Sunday, May 22, 2011

The Making of a CEO: The Stage Sets the Stature

The other day a noted leader remarked in the media that as more professionals become chief executive officers at a young age the risk of their committing mistakes also would increase. The implication obviously is that experience teaches a professional many things that would come in handy not only in the journey of becoming a chief executive officer (CEO) but also in becoming successful in the role. Given that a CEO is expected to be a person of many attributes, from high intellect to down-to-earth common sense, from informed ego to spontaneous humility and from transparent empathy to visible aggression one would tend to agree with the proposition that appropriate experience would shape the profile of a successful CEO. The academic setting in a university and the job setting in a firm are two major determinants of the character evolution of any leader. The field of leadership development which has spawned many theories and models is dominated by mythical folklore as much as practical truism.

Myths and facts
While there are several mythical propositions on leadership development a few are striking. The first myth is that a leader is borne but not made. This myth is so widespread that even self-made leaders who come up the hard way to apex positions often take the position that leadership has to come naturally to a person. While the hypothesis has a grain of truth in that a certain basic personality disposition, especially one oriented towards achievement, is indispensable for a leader, it is also true that most other leadership attributes can be developed through experience. The second myth is that top-rung institutions, especially the IITs and IIMs, alone can provide a sure passport to a leadership mantle. While such premier institutions no doubt make one a better professional, eventual transition to leadership is a function of more complex variables that are encountered over time. The third myth is that technical skills are less important as one moves up towards leadership positions. Nothing can be farther from truth in an era where technology and its deployment are the fundamental differentiators of competitive companies.
Equally striking are certain facts of leadership development which are often obfuscated in mythical folklore of leadership. The first fact is that a CEO needs to be simultaneously competent in multiple domains and be able to engage with multiple stakeholders. Very often, however, media and analysts get taken in by one or two dominant characteristics of successful leaders and equate them with the essence of successful leadership in a generic format. The second fact is that leaders do slip up at times either in strategy or execution; however, leaders who are successful in the overall tend to be astute enough to pull back in time from mistakes. Many times, however, undue premium is placed on the infallibility of a CEO which tends to get questioned only after the CEO moves out. A classic case in point is the conservative accounting policies adopted by the new chairman of India’s largest bank, soon after the retirement of the highly acclaimed and successful predecessor who drove exceptional growth for the bank. The third fact is that the most successful CEO is one who has the ability to manage a leadership bench of near equals and potential successors than a bench of distant runners to leadership positions. Here again, the folklore is that leaders cannot develop under titans.
Phases and paces
The conventional thinking is that a CEO goes through a career journey like any other professional but with the caveat that the innate leadership qualities give the extra decisive edge to the professional to become a CEO. The various phases of the career journey are seen to be the graduate and post graduate academic phases in which theoretical domain knowledge is gained, and the operating level, managerial level and functional leadership experiential phases in a firm in which commercial deployment of theoretical knowledge is achieved. The pace at which a professional coasts through these phases is mandated by regulations in the academic phase but is entirely opportunistic and unpredictable in the experiential phase. The pace in the experiential phase is often seen to be influenced not only by exceptional performance but also by opportunity, godfathering and even a bit of luck. As one moves through these phases, management of stakeholders, both internal and external, is seen to become more important than anything else.   
This sequential model of leadership development has inadequacies which have not been adequately brought out in the reviews of leadership. In any case, the conventional model has little depth in the making of the new generation CEOs. A more appropriate way of viewing leadership development is through a longitudinal stratification of the entire career growth of a professional, spanning both the academic and experiential phases of say four decades into a learning mode and an application mode, with considerable connectivity between the two modes. This model overturns the conventional wisdom that academics is only about knowledge and experience is only about application. On the contrary, it is in the first mature academic setting that a graduate student experiences the competitive elements of performance, the group dynamics of human interactions and the commercialization mechanics of knowledge acquisition. The first transformational seed of leadership development is thus laid in the academic phase itself. If the premier institutes such as the IITs and IIMs are pursued for providing a fast track to apex positions, one reason lies in the competitive dynamics of entry into and study in such institutions.
