Stepping up to Leadership

Have you ever wondered why so many managing directors and chief executives are recruited externally rather than promoted from within? 

I believe there are two reasons; the first is that the boards of companies are extremely risk averse.  This is to be expected as history provides plenty of examples of companies that have been brought to their knees as a result of the failings of a new CEO.
Take GEC as a case in point.  GEC grew to become one of the UK’s most successful companies under the expert guidance of Lord Weinstock, only to be decimated following his retirement in 1996 by the disastrous strategy adopted by his successor George Simpson. 

When Weinstock retired from GEC, the company had cash reserves in excess of £4.5bn.  When it was sold to Ericson in 2005 for just £1.2bn it had debts of more than £4bn!

The second reason is that very few organisations invest anything like the right amount of time and effort in succession planning, training and development.  When a new CEO is needed, they therefore don’t have a ready replacement waiting in the wings.

The problem here is that the step from senior management to CEO is a big one.  As the ex leader of the Conservative party William Hague recently wrote:
“I can say with authority that it is quite different being leader compared to any other position.  It is not just one step up; it is an order of magnitude different.”

So what can organisations do differently?

Focus on process rather than personality

In my opinion, success and failure are all too often the result of individuals.  CEO’s are like everyone else – they are only human.  They have strengths and weaknesses and they will make mistakes.  The problem is that as a result of the power and authority they are afforded, the consequences of their actions are amplified.  Where they are successful, organisations become too dependant on them and where they are unsuccessful, their actions can have disastrous consequences.

The solution is to create a culture where more people are involved in the running of the organisation. 

This is not to say that I am advocating decision by committee – far from it, as in my experience that is rarely a recipe for success.

What I am suggesting is that information and power should be disseminated widely throughout the organisation, that everyone should have a good understanding of the goals, vision and values of the organisation.  In this way, everyone should be capable of making good decisions themselves and, more to the point, everyone should be sufficiently informed to be involved in discussions on strategy.

I believe that most strategic failures come about, not as a result of the decisions taken – that is just the symptom of the problem – but as a result of the poor quality of the debate that preceded those decisions.

In the case of GEC, I suspect that the company had become too dependant on Lord Weinstock.  It is something that the great Peter Drucker noted when he was introduced to Weinstock by Robert Heller.  Heller once told me that Drucker was impressed by Weinstock but commented to Heller as they were leaving the meeting; “sell the stock when that man leaves”.  With hindsight, it’s a shame this profound observation was not shared with more people

Invest in your people

The reason that more CEOs are not internal appointments is because very few organisations invest sufficient time and effort on the development of their staff.

Even as I write this I can hear numerous business leaders respond “...but we spend a small fortune on training!” 

My argument is not about money though, it is about time and effort.

In his book Execution, Larry Bossidy, the one time number 2 to Jack Welsh at General Electric, observed that Walsh spent 10 years grooming potential successors prior to his retirement and that he devoted around 60% of his time to reviewing and developing the senior leaders at GE.

As evidence of the effectiveness of this approach, Bossidy describes how, when in 2001 Larry Johnson resigned from GE to become CEO of Alberston, GE not only named his successor the same day, but they also were able to say who would fill all the other positions created by the domino effect of related promotions.

When I describe this to senior executives they often argue that if they had people ready to fill vacancies in this way, those people would be pressing for immediate promotion or would be looking for opportunities outside the company.

The problem here is that those executives are seeing a direct link between development and promotion.  In contrast, the sort of development GE undertook for its senior executives was to broaden their experience by assigning them to different businesses, different markets and different challenges.  Promotions only arise from time to time whereas development should be continuous.

More worrying still is the fact that if you perceive there to be a link between development and people becoming frustrated by a lack of promotion opportunities, the temptation is to limit people’s development opportunities.

Applying these two simple principles will change the potential an organisation has to appoint people to the highest positions from within.  It will however take time and it will only be achieved if the existing senior management team have the right attitude to development themselves.

About the author
Alistair Schofield is managing director of Extensor Limited and can be contacted at .