Academic research has revealed that the most powerful determinant of a company’s performance is not leadership, but the condition of the markets in which it competes. ‘A rising tide floats all boats’ goes the saying. Want to do well as a business leader? Start by picking the right market, and your efforts will be advantaged from the start.
Nonetheless, once the games begin, we know that the better team will generally prevail. Companies devote extraordinary effort, therefore, to recruiting, selecting and developing the leaders who will strategize more insightfully, market and sell more effectively, and produce and deliver goods and services faster and cheaper. Our company has a greater degree of customer success from their engagement with our product than yours – so there! It’s ‘the great game of business;’ millions are playing it every day with millions more watching from the sidelines, the stock markets ready to tally their bets on the winners.
Changes in leadership consume a disproportionate share of our daily headlines, arriving with a blast atop the newsfeed, but the realization within a company that ‘this is not the leadership team we need’ comes slowly. First of all, nobody wants it to be true. These are our players, we’ve put time, effort and expense behind their development, and we’ve made them part of our organizational family. The weight of economic and emotional investment is heavy, hard to move aside. Secondly, it’s hard to determine whether it is true. We may not be winning right now, but why? It could be we’re too early to market with our great product, or we don’t yet have sufficient capital to fund development or marketing or a second salesforce, any number of factors we’ll need a handle on to control our destiny.
The realization that the leadership team we’ve got is not going to get us there is hidden in a tall stack of mail we’re always going to sort through sometime next week.
Whose job is it to sort that mail this weekend? Whose job is it to see ‘this is not the leadership team we need,’ and do something about it? Well, for starters it’s the CEO’s job with regard to the ‘TMT’ – the top management team. Leadership is broadly the art and practice of getting results through others, and the TMT is the most important set of ‘others’ for the CEO. It follows that picking the top team and ensuring effective teamwork is Job One for the CEO, but most can tell stories of agonized decision making and repeated second guessing that preceded moving someone off the team. It’s hard to know ‘now is the time’ to make such a personnel move, in part because of the nettlesome need to consider different organizational adjustments e.g., change in role, change in reporting, short of moving someone out of the organization. And of course anticipating the time and effort involved in finding someone to fill a vacated role contributes to the agony of decision making as well.
While the CEO is having these considerations, those below and above him or her are making their judgments, a step removed from the action. These judgments include everyone in leadership, the CEO especially. People down in the organization often have the best vantage point from which to view the effectiveness of leadership. It is a truism of organizational life that you go down the hierarchy for expertise and look up for direction, down for ‘doing things right,’ up for ‘doing the right things.’ Those doing things right on the front lines closest to the customer get the earliest warning signals that we’re not doing the right things. If their warnings are not sought, or as happens all too often, are given but not heeded, the silent doubts of leadership begin. These folks are powerless to effect a change in leadership, but can offer a powerful perspective on what’s working vs not.
Above the CEO is the Board of Directors, whose responsibility is to represent the interests of shareholders in overseeing the company. Foremost amongst their duties is hiring and when necessary firing the CEO. The Board is regularly monitoring both company and CEO performance through board meetings and other contact, but they are one step removed from the CEO’s reality and that produces uncertainty. The realization that ‘this is not the leadership team we need’ comes no quicker and easier to them than any others. Their responsibility to come to that realization and act, however, has the highest stakes of all, as bringing in a new CEO is potentially the most disruptive and risk-laden leadership move that can be made.
Happily, the process for knowing this is not the leadership team we need is the same as the process for helping leaders be successful. Well-managed companies make regular changes in leadership as a natural outcome of their processes for managing the business and managing the growth and development of their talent. Here is what’s involved:
- A business management process that defines revenue, profitability and other relevant objectives to be achieved against market size, growth and competition, and sets appropriate individual leader targets g., marketing vs sales vs operations, that, if accomplished, will ensure overall company success. Regular leadership dialogue between CEO and other TMT members focuses on three topics: accomplishment vs goals, obstacles to progress, and what further help is needed
- A talent management process that defines competencies, experiences and personal characteristics needed for each leadership role, and ensures a ready supply of talent through recruiting, assessment and development of individual leaders. Regular leadership dialogue between CEO, other TMT members and the company’s human resource leader focuses on matching supply to demand
- The two processes intersect at performance review time, where these questions are asked:
- Was performance acceptable or better? If not, what feedback, support or development will enable such performance?
- Will acceptable or better performance happen fast enough to enable the business progress we require? If not, what change is warranted?
A couple of things should be observed about this, most importantly that considerable judgment is involved. We must always remember that ‘disagreements are possible amongst reasonable men and women’ to paraphrase Thomas Jefferson, and allow time to reconcile differences where possible. Secondly, these processes become more robust as an organization increases in size, and its markets, competition and sources of competitive advantage become better known. Nonetheless, the same basic concepts apply to organizations of all sizes, and the earliest of startups can benefit from adopting simplified versions of the processes described here.
If these processes are so easy to describe, why is it often so hard for leaders to establish and follow them? Three reasons I’ve observed in my years of practice. First, leaders often avoid making such things explicit, preferring to improvise and do things their own way. It’s as if it will curtail one’s creative expression and slow the pace of progress to do things by the book; whereas a good process documents the best demonstrated way to do things, and takes out the missteps people make when doing things for the first time.
Second, leaders often avoid conflict, sometimes not making performance demands or shortfalls clear, and other times not digging in to problem solve around solutions. It’s as if they expect that disagreements will not be resolved, and help will be seen as intrusive or will not be accepted on its merits; whereas conflict is the source of much creative action and a good management process ensures that conflict discussions are data-driven.
Third, leaders often don’t explicitly recognize that while they expect to scale their organizations through successive stages of growth, not all people can scale equivalently – themselves included. This is a broader American cultural challenge I believe; it’s as if the Horatio Alger myth is so deeply ingrained in our culture that no one believes it possible that they just might not be able to accomplish any and everything through dint of hard work and mother love! Leaders (and followers) would be well-advised to heed the findings from the startup world that different working styles and preferences apply at early vs growth vs expansion / mature stages of organizational development. Some people can scale with the organization; others, not so much. It’s not only okay, it’s to be expected, that some of today’s talent would best opt out as the company makes the transition from one stage to the next.
To sum up the implications for CEOs, much can be done as you grow your organization from one stage to the next to ensure you avoid the negative ‘aha!’ realization of this post’s title. If managed properly, no one is surprised when changes must be made, least of all you.
Comments? I’d like to hear your thoughts. Email me at email@example.com
 See Searching for a Corporate Savior: The Irrational Quest for Charismatic CEOs by Rakesh Kurana for one excellent source on this topic.
 See my post Silent Rebellion and the Irreducible Leadership Task for more on this topic.
 For a thoughtful take on a Board member’s role in helping the CEO be successful, see this interview with my Launchpad Venture Group colleague Hambleton Lord. His focus is startups but his guidelines have much broader application