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Why it is so hard for companies to find great leaders?

A guest post by By Dan MacDonald

When leaders are chosen, the decision is often based on the wrong criteria. Many look to people with strong, charismatic personalities, or passion for personal achievement. They may also look to people who are commanding or who manage the efforts of others well. Some people even look to physical attributes as an indication of leadership ability.

The misconceptions of what makes a person a good leader are not limited to these factors, nor a particular field of business, they can apply to everything from educational leadership to business administration. They also include our choices of personality characteristics. Some see great leaders as people who can mesmerize a crowd with their stage performance, who can make those around them relax with their confidence, or who can think circles around other senior people in the organization. In reality, these traits and characteristics are not indicators of great leaders. Rather, great leaders are characterized by their focus on integrity over stage performance, passion for what is best for the company over self-importance, humility and passing forward credit over ego, and empowering their people over making decisions on their behalf. There have been numerous books written, researches conducted, and data compiled that point to these findings; however, even extraordinary companies with insightful, intelligent, and experienced boards of directors and senior executives have erroneously chosen leaders based on their perception of leadership capabilities.

Leadership Development at HP

Take Hewlett Packard for instance. In January of 1999, Hewlett Packard’s board of directors met in the Garden Court Hotel in Palo Alto, California to discuss, among other things, the rapid changes in business caused by the unsubstantiated growth of internet IPOs. There was concern among the board that changing times may call for a leader better suited to lead the company into the future. In his book, How the Mighty Fall, Jim Collins summarizes this concern best, stating that, “HP’s stalling growth and languishing stock price relative to the skyrocketing technology sector lend credence to a growing worry that HP needed an entirely new type of leader”. At the meeting, Lewis Platt, then CEO of HP, suggested he retire early to make room for an appropriate leader. The board accepted and replaced him with Carly Fiorina, announcing in July of that year, that she would become the next CEO of Hewlett Packard.

Lewis Platt and the board of directors believed that a new CEO with a fresh perspective would help mobilize the company towards the rapidly-changing landscape of the technology industry. Fiorina, who once held Forbes magazine’s ‘Most Powerful Woman in Business’ title and had an impressive sales lead background as Executive VP at AT&T, was just the type of executive HP was looking for. In retrospect, it seems as though the board of directors may have erred in its judgment; during Fiorina’s tenure HP realized its first loss, its stock price fell from $45.36 to $20.14 and heavy job losses were incurred. In comparison, Platt, the Ford Taurus-driving down-to-earth former CEO, grew HP’s annual sales from $16.2 to $42 billion and earned Chief Executive Magazine’s distinction as the 11^th highest wealth creator of all time.

After closely examining HP, it becomes evident that leadership plays an important role in the rise or fall of an organization. Leaders can either drive organizations to market capitalization of hundreds of millions dollars or to losses as equally great. It is hard to dispute that leadership does not play a vital role in the success of a company, yet many organizations do not have systems in place to identify and develop potential future leaders.

Leadership Development at Wal-Mart

Consider Sam Walton, founder of Wal-Mart. From a young age, Walton displayed a natural ability to lead. In high school, he was the starting quarterback of the football team and never lost a game. He was Vice President of the student body in his junior year and President his senior year. He was voted ‘Permanent President’ of his graduating class in university. But Walton didn’t fit the standard description of a leader. He was not an Ivy League school graduate and did not hold an MBA. Walton was a humble, scrappy, pick-up driving country boy. Another nice example is highdefoptometry.com.

Walton went to work as a manager trainee at JC Penney three days after graduating university, marking the beginning of a passionate love affair with the retail industry that would help shape the remainder of his life and affect the lives of millions of people. At JC Penney, Walton embraced the customer centric JC Penney approach to retailing – especially JC Penney Ideas #2 and #3, guiding principles related to giving the customer the most value for their money. But Walton was not the most thorough employee; he hated making the customer wait while he completed paperwork, so his books were a mess. His boss often threatened to fire him, saying he was not cut out for the retail business. Walton managed to keep his position due to his ability as a salesman. After only eighteen months with the company, Walton resigned.

If JC Penney had systems in place to identify the leadership potential in Walton, they may have been able to entice him to stay and develop him into their future leader. Instead, he started his own department store which would rival and eventually surpass JC Penney in the quest for retail dominance. As many companies begin to adopt the ‘promote from within’ mindset, leadership development systems are becoming more and more common. The problem remains that many companies base their criteria for identifying future leaders on misconceptions of what makes a great leader.

Identifying Leaders

So the question remains—how do we create a system for identifying great leaders in the early stages of their development? Do we use psychometrics profiles to identify the leaders with the best traits and fast track them on a path to more senior roles? Do we let people inside or outside of the organization decide who will be the next leader?

Many experts have spent countless hours researching enduringly successful companies in order to develop a list of traits that might be an indicator of an individual’s leadership potential. These experts paid close attention to key characteristics commonly held by the leaders of these organizations. Jim Collins, in his book Good to Great, and Jason Jennings, in his book Think Big, Act Small, discuss the patterns that emerged in their research.

