But because they understand that we are all human, they are more receptive to feedback.
“They care more about the legacy that they leave behind, building their team, doing what’s right for their people. Instead of taking centre stage, they give credit to others.”
When DDI wanted to learn how to evaluate potential, it went to American women’s gymnastics coach Mary Lee Tracy.
“We asked her how she picks the girls at age six that she wants to spend time working with to try and make them into Olympians.”
Tracy said there obviously needed to be degree of athletic coordination but also drive, coachability, how they take feedback and degree of perfectionism.
If Tracy gave feedback to girl of six or seven and the girl went into corner and pouted, Tracy had problem. But if the child reacted by saying she would try again and tried several times until she got it right, then Tracy knew she had something.
Rogers says the same thinking applies to senior level executives. “If they are receptive to feedback, they will learn from their experience and grow as they progress.”
Looking at wider organisational issues, Rogers says he often encounters organisations that suffer from lack of focus. “They try to do too much, have too many different strategies, have too many initiatives,” he says.
DDI believes there should be no more than five strategies that are either makers or breakers for the company over the coming three to five years.
The focus and the energy of the organisation should go on those three to five things.
Those issues could be research and development, marketing, distribution, processing or customer relationship issues or simply people issues.
“From those areas ought to come three to five things that will really propel the company forward in the next short timeframe,” he says.
Another issue for businesses is accountability. “If the audit function in Enron had really been held accountable, the deals that went down would not have been approved.
“If the people in Arthur Andersen had held their people, who were working on Enron, accountable for doing only those things that were 100 percent ethical, maybe it wouldn’t have happened.”
And then it comes down to how those accountabilities cascade down through the organisation.
“When they see their own accountabilities line up with where the company is going, they can get engaged. Their passion and energy can be aligned with where the company is going.”
Rogers says the next step is to ensure that the focus is sustainable, which he believes is possible through communications strategy that ensures people are pulling in the same direction.
And Rogers says measurement is crucial. “If you don’t measure it, you can’t manage it and you should be measuring lead measures and not ‘lag’ measures or data that reflects the past,” he says.
Many organisations either do not measure their strategic priorities or simply measure everything.
The historical, or “lag” measures are too backward looking, he says. “On the sales side, [it is important to identify] those lead measures that are going to tell you whether you are going to hit your sales or profit targets in six months’ time.”
If the right questions are asked, lead measures can accurately provide crystal ball for the future. “How likely are you to repurchase from us in the future? What’s your overall level of satisfaction with our services and our people and will you be positive reference for us?
“And if I get yeses to all three of those then I’ve got pretty high confidence factor that they are going to repurchase from us.
“If they give me notice on some of those three questions or they tell me that some of our competitors are doing better than us… oops I better work on this one because they are not likely to come to us first.”

James Gray is an Auckland-based freelance writer.
Email: [email protected]

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