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A merger between two venerable frms six years ago created one of the largest fnancial services frms in the world. After a
robust debate and extensive political manoeuvering, the individual selected as the new frm’s CEO emerged from the handful of contenders. Tis CEO seemed a logical choice – a bright, youthful, charismatic and ambitious leader from one of the legacy frms who had demonstrated his business building acumen by successfully leading the corporate development function in the US. Yet, despite these impressive
failed his company. However, after analysing the responses from a research initiative into how to grow great leaders, I was struck by another thought: executives don’t fail on their own – they have plenty of help along the way. Tis led to perhaps a more interesting question:
Do leaders fail their companies or do companies fail their leaders? Addressing both individual and the organisational accountabilities will enable companies to construct their leadership development practices to increase the odds that a greater percentage of those who aspire to lead will do so
credentials and the initial support provided to the newly appointed CEO, this individual earned a vote of no confdence within two years of his appointment date and resigned “in order to pursue other opportunities”. As an advisor to this merger, I was struck by this CEO’s premature derailment, which led me to pursue the following question: Why did this leader, as do many newly appointed senior executives, fail to lead?
Studying derailment helps us to better understand why leaders fail to lead. But virtually all derailment studies have examined only the individual as the unit of analysis – we explore why the leader
Is your company failing its leaders?
Ask not why leaders fail their companies; why do organisations repeatedly fail their leaders? Douglas A Ready
questions the conventional wisdom on executive derailment in this article from our Winter 2005 archive i l
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successfully. It should also help them to think about leadership efectiveness less as a list of traits and competencies and more as the product of the interactions among the leader, those being led and the context within which one is challenged to lead.
Tis is the product of research conducted in 2005 on 32 companies from around the world. Te purpose of the research was threefold: to examine why, despite signifcant academic research and managerial applications, so many managers who aspire to leadership roles become victims of executive derailment; to understand what policies, practices, or other factors might be operational in companies that are unintentionally contributing to an insufcient bench strength of leadership talent; and to ofer recommendations concerning what companies can do to develop their next generation senior leaders more efectively.
Why leaders fail their companies Te responses from the 32 companies gave the greatest weight to seven key reasons why leaders fail to lead in their organisations.
1. Poor stakeholder management While many of the other reasons for executive derailment were given a similar weight by the respondents of our 32-company study, the frst two factors were overwhelmingly viewed as the primary reasons why leaders fail to lead, with poor stakeholder management gaining top billing. Early in one’s career, demonstrated competence in a function or a process is usually the most direct route to achieving career advancement. But, as one’s career advances, the importance of managing interdependencies becomes a diferentiating factor in one’s success. Tese interdependencies, or stakeholders, might take the form of other senior executives within the group, one’s team, suppliers, customers, regulators, alliance partners, the media, and a host of other players who need to be infuenced so that the leader’s agenda can take shape and be implemented efectively.
2. Failing to balance diversity and alignment among the top team Sufcient research has been conducted on top team development for us to understand that requisite variety in thinking, perspective and experience are essential ingredients to the formation of
highly efective top teams. However, the goal in assembling a top team is not to try to achieve group think. In fact, prior research points to group think as a core reason for top team inefectiveness. Efective senior executives have learned how to productively manage the tensions that naturally arise from nurturing a diverse set of views. Tey create an edge that keeps the team at the top of their game, yet they stop well short of instigating intra-team warfare. Te respondents signalled that far too few leaders have learned how to reconcile the tensions between nurturing diverse perspectives that create edge and vitality and bringing about the alignment needed to craft, articulate and execute enterprise strategy.
3. Flawed execution of articulated strategy Shareowners, analysts, and employees are more forgiving of senior executives who do a poor job of articulating an enterprise vision than they are of those who fail to deliver value and results.
Te companies engaged in the research support this point. Tey had the opportunity to vote for a closely related candidate for executive derailment: the inability to articulate an enterprise strategy. But this factor fnished substantially lower than its sister factor: the fawed execution of an articulated strategy.
4. An insufcient critical mass of followership If any factor singularly reinforced the idea that efective leadership is less about competence acquisition and more about managing the efcacy of the relationship among the leader, the led and the organisation’s context, then this is the one. Weighing in at number four, our respondents drove home the point that if executives fail to engage their employees and fail to inspire them to feel central to their frm’s success, then they have fundamentally failed to build the foundation for their leadership. It’s a simple quotient – lose your critical mass of followership and you will lose your privilege to lead.
5. A poor capacity for listening While respondents cited this factor in a number of ways, such as an inability to learn from others, the bottom line is they viewed a leader’s inability to listen as a critical determinant of executive derailment. Tis pathology can take at least two shapes – the ‘shoot the
messenger’ for giving the bad news or the ‘what do I need to do to make these people get it?’ variety. Te former defciency is rooted in insecurity while the latter is rooted in arrogance. Either way, this faw puts a leader on a sure-fre path to isolation, which will eventually lead to the undesired outcome: derailment.