Similarly, in today’s fast changing technological world, knowledge acquired decades ago in the class room would be of little help for achieving and sustaining successfully a CEO position.  Each decade in the five decades that had gone by has seen the emergence and embodiment of new domains of knowledge. Biotechnology and molecular biology are by now passé in medicine. Biological engineering, nanotechnology, and regenerative medicine are the new futuristic domains. Electronics is the core of communications and computing no doubt but media communications, artificial intelligence, and robotics are influencing the emergence of new lifestyles and industries. Massive changes in material technologies are underway, with the use of precious metals and rare minerals in new engineering applications, like gold and silver in electronics and communication gadgets, rare earths in automobile applications and polymers in pharmaceutical applications. By being up-to-date in such new technologies the CEOs in leading companies such as Apple, Samsung, Sony and Toyota are ensuring that their companies remain ahead of competition. The new age CEO needs to reprioritize his or her attention from stakeholder management to absorption of new customer-centric technologies as long as he or she intends to be a successful CEO.
Shaping and honing
Learning and application on an ever increasing and ever innovative canvas, from the inception to finale of a leadership career, is well established from the above discussion. The question still remains as to how true blood CEOs are shaped and honed over time. A study of successful Indian CEOs suggests three essential components and one highly desirable embellishment of the process. Firstly, a positive mindset for continuous learning and improvement makes a success of the dual mode knowledge model discussed above. Secondly, an intensive stint in one or more fundamental domains of a firm establishes perspectives that drive business success. Thirdly, leadership character is toughened and reinforced when potential leaders have the early opportunities to closely work with true blood CEOs. And the embellishment without doubt is the ability to work in a global business environment. These four components are synergistic and provide exceptional value for the leader.
A positive mindset for continuous learning and improvement is crucial for a CEO to keep his firm ahead of a competitive knowledge curve. The learning needs to be on multiple dimensions, covering both hard skills and soft skills, ranging from science, engineering and technology to human, organizational and social behavior. Here it is important to distinguish the one-time asset of an acquired knowledge with a more enduring ability to continuously grasp new knowledge. It is not mandatory that the CEO of an engineering firm needs to be an engineer or that the CEO of a finance firm needs to be an accountant. Instances abound of leaders from non-technical areas successfully leading technology firms, and vice versa. At the core of this phenomenon is the leader’s ability to grasp new domains and internalize the core features of the domains that are besides his or her academic expertise. My blog post on Five Great Leaders (January 2011) exemplifies how such cross-functional grasping and learning power made great leaders truly outstanding CEOs.   
Notwithstanding the proliferation of departmental specializations over years, four core domains continue to be the fundamental crucibles for leadership development. These are product development (or R&D), manufacturing, marketing and projects. The sooner in one’s career one works in one or more of these domains the more robust would one be as a leader. Product development is the engine of growth for a business, and a stint therein provides the leader with invaluable perspectives on generating value for the customers. A well designed product creates its own market in a sustainable fashion. Manufacturing is the delivery machine of a firm; the toughest managerial challenges occur, and the best of management models have emerged, in this domain. A leader who has worked on the shop floor carries with him for his life what productivity, competitiveness, planning and coordination mean under a comprehensive canopy of man management.
A firm exists for its customers, satisfying the existing ones and adding new ones. A leader who has intensive field exposure will be imbibed with perspectives on driving growth through proactive need identification and fulfillment. All business and industry depends on a ubiquitous black box called factory that converts inputs into outputs. Design and execution of facilities helps potential leaders understand how flexibility and specialization can be combined to deliver conversion efficiencies. Not all leaders would have the opportunity or time to work in all the four areas, but by exercising options to work in these domains professionals of varied academic disciplines can imbue themselves with exceptional value building and leadership qualities. The success of Hindustan Unilever in India in ensuring a strong leadership bench is related to its well established policies of placing all promising professionals in these areas early in the careers.
The ultimate opportunity for a professional with leadership potential is to work with an established leader. Such a stint challenges and reinforces the evolution of one’s own developing managerial and leadership concepts, and makes them even better. The stint also provides an opportunity to get a bird’s eye view of how operations and businesses are conducted in a total value chain perspective. Recognizing this important need, many large firms in India have established a practice of inducting promising professionals, early on in their career, as executive assistants to senior leaders, including the CEO.  Such companies have experimented with two routes; one is of inducting the professionals first as executive assistants and then moving them to the chosen core domain and the other is of positioning the professionals first in the chosen core domain and then moving them as executive assistants. Whichever route is taken, potential leaders, with a flair for learning, have been found to immensely benefit from the above three elements of leadership development.
