Corporate leadership structure needs radical change

Posted by Kelvin on Sep 14th, 2009 | 3 comments home title

Learn about the author. Kelvin is the Founder of MontaRosa. He has spent the last 20 years in executive search, most recently managing the global private equity practice at another leading executive search firm. Read more from this author

Had an interesting conversation last week with a key player involved in the restructuring of the auto industry. My recent exchange with Eric McNulty — shared here in my last post — still had me thinking and I wanted to know what was being done about preparing for the new leadership demands for whatever emerges as the next GM or Chrysler. We must continue the conversation in a couple of weeks as it is clearly a hot and important topic.

But the conversations with the auto industry authority and Eric did hammer home for me that if we simply start with what the next CEO should look like or be experienced in, well then that’s like tinkering with a gas-fuelled engine attempting to compete against the new hybrid and renewable technologies. True change must be fundamental: reinventing governance structures, boards of directors and oligarchic public company leadership models.

It was Eric who gave me the title for the book I should write one day: “How come there are so many books written about great leaders and leadership and yet so few great leaders?” Well, other than the obvious fact the many of these books are the ghostwritten byproducts of executive hubris, the other reason has to be that the very corporate structures and frameworks that govern today’s firms needs a radical change to meet today’s challenges and seize the opportunities. How dare I state this?

It is clear that corporate governance as defined by Sarbanes-Oxley is not optimum and certainly not desirable. Rather, it is a flawed and cumbersome regulatory “fix” bolted to an already flawed system And in many cases it was implemented and executed by inexperienced and/or incompetent CEOs and disinterested boards. In times of rapid change SOX can be the millstone around the neck of a drowning business;
I enjoyed the observation of an industry colleague the other day that the average age of U.S. board directors goes up by one year every year. It is a closed shop community – clearly unhealthy and undesirable;
Today’s companies are increasingly complex and global — they need to be managed more as a neural network than as a command-and-control business. So hierarchical C-suites are clearly not capable or desiring of leading today’s business;
Finally the U.S. is not the model for everyone else to follow. There is little incentive for meaningful change, especially under the existing compensation structure that reinforces the status quo. We have to learn from how the Europeans and Asian firms have managed to build world-class companies that are threatening to — or already do — dominate their industries. I’m not saying they have all of the answers but clearly they have some of them.

So rather than focus on what the CEO needs to look like to meet the Pillar Trends I would suggest we start by looking at how the most successful organizations are adapting or transforming themselves – through new leadership structures and roles – and how the new leaders are being groomed. I’m thinking of forward-thinking firms like Credit Suisse and Thomson Reuters. Even Wal-Mart. And there are others.

I hope you’ll share your thoughts here.

Kelvin

photo credit: jiazi

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3 Responses home title

Eric McNulty says:

September 15, 2009 at 3:45 pm

Kelvin, there is so much to say about this post. I’m sure that with the right vinicultural inspiration, we could write this book in a week.

I’m going to agree and disagree with you. I’m going to agree that structural issues are at the root of the problem. I’m going to disagree with you, and I guess myself as I suggested the name of your book, in that I don’t think that we have a shortage of great leaders. Companies just don’t do a good job of using all of the leadership talent to which they have access.

The premise around leadership is set up as one of scarcity. CEOs like to think of themselves as an elite club deserving of massive compensation and near royal treatment because of some special leadership magic they possess. Search firms collaborate in this charade because it benefits them to make a CEO search a quest of epic proportions. Behind them, the compensation consultants, leadership development consultants and professionals, business schools, and the rest make a nice living narrowing the leadership pool by separating the “average” from the “exceptional.” Each profits by making their product a rare and desirable one. Boards, often made up of other members of the Club of Great Men and Women, reinforce the model because it is in their self-interest to do so.

Great importance is placed on having the right degree from the right school, making it into the cadre of “high potentials,” demonstrating a firm grasp of six or eight designated competencies, and the rest. All of these serve to narrow those who are given the formal mantle of leader yet many of these don’t screen with relevant criteria for what the job entails.

I think that we need to reverse the telescope, as it were. In the spirit of Buckminster Fuller, we need to start with the premise that we have an abundance of leadership, not a scarcity of it. The challenge is one of design: how do we best unleash the leadership potential of as many people as possible in our organizations. We all meet leaders every day who are far down in the hierarchy or who are in non-traditional place like social enterprise or who didn’t go to an elite business school. It may take more work to develop systems that recognize, develop, and reward a broader pool of leaders but organizations that are truly global, who will have to compete in the new urban areas and meet the challenges of the other Pillar Trends are going to need a leadership pool that is both wide and deep. They will need leaders with different strengths in different markets and at different times. We have entered an era that requires “many solving for many” rather than “one solving for many” and that, in turn, will require a different model of firm leadership. We have to acknowledge that firms need great leadership well beyond the corner office.

All of this is not to say that there aren’t great individual CEOs. There are, and many came through the narrowing screens described above. However I think that may be more because there are many who could, under the right circumstances and with the right opportunity, be a successful leader rather than because the selection criteria are the right ones.

Malcolm Gladwell, in his book Blink, notes that a large percentage of Fortune 500 CEOs are taller than average. Height, apparently, has become an unconscious screening criteria. So looking only at the people of average or below-average height, one can see that we have developed a system that overlooks great reservoirs of leadership talent. Our system for picking leaders is broken and the firms that take steps to repair it will find a source of enduring competitive advantage.
Anya Sclavi says:

December 30, 2009 at 4:38 am

This is exactly just what I was looking for. Thanks!
Bus Rental ny says:

April 17, 2010 at 8:03 pm

If I could give you prize for your post I would! Very Nice Job!