6. An inability to reinvent during large-scale change Te 32 companies engaged in the research acknowledged that leaders were certain to make mistakes while attempting to lead large complex organisations. It was not the making of mistakes that precipitated derailment, they stated, but rather the leader’s lack of interest or capacity to reinvent one’s leadership style when it became increasingly evident that such changes were, indeed, demanded. In fact, in a previous study of failed enterprise wide change initiatives that I conducted a decade ago, this same factor surfaced. In that study, when I asked CEOs to identify the one thing that they would do diferently that might have prevented their companies’ transformation eforts from failing, their responses were the same: act more swiftly, more broadly, more deeply – and do so by understanding that change begins with me. Tis is much easier said than done. Many CEOs and top executive teams gain great satisfaction from creating a sense of family and community in their companies, so splitting up that family or destroying that community is extraordinarily painful for our senior leaders.
7. A poor ft with the company’s core values Senior executives derail when they fail to lead within the bounds of their companies’ values. When a senior executive’s stewardship role is lost or violated, leaders lose their moral authority to lead. Unfortunately, there have been far too many examples in the popular press recently that point to this factor as a continuing source of executive derailments. A company’s values serve as the foundation for its core identity, and as such when leaders act outside these guiding principles they are often seeding their own paths to failure. However, if a core value becomes an excuse for complacency and inaction then a leader has an obligation to bring about changes to those guiding beliefs. One company, Digital Equipment’s core value of respect for the autonomy of individual
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employees deteriorated into a pathology when it became nearly impossible for the company’s leaders to mobilise the resources of the company to satisfy customers’ demands. Chairman Ken Olsen’s failure to modify this belief into a common sense guide for day-to-day behaviour led not only to his derailment but to his beloved company’s demise.
A CEO who failed his company Let’s return to the CEO referred to at the beginning, because he serves as a clear example of a leader that failed his company. Moreover, it is possible to map his behaviours against the seven key reasons for executive derailment that emerged from the research.
Tis individual didn’t understand that regardless of how smart or capable he was that there were now dozens of other stakeholders who would ultimately determine his success as a leader. Almost immediately following his appointment, the American leader of this global juggernaut surrounded himself with an all-male Anglo Saxon top team and an array of American male external advisors. He regarded the press and regulators as enemies to be vanquished. Suppliers were viewed primarily as opportunities for cost cutting and customers as targets for proft optimisation.
Tis CEO did a poor job of balancing alignment and edge among his top executive team. More to the point, there was plenty of edge and precious little alignment. He would devise divide-and-conquer strategies that would pit top team members against one another, leading to the strengthening of enemy camps and zero sum politics while discussing the frm’s direction and enterprise strategy. As a result, the members of the top team learned how to behave out of self interest rather than on behalf of the enterprise.
While this CEO did a respectable job of articulating his enterprise vision and strategy, he failed to lay the proper foundation to execute
that strategy. Tis CEO’s statements of strategic intent were focused on becoming the innovation leader and becoming the frst truly globally integrated fnancial services frm in the world. Te speeches were terrifc; however, the top team, key business unit managers, and geography heads soon realised that these words were not to be backed up with actions in the form of resources, rewards or consequences.
As stated, this CEO failed to manage his key stakeholder groups, failed to balance alignment with edge among his top team, and provided little in the way of resources to actually execute his enterprise strategy. As a result he failed to engage a critical mass of followership that was excited about his leadership of their organisation. No stakeholders were present to reinforce this CEO’s leadership, from either inside or outside the company. No top team members were motivated to rally their troops behind the CEO’s cause. And few senior managers saw reason to believe that the frm’s articulated strategy would be relentlessly pursued.
Tis CEO didn’t understand the importance of listening. He viewed feedback and well-intended input as a threat to his leadership rather than an opportunity for improvement. When non-Anglo Saxons suggested that his statements of strategic intent were loaded with too much American jargon, he responded to their inputs with an edge that bordered on mean-spiritedness. Tis individual’s goal was to hear no bad
news. Eventually, he got exactly what he wanted – at least until the ultimate piece of bad news – his vote of no confdence.
Te merger created signifcant frst mover scope and scale advantages to becoming a globally integrated provider of fnancial services to its clients. However, due to the frm’s inability to execute its enterprise strategy and its subsequent attention to internal politics rather than client service, competitors began to catch up at an alarming rate. As these changes took place, the CEO’s reluctance to want to hear the beating of the drums of change caused him to tighten his inner circle even further, surrounding himself only with those who would reinforce his current direction and leadership style.
Finally, this CEO failed to understand the importance of establishing and living by a core set of values for his frm. He viewed values as a soft initiative, rather than an opportunity for employee engagement on the subject of who they aspired to be as a team. His enterprise leadership team eventually persuaded the CEO to establish a set of guiding principles and values for the company. However, he placed the ownership of this initiative in the hands of an external advisor to execute, generating cynicism rather than positive momentum.
How companies fail their leaders Armed with a deeper understanding of why leaders fail their companies, it is
now time to turn the question on its head and ask: in what ways have companies failed their leaders? Te company responses suggest that there are three primary areas on which to focus: organisational culture, systems and processes, and cognitive misfres.