The fourth dimension of operating in a global environment has gained much acceptance in recent years with the growing importance of global competitiveness and international growth. While international marketing is the logical choice to develop global leadership potential, international business development, strategic alliances and mergers & acquisitions have also emerged as the perfect domains for prospective leaders to cut their teeth in the challenging world of global business. Recognizing the importance, certain top rung academic institutions are integrating internship in select countries as part of the overall curriculum. As more overseas companies set foot in India, even domestically oriented businesses would need to build a pool of global leaders to manage collaborative as well as competitive relationships.  
Entrepreneurial and family leaders
The above described four pronged strategy of leadership development is a proven model which has produced several iconic CEOs in India. The model obviously works the best in professional organizations, in both private sector and public sector, where large numbers of talented professionals exist and systematic practices of talent management are deployed. In entrepreneurial organizations, however, very often neither the time nor the opportunity for such structured leadership development exists. Yet, entrepreneurial companies have thrown up some of the most successful CEOs ever. The reasons are not far to seek. By their very nature, entrepreneurial organizations are innovative, competitive and customer-centric with a clear need to seek a market niche. All the four elements discussed in the model above, therefore, occur in entrepreneurial organizations with greater intensity and connectivity.
In particular, entrepreneurs have an added responsibility. Unlike in large organizations where leaders are selected and anointed based on the models discussed, entrepreneurs start their journey with a presumptive assertion of their CEO leadership positions. This puts a tremendous responsibility on the entrepreneurs to live up to the self-appointed status. More often than not, all successful entrepreneurial companies owe their success to the entrepreneur-CEOs fulfilling their leadership mission. The initial success should not, however, make the successful entrepreneur-CEOs ignore or forego the benefits of the more elaborate four pronged CEO journey. Entrepreneur-CEOs who have worked on continuous learning, focused on core domains, created a seasoned board of directors and aimed high in international markets have continued to strengthen themselves and their organizations. Amongst these factors, establishment of a highly competent board of directors comprising industry veterans has helped many an entrepreneur overcome the disadvantage of not having worked with great leaders as in a normal professional CEO journey.
The situation in respect of family enterprises is different but has its unique nuances too. Most family organizations which are large, public limited companies have taken the route of passing the family scions through the four component model, albeit with the preordained motive of moving them to the CEO positions. This obviously puts an added responsibility on the scions to prove themselves on their own merits. Companies and conglomerate groups such as Dr Reddy’s and the Murugappa group have been able to demonstrate that the four elements are a winning proposition for family scions as well in their transformation as CEOs. The dilemma for the family leaders often is in terms of broad-basing, instead of strangulating, leadership opportunities for the professionals. Wise families have discovered that moving the family scions quickly through CEO route to board positions had enabled the simultaneous fulfillment of family and professional CEO development harmoniously.
Stage sets the stature
The leadership practice as discussed in this post clearly points out that leadership stature is achieved and enhanced by the choice of an appropriate stage for leadership play. Leaders, more particularly the chief executive officers, are neither borne nor anointed; they are actually developed through a combination of measures and practices. Potential leaders who understood the competitive dynamics of university education in a positive foundational frame, and also saw the firm as a university for continuous learning in its own right, who understood and toiled in the domains where real tangible value is created for the firm and who demonstrated panache and flair for working with other great leaders, all in an ambience of global competitiveness have proved themselves to be highly successful CEOs. In an environment in which technology increasingly determines the breakthrough ways in which customer needs are identified and delivered through innovatively designed and competitively manufactured products, the new generation CEOs would need to embrace the concept that the firm is the perfect stage for creating and enhancing their own leadership value.
Posted by Dr CB Rao on May 22, 2011.  

1 comment:

Narayanan said...

Leadership is multi-dimensional as the author has elegantly summarized and for some it is a journey and others a destination. The path to the CEO suite is tortuous with a unique story behind each individual's success. Are they born or made? To quote a famous writer, I suspect "some are born great, some achieve greatness and some have greatness thrust upon them". CEO positions are prized as the pinnacle of leadership and rightly so given the need to engage with various stakeholders and to serve as a single point of accountability for investors. However, this can become a zero-sum game in some organizations wherein it is portrayed as a "race to the top". Be it a small, large or family oriented organizations, emphasis on developing a leadership pipeline with an internal focus is as important as choosing the C-suite resident focused on external stakeholders. Regardless, a question that is unlikely to be put to rest anytime soon is whether (young) age is a poor substitute for experience and as a corollary, does extensive experience always guarantee a high-performing CEO? It is perilous to infer causation even when there is apparent correlation and more so on the topic of CEO development given the data set is highly skewed (survivor bias), contextual and finer details and deliberations be it at the board level or other internal forums tend to be confidential and inaccessible for independent scrutiny.