What becomes a CEO most (Part 2)

I promised in an earlier post to revisit a study, publicized by David Brooks, about what characteristics seemed to make for the most successful CEOs.

The study is actually from July 2008, by Kaplan, Klebanov and Sorensen. It set out to compare the relative contribution to CEO success of what the study calls “execution” skills versus “interpersonal” skills.

The study concludes, in part:

[S]uccess and performance are more strongly correlated with execution-related skills than  with interpersonal and team-related skills, conditional on hiring a CEO.  In other words, CEOs with the execution-related skills of a Jack Welch appear more successful than CEOs with the more team-related skills of Jeff Immelt.

So I reviewed the study and tried to put aside how badly Brooks interpreted it. I already did that rant.

The first thing to point out is the authors’ study sample, and their definition of success. The leaders they evaluated were 316 candidates for the CEO job at companies funded through private equity — either VCs or leveraged buy-outs (LBOs); the main measure of their success for purposes of the study was whether they got the job. In that respect the study may tell us more about what private equity firms think matters in a CEO than they do about what actually works and doesn’t work.

(Which off the bat reminds me of a comment I once heard at venture capital event, that VCs were like a Kindergarten soccer game: the ball rolls one way, and all the kids chase after it in that direction; the ball rolls the other way, and all the kids chase after it again. The VCs in the room laughed and nodded. But I digress.)

Even between the LBOs and VCs, there were differences:  “Buyout CEOs score higher on characteristics related to a broader range of managerial and executive functions while VC CEOs appear to score higher only on characteristics related to intelligence and vision.”

To the extent the study measures performance success, it looks only at factors it concedes are “coarse.” Performance success means a good exit or good press; failure means being fired, going bankrupt, or getting bad press. By these measures, the authors conclude “Success tends to be positively related to execution-related skills, particularly for LBO CEOs, and tends to be
unrelated or negatively related to team-related skills, particularly for the VC CEOs.”

But the part of the study I dwelled on, were the distinctions the study makes to categorize skills as either “execution” or “interpersonal” — the key distinction in the study:

[W]e informally refer to characteristics as interpersonal / team-related, neutral, and execution-related.  Based largely on the factor analysis we describe below, we refer to “Develops People,” “Treats People with Respect,” “Calm,” “Flexibility,” “Listening,” “Open to Criticism,” and “Teamwork” as interpersonal or team-related skills.  We view “Removes Underperformers,” “Efficiency,” “Aggressive,” “Moves Fast,” “Persistence,” “Sets High Standards,” “Proactive,” “Work Ethic,” “Holds People Accountable” as execution-related skills.  We classify “Network,” “Hires A Players,” “Follows through on Commitments,” “Organization,” “Brainpower,” “Analytical,” “Strategic,” “Creative,” “Attention to Details,” “Integrity,” “Enthusiasm,” “Writing,” “Oral Communication,” and “Persuasion” as neutral or mixed.

These are some fascinating distinctions. Spend a few seconds picking out a skill and see how the authors categorize it.

And see that the study basically does not measure the contribution to success of CEO skills like organization, analysis, and attention to detail… or like enthusiasm, communication, and persuasion. Those are considered “neutral” skills. (So why did Brooks say the study reported those skills don’t matter? (Oops. I said it again.))

“Follow through” is neutral, not an execution skill.

“Holds people accountable” and “removes underperformers” are scored as execution skills, not an interpersonal skill, like “develops people.” A bias toward firing instead of building?

Finally —  but fundamental for the purposes of this blog — the study also treated “integrity” as a neutral skill. The study just doesn’t evaluate if integrity is good for business, or not.

So if you like to talk up mission and values, you don’t need to feel daunted by this study.

What becomes a CEO most?

There is so much about corporate leadership that is, and is not, in David Brooks‘ New York Times column this week, “In Praise of Dullness” (and in the research he cites), that it may take me a few posts to react.

Here is the thesis:

[W]arm, flexible, team-oriented and empathetic people are less likely to thrive as C.E.O.’s. Organized, dogged, anal-retentive and slightly boring people are more likely to thrive.

Brooks cites a study by Steven Kaplan, Mark Klebanov and Morten Sorensen called “Which C.E.O. Characteristics and Abilities Matter?” Brooks says they relied on detailed personality assessments of 316 C.E.O.’s and measured their companies’ performances. According to Brooks, they found that strong people skills, enthusiasm, and strong communications do not correlate with being a good C.E.O. Rather, “The traits that correlated most powerfully with success were attention to detail, persistence, efficiency, analytic thoroughness and the ability to work long hours.”

Agreed, and maybe, obvious. But dissing enthusiasm and communications would seem to run counter with one of my basic premises, that solid and repeated communications from leadership about mission, vision, values and culture can help a business do better in both the ethical and the economic sense.

Well, let me deal with Brooks’ view first, in this post, and later turn to the research itself. I think Brooks – with whom I frequently agree, much to my surprise — gets a little lost in the midst of trying to relate to this research.

Says Brooks:

The market seems to want C.E.O.’s to offer a clear direction for their companies. There’s a tension between being resolute and being flexible. The research suggests it’s more important to be resolute, even at the cost of some flexibility.

OK, number 1, how does the market, much less your employees, know your clear direction if you cannot articulate what that direction is and why it’s worth following. And like any other important message you have to market, you have to sell it like soap — believability and memory go up with repetition. And then believability and memory go up with repetition. Score one for communication skills.

