Monday, November 30, 2009

Getting People Ready to Lead

In its latest issue (12/7/09), Fortune Magazine offers another one of its lists--to add to lists of the top 500 companies, top admired companies, powerful women and top 40 under 40. This time it recognizes the top companies that are best in grooming leaders, those who will eventually take over the company or who will occupy top roles in finance (CFO), technology (CIO), operations (COO), or legal, marketing or administration. (See

Some companies are widely known for identifying talent among mid-tier managers early. They groom them for years to become competent, effective and visionary leaders. In some cases, companies identify the pool of leadership potential, develop them, but let them compete to win top jobs.

GE has been a standard-bearer in how to identify, develop, and groom managers. The Jack Welch (former CEO) way of developing leaders is legendary: management-development classes and seminars, painfully detailed evaluations, and confidential talent books that keep close track of those who will run GE in the next generation. GE and other firms are obsessed with evaluating and assessing talent and meticulous about offering an array of experiences to get people prepared.

These companies do such an outstanding job that those who don't get the coveted top spots when the time comes tend to go elsewhere to become top officers in other companies.

Fortune's list includes names we would have expected. Many are companies and institutions that perform consistently, have a meaningful global presence, and maintain spotless reputation and brand. They are companies that tend to be stalwarts in their industries. They nurture young talent with the intention it will remain with the company for decades.

The Fortune list is intriguing in two other ways:

(a) At least 10 of the top 25 in North America are or have been important Consortium sponsors. Many on the list have been lead sponsors at Consortium orientation programs (Eli Lily, Proctor & Gamble, General Mills, and Pepsico, e.g.). Other Consortium sponsors (past and present) on the list include 3M, American Express, Target, HP, and Colgate-Palmolive.

That of course implies a long-term commitment to diversity, a recognition that these companies see potential, value and talent in all employees no matter where they are from. They are also companies with constituents around the world: employees, customers, suppliers, and shareholders. Hence, their top leaders need to be competent managers of complex, widely dispersed organizations, affecting diverse cultures.

(b) Only two of the top 25 were financial institutions: American Express and CapitalOne. The large, familiar investment firms, investment banks, insurance companies, commercial banks and fund companies didn't make the cut.

Why so few financial institutions? Why wouldn't they be recognized as places that get people ready to lead? There might be a few reasons.

(a) In banking, the top leaders tend to be those who grew up in the organization as top deal-doers, who focused on transactions, clients, client pitches, deal closings and deal revenues--not necessarily as cost and efficiency managers or experts in organizational management. That's not to say financial institutions don't have efficiency and organization experts. Traditionally, top "rainmakers," top client bankers (with substantial client lists), and top traders have been those who've found an easier path to the top.

Hence, the best managers and arguably the best leaders are not necessarily nurtured upward or rewarded with growth and responsibility. They may exist, but they may not get sufficiently recognized or promoted to top positions.

(b) Compensation has often been based--for mid-tier bankers and traders--almost solely on revenue generation. The appraisal system, therefore, doesn't always encourage people to become shrewd business-unit leaders or take risks to learn about other sectors in the institution. Some deal-doers and traders may, in fact, have exceptional leadership potential, yet they know the score: Deal, client, product and trading revenues will likely be what will permit them to advance swiftly (and earn large bonuses).

(c) Large financial institutions have excellent programs for developing entry-level talent. They include training programs, expectations guidelines, mentor programs, and opportunities to work in different units to learn as much as possible. That spirited emphasis of development dwindles after associates become middle managers and vice presidents, when they observe revenues will get them paid, if not pushed up to the next level.

Young professionals learn the scorecard and tend to avoid taking risks that might help them in the long term, but hurt them in the short term. Thus, they may avoid transferring to groups where they have little expertise, avoid overseas assignments that put them out of view, or avoid the possibility of failure of any kind--all essential steps in becoming smart leaders.

(d) The appraisal process is less about developing long-term leaders, more about rationalizing compensation (bonuses) to reward recent performance. Financial instititions devote enormous amounts of time to the appraisal process. Only modest amounts, nonetheless, are spent on legitimate, sincere assessments of talent potential for the long term.

(e) In many institutions, there is pressure to win the next deal, do the next trade, or sell the next financial product to maintain status as a top broker, trader or banker. Therefore, time spent on ferreting talent, developing it, teaching it broader skills, evaluating it, promoting it, and making sure it remains in the institution is time spent away from clients, deals, trades, commissions, research, investments, transactions, and closings. Many senior managers likely see the importance of talent development, but are often confronted with tough short-term objectives that can't be skirted over casually.

Some financial institutions (Goldman Sachs, e.g., although it didn't make the list) are well known for nurturing talent and grooming it for leadership. Many others are the product of a series of mergers. Others are merely fighting to remain financially healthy. While they must manage through merger integration, the financial crisis, or capital shortfalls, they haven't devoted sufficient time to leadership for the long term.

Yet somehow the IBM's, the GE's, the Pepsicos and P&G's have gotten it right. They project 7-10 years out. They identify a pool of potential senior managers every year and put them on a track to get them prepared to run the company. They take chances with them, permit them to run business units at an early age, encourage them to take assignments in Europe or Asia, and push them to assume positions outside their comfort zone. They promote them, pay them and reward them with more challenges (and more confidence).

There is no reason why prominent financial institutions can't do the same. To say the least, it could assure them top talent, including young professionals, would be willing to stick around for a long time.

Tracy Williams

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