A culture of silos
Companies have been organised into discreet entities (business units, geographies, functions, product lines, etc.) for decades for one simple reason: it has worked. Tese organisational entities provide clarity of purpose and are easy to monitor from a performance measurement perspective. Tey have survived every management fad possible over the past 40 years, and so managerial loyalty to these stand-alone units has been
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very powerful. But, as customers increase their demands for integrated solutions, a company that has an organisational structure of product-push independence (and the mindset that usually goes along with it) will be hard pressed to provide the solutions that its customers desire.
Te companies in this study reported signifcant gaps in “integration-oriented, enterprise thinking and behaviours”. But whose failing is this? Do many of the world’s leading global companies lack leaders who are capable of collaboration and cross-boundary thinking? Tis is a doubtful proposition at best. It is not the lack of capability but rather a matter of learned behaviour. Tese product-push, stand-alone entities have engendered cultures of silos that have very thick and powerful walls. Tese cultures have been formed and reinforced by creating a cultural imagery of the unit leader as hero, providing a powerful disincentive for emerging leaders to search alternate developmental paths. As a result, leadership development has been decentralised within these silos, resulting in unimaginative career pathing and missed opportunities to develop talent across the enterprise.
Outdated systems and processes A staggering 97 per cent of the respondents indicated that they had in place formal processes for tracking and developing their next generation of senior executives, but virtually all of these companies indicated that they lacked a sufcient pipeline of leaders to achieve their companies’ strategic priorities. Tat data point sums up the challenge nicely: companies don’t lack systems and processes for identifying and developing leaders – they have ones that no longer work.
What isn’t working? Even though companies have been doing business globally for decades in many cases, far too many of them have leader identifcation and assessment processes that are ethnocentric in nature. Te rationale for this has been cost efciency but cost is a relative term if a company misses out on spotting promising high potential talent because its assessors are centrally located or come from one country or culture. As a former vice president of executive development for PepsiCo indicated: “We were doing business globally, but our leaders lacked a global mindset. I was in charge of leader identifcation and development and yet I barely left our Purchase, New
York, ofce. We had a strategic objective to grow in Japan, and yet I had never even been there to see what our promising talent looked like.”
Other systems and processes that have become dysfunctional in many companies include: replacement charts for senior executive appointments, leadership competencies profles and generic leadership training programmes that have no link to strategic priorities, and performance management systems that lack accountability and consequences. If a company’s systems and processes don’t serve as mechanisms for identifying and nurturing the cross- border development of talent globally then these processes are failing its company’s next-generation of senior leaders.
Cognitive misfres Tere is little beneft in being delicate with this point – when it comes to building leadership capability, some companies just don’t get it. Whether this stems from a CEO’s lack of interest, commitment or intellectual rigour concerning the importance of building a robust pipeline of next generation leaders, it presents a problem for leaders and leadership development specialists nonetheless. Te core problem in this case is that the CEO and top team have failed to connect the dots between making investments in developing leaders and their companies’ organisational capability to succeed strategically. Tey maintain a view that leadership development is a cost item rather than a critical strategic investment. Tey view the short term costs of moving talent across silos as outweighing the benefts of building a cadre of enterprise leaders. Tey view gatherings of their companies’ leaders as of-site golfng opportunities rather than as opportunities to explore their companies’ future strategies and capability gaps.
Building enterprise-wide leadership capability Te senior executive population of any large company is comprised of fewer than the top one tenth of one per cent of the frm’s employees. Tis translates into the top 100 executives of a company with roughly 100,000 employees. I refer to these individuals as the company’s enterprise leadership team. By the time executives have reached this career stage their companies have made signifcant investments in them and
placed signifcant bets on them. Tey are a miniscule percentage of their companies’ employee population and yet the efectiveness of their leadership will determine whether their companies will succeed or fail. Te stakes are enormous, making it a wise move for companies to seriously investigate how to minimise executive derailments and improve their leadership identifcation and development processes. In other words, we need to understand why leaders fail their companies and how companies fail their leaders.
Te following are some actions that will help: • Formulate a leadership development policy for your organisation that explicitly connects the dots between making investments in talent and improving your company’s competitiveness; • Senior executives should own the talent and leadership development agenda for your company. Tis means making serious investments of time in holding your company’s enterprise leadership team accountable for identifying and developing promising leadership talent; • Don’t wait until an individual is about to be appointed to a senior executive position to broaden this leader’s development. Invest in cross-boundary moves early in one’s career and provide exposure to a variety of businesses, functions, geographies and stakeholders as early as possible; • Invest the time to select well – development is not a panacea; • Make derailment behaviours explicit so promising leaders understand what leadership styles help them and hurt them. Examine the seven key reasons why executives derail and engage in conversations with your promising talent to help them to abandon or never acquire those behaviours; • Engage in periodic audits of your processes for identifying and developing your company’s leaders. Use colleagues from other parts of your organisation or external resources to ensure that you are taking an impartial look at your approaches.
Doug Ready ([email protected]) is the founder and
CEO of ICEDR, the International Consortium for
Executive Development Research
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