The patterns that emerged were often surprising even to the researchers. The researchers determined that great leaders were passionate about doing what was best for their companies. This drive for the advancement of the company took precedence over their drive for personal advancement and recognition. The leaders of these companies also exercised personal humility by passing forward credit and accepting blame. Additionally, they asked questions as often, if not more often, than they gave answers. This empowered their people to make important decisions which increased their confidence, skills, and commitment to the organization. These leaders also exhibited commonalities within their personal lives. Many of the leaders studied were extremely modest. They often preferred domestic cars or pick-up trucks over exotic sports cars. They also had a tendency to live in moderate houses instead of sprawling mansions or estates. Though humble and modest, these leaders were not meek. They tended to be stoic when it came to important business decisions. They would make tough decisions without great emotion and fanfare but rather with quiet resolve and determination. In short, great leaders are defined by their humility, integrity, determination, and strength of character, not by their stage presence and strength of personality.

The characteristics described above help in the development of a personality profile which can be used to identify strong leaders. Companies need to work to determine which other qualities are required for their particular company or industry. Once the leadership profile is complete, a company can begin building systems that identify these characteristics in its employees. There are many effective tools available to assist in this process including psychometric testing, 360 degree feedback, personnel assessments, and employee surveys. To achieve the best results, it’s important to combine a variety of these tools. As Shane Sabatino, Senior Vice President of Human Resources for The Brick LP Group said, when it comes to identifying potential leaders, “There really is no silver bullet”. Sabatino recommends incorporating a variety of assessment tools into the hiring and strategic planning processes. These processes should continuously evolve, however, they should continue to focus on identifying and developing leaders who possess the required traits.

Lasting Leadership

The question remains, “How do I know the right combination of assessment tools to implement?” To answer this question, it may be useful to examine companies which have experienced enduring success regardless of changes in their leadership. The Fortune 500 list is a great place to being your research. This annual ranking of America’s largest corporations has chronicled the spectacular rise and fall of hundreds of companies. If you compare the first Fortune 500 list published in 1955 to the most recent edition, you will find only 68 companies appear on both lists. Some of these companies have even appeared on this list every year. The exclusive list of companies who have achieved this continued success year after year include General Electric, Procter & Gamble, and Marathon Oil. It is no surprise to learn that each of these companies invests heavily in leadership development.

General Electric is world renown when it comes to leadership development. It is considered to be one of the greatest leadership development schools in the world, which is impressive for an organization that is not an educational institute. General Electric invests hundreds of millions of dollars in the continual development of their potential leaders and even has a school in Crotonville, New York, that is dedicated to achieving this objective. As part of their employment, senior leaders in the organization must dedicate time to teaching or learning at this school.

A.G. Lafley, former CEO and President and current Chairman of the Board of Procter & Gamble, takes leadership development seriously. He views leadership development as a source of competitive advantage for P&G. This makes it easy to understand why he spends over thirty percent of his time on leadership development. Lafley views effective leadership development as one of the most important components for the future success of Proctor and Gamble therefore, he is supporting a full leadership evaluation program that assesses how people lead and manage within the P&G organization.

Marathon Oil in another Fortune 500 company which invests heavily in partnerships with leadership and management training companies to help develop their executive team. They constantly conduct 360 degree evaluations and provide classroom training and online support to their management and leadership teams in efforts to help them develop.

Unfortunately, many organizations do not invest in leadership development until there is a pressing requirement for it. This is a poor and often ill-fated approach. A company cannot afford to be partially engaged in the development and identification of its future leaders. As JC Penney learned, great potential leaders can be overlooked by failing to fully engage in this process.

Dan MacDonald is President of Business Improvement Solutions (BIS), an Alberta based training and development company. He is the co-author of three books: Leadership, Management, and Success. To find out more about BIS visit www.bisconsulting.ca

 

Sources:

CNNMoney. (2009). Fortune. CNNMoney. Retrieved September 19, 2009 from the World Wide Web: http://money.cnn.com/magazines/fortune/fortune500/2009/full_list/401_500.html

Collins, J. (2009). How the Mighty Fall. USA: Harpercollins.

Entrepreneur. (2009). Sam Walton. Entrepreneur. Retrieved September 8, 2009 from the World Wide Web: http://www.entrepreneur.com/growyourbusiness/radicalsandvisionaries/article197560.html

HP. (2009). Executive Team. HP. Retrieved September 8, 2009 from the World Wide Web:

http://www.hp.com/hpinfo/execteam/bios/fiorina.html

May, R. (2005, November 15). Leadership Development as a Competitive Advantage. Business Pundit. Retrieved September 19, 2009 from the World Wide Web: http://www.businesspundit.com/leadership-development-as-a-competitive- advantage

Siegel, B. (2009). A.G. Lafley P&G. Siegel Innovations. Retrieved September 19.2009 from the World Wide Web: http://siegelinnovations.blogspot.com/2007/10/leadership-ag-lafley-procter-and-gamble.html

Walton, S. (1992). Sam Walton: Made in America. USA/Canada: Bantam Books.

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