Number 2, did Brooks miss every other business writer since, I dunno, 1980, talk about the need for business leadership to remain nimble in the face of accelerating change. Or what we call, “flexibility.”

So the good business leadership formula here is being resolute and flexible: resolute on your goals, resolute on the vision, AND resolute about getting there ethically — and then be flexible about strategy and tactics.

Says Brooks:

The second thing the market seems to want from leaders is a relentless and somewhat mind-numbing commitment to incremental efficiency gains…. The methodical executives at successful companies just make the same old four-door sedan, but they make it better and better.

Sometimes. But that “incremental improvement” strategy worked out great for GM and Chrysler.  And at the moment, it is also going great guns for the newspaper business. Not.

Says Brooks:

The C.E.O.’s that are most likely to succeed are humble, diffident, relentless and a bit unidimensional. They are often not the most exciting people to be around.

So explain Warren Buffet, Jack Welch, Lee Iacocca (who saved Chrysler’s bacon last bailout), and a lot of dynamic men and women I have known who have led fast growth companies. And BTW, Iacocca’s list of 9 valued leadership traits — which I admit is hindered by his requirement that they all being with the letter “c” — includes “communications” and “charisma.”  (C is also for cookie, and that’s good enough for me.)

In summary, this column points us to some very interesting research, but it’s not one of Brooks’ best efforts.

More to the point, I think we need to conclude that dynamic, communicating, exciting leadership can’t be all bad. Granted, you need to walk the walk as well as talk the talk. And maybe if you have to choose one, choose the walk.

But myself, I think if you want your teams to walk in the same direction as you, you’d better show them the way and invite them along. More than once. Audibly.

Is Employment a Corporate Social Responsibility?

I heard some interesting reactions to and interpretations of the comments on April 29 by Dr Margaret Chan, the Director-General of the World Health Organization. She said:

“I have reached out to companies manufacturing antiviral drugs to assess capacity and all options for ramping up production.

“I have also reached out to influenza vaccine manufacturers that can contribute to the production of a pandemic vaccine.

….

“Above all, this is an opportunity for global solidarity as we look for responses and solutions that benefit all countries, all of humanity. After all, it really is all of humanity that is under threat during a pandemic.”

In on-air chat the next morning, these comments led the CNN anchors into a discussion of corporate social responsibility in the broad sense, of pharma companies as rich citizens of the world, etc. Their explicit point: hey, drug companies — you’re making billions off of us, so don’t be greedy when the world needs your Tamiflu.

If that is a fair point, then how come we never heard it applied to the economy? According to the CDC there are, as of now, 226 cases of 2009 H1N1* in the US. By contrast, the Labor Department says some 1.9 Million Americans have lost their jobs since December 2007. A more widespread pandemic, don’t you think?

But we never heard a public outcry, or a governmental shout-out, to this effect.  What if someone with a bully pulpit said this:

“The Economic Meltdown of 2008-2009 is a pandemic, fueled by the contagion of uncertainty. People are afraid they are going to lose their livelihoods, so they stop spending, that causes losses in the companies that produce our goods and services, and those companies go on to lay more people off.

“To stop the spread of this pandemic, we need to contain the layoffs and the fear of layoffs. So we are calling on the companies that have profited from the American consumer to now do their part, to live up to their social responsibility, by striving to the greatest extent commercially possible NOT to put more people out of work.”

And saying that wouldn’t have cost the taxpayers a dime.

I have run companies. When my company’s survival or fundamental profitability was at stake, I laid people off. I really had no choice. And for many companies this year, that sad reality is behind their RIFs.

But seriously, and I would like to hear from my fellow corporate ethicists out there, do you think is it patriotic, is it ethical in this kind of economy for a profitable company to lay people off just to increase its profit margin?

I’m just asking.

But even Jack Welch might say that kind of layoff is unethical AND bad for business. At least, I think he’s saying that these days, now that he has repudiated the idea of “shareholder value” as a prime objective of business. As Jack told the Financial Times:

“Shareholder value is a result, not a strategy . . . Your main constituencies are your employees, your customers and your products.”

* I like bacon way, way too much to call it “swine flu.”

“Shareholder Value” and short-term thinking

Can short-term thinking in a business leader be ethical… at least when the survival of the business is not at stake?  Isn’t there something intrinsically wrong about sacrificing the future for the sake of the present?

Valuing the long-term over the short-term is at the heart of a lot of messages that company management gives to employees about ethics.  When we say, “Don’t approve a shipment of peanut paste that you know is tainted,” we are really saying, “We don’t want you to sacrifice the company’s future reputation and sales for the sake of filling this one, immediate order.”

So not being hypocritical about that message in the top-level business decisions we make adds a bit of a challenge in maintaining our “tone at the top,” eh?

And so it seemed ethically obvious when Jack Welch told the Financial Times on March 12, that the “obsession with short-term profits and share price gains that has dominated the corporate world for over 20 years was ‘a dumb idea.’ Welch says now that the concept of “shareholder value” that he championed was never supposed to be a be-all-and-end-all.

According to the Financial Times:

Mr Welch said last week he never meant to suggest that setting, and meeting, profit expectations quarter after quarter in an effort to boost a company’s share price should be the main goal of corporate executives.

On the face of it, shareholder value is the dumbest idea in the world,” he said. “Shareholder value is a result, not a strategy . . . Your main constituencies are your employees, your customers and your products.”

At least, that’s what he says now.