Leadership from within

One of the main points I try to make in “Managing Leadership” is that leadership arises from within the organization and manifests itself in its members - it does not sustainably emanate from any particular member, including (in particular) the one at the top, and radiate outward into the organization. One of the clearest ways this is demonstrated is in the varying results major companies see when the CEO position changes hands.

According to a recent BusinessWeek article, mercenary CEOs brought in from outside to “save” a company tend to have a positive effect on share prices during the first couple of years, while the temporary effects of their drastic remedies - wholesale reductions in force, sales of certain assets, purchases of others, organizational or process re-engineering, and the like - are being felt.

After that, they generally reveal themselves to have no really new ideas, and their lack of experience in their new industry or roots in the companies they presently head gives them little traction for generating any.

At this point, their record compared to those of CEOs of other companies who were promoted from within begins to pale. That is to say, their long-term record doesn’t measure up. What do you do then, hire another mercenary advocating another drastic remedy, putting your company through another period of disorienting upheaval that satisfies only Wall Street analysts and speculative shareholders? How long can a company survive this sort of direction by its board?

Fortunately, this phenomenon appears to be receding. According to the referenced article, fully 85% of the new CEOs appointed last year among S&P 500 companies were promoted from within. The item highlights an excellent example of how this was accomplished in Kellogg, when its CEO was called to Washington to serve as a cabinet officer in the current administration.

This wasn’t a planned transition - it was a complete surprise, and the company didn’t have a fully-prepared stand-in ready to take the reigns. What it did have was judgment and composure sufficient to the occasion. It simply had one of its board members step in as CEO and assigned him as a principal duty the job of preparing the person they determined upon as the successor to take over. This turned out to be a thoughtful and thorough two-year process.

Please do read the linked article to see a review of how this was done. Note, in particular, the use of board membership - both of Kellogg and another company - as part of this person’s training for operating at the CEO level. While I believe that board membership by an operating manager of a company is a fundamentally bad idea, intimate exposure to working with boards is not; Kellogg certainly made good use of this to help prepare its current CEO for his position.

Long-term executive development and key-position succession programs are an essential element of any board’s strategic planning. They, like most plans, almost never work as envisioned, but if they are carefully and seriously designed and prosecuted, you can always find a way to make them produce the desired result even, as Kellogg succeeded in doing, in unforeseen circumstances. Moreover, you will be cultivating and relying on the special genius of your own firm - not rolling the dice and betting the farm on the capabilities of someone who you don’t know, and who doesn’t know you.

Technorati Tags: Managing Leadership, leadership, CEO, Wall Street, S&P 500, Kellogg, Business Week, Boards, Governance, Training, Education

One Trackback/Pingback

Managing Leadership › You, too, can make it all the way to the top on Tuesday, May 8, 2007 at 8:01 pm

[...] Indeed, in a recent post, I made a positive reference to a process by means of which Kellogg responded effectively to a sudden loss of its CEO by appointing a transitional holder of that post, who then mentored the designated successor through an accelerated development program to prepare him for permanent assignment as CEO. [...]