BM Issue Winter 2010

Experience more.

the korn ferry institute briefings on talent & leadership

GRANTURISMO CONVERTIBLE, BY MASERATI.

EXPERIENCE No12: Be one with the elements

Chief executive officer Gary Burnison Chief marketing officer Michael Distefano

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touring convertibles. And when it comes to personalization, the GranTurismo Convertible can be configured in countless combinations of colors and materials, ensuring unmatched exclusivity and the knowledge that your Maserati, like its owner, is unique.

Learn more, and build your own Maserati. Visit maserati.us or call 877-my-Maserati ©2009 Maserati North America. All rights reserved. Maserati and the Trident logo are registered trademarks of Maserati SpA. Maserati urges you to obey all posted speed limits.

2009.11

this Convertible is unique: A rear seat angle of 22 degrees means that two real adults can travel in comfort unattainable in other grand

Publisher Laurance Allen

How McDonald’s Plans Ahead pg.14

circulation director Peter Pearsall facts & figures editor Stephanie Mitchell marketing coordinator Stacy Levyn

Europe’s Jobs Turnaround pg.20 Building a Company of Entrepreneurs

pg.24

Governing the Governors

pg.36

The CEO Whisperer

creative Director Joannah Ralston

Board of Advisors Sergio Averbach Jonathan Baines Cheryl Buxton Dennis Carey Ana Dutra

contributing editors Chris Bergonzi Lawrence M. Fisher

pg.44

2009.11 $19.95 us $19.95 cnd €13.60 eur £12.50 uk ¥1,770 jpy 20.50 chf 73.50 aed ¥136.40 cny

Sakie Fukushima Joe Griesedieck Robert Hallagan Lan Kang John Keller

Piers Marmion Robert McNabb Alice Punch Gary Reidy

Victoria Griffith Paul Hemp

Deborah J. Jacobs Glenn Rifkin

The Korn/Ferry International Briefings on Talent and Leadership is published quarterly by the Korn/Ferry Institute. The Korn/Ferry Institute was founded to serve as a premier global voice on a range of talent management and leadership issues. The Institute commissions, originates and publishes groundbreaking research utilizing Korn/ Ferry’s unparalleled expertise in executive recruitment and talent development combined with its preeminent behavioral research library. The Institute is dedicated to improving the state of global human capital for businesses of all sizes around the world.

Cover illustration: Charlie Powell

With the newest GranTurismo, Pininfarina has created a true four-seat convertible that combines the comfort, quiet and safety six-speed adaptive automatic transmission deliver thoroughbred performance and an unmistakable Maserati exhaust note. Inside,

Editor-in-chief Joel Kurtzman

managing editor, online Derek Fromson

OPEN-AIR PERFORMANCE FOR FOUR of the coupe with the excitement of top-down motoring in the unique Maserati tradition. Its 433 hp, Ferrari-designed V8 engine and

Leading in a Time of Crisis

An Interview With Kenneth I. Chenault, Chairman and CEO, American Express

pg.52

This publication was printed using high solid inks, containing less than 1% VOC, and was produced using 100% Certified Renewable Energy.

ISSN 1949-8365 Copyright 2009, Korn/Ferry International Requests for additional copies should be sent directly to: Briefings Magazine PO Box 327 Derry, NH 03038-0327 Circulation customer service phone: 603-965-2232 This is a Skype number with worldwide service.

For reprints, contact Laurance Allen at 508-888-0050 Printed in the USA

a letter from the CEO

When the lights at Lehman Brothers were switched off, you could almost hear the door slam on an era. Phrases like “securitization,” “interest only,” “skip a payment” and “CDOs” went from being descriptors of wondrous human capabilities to being code for nefarious activities. Ideas that mattered only a few months before fell into disrepute. Markets teetered, consumers stopped consuming, fear was in the air and Wall Street was pitted against Main Street.

Today, the patient is showing signs of life. There is a pulse and the mirror is fogging. Things turned out to be not as bad as people thought and the left-for-dead world economy is out of intensive care.

And now? Now, the search is on for new ideas for the new world – ideas to replace, augment and even rehabilitate those that have fallen into disfavor. That is what The Korn/Ferry Institute’s Briefings on Talent and Leadership, a quarterly magazine, is all about; not to tell you what to think, but to tell you what to think about.

There’s lots to think about in this issue. Not long ago, a young American military officer led a squad of heavily armed soldiers into the Shiite holy city of Najaf. The squad was soon surrounded by an angry crowd. Tension grew and the potential for violence esca-

Credit

welcome lated rapidly. The officer then held his rifle high above his head and pointed the muzzle downward toward the ground. Then he ordered his squad to do the same. “He barked, ‘Take a knee!’ and the soldiers sank to the ground in a non-threatening posture.” What could have been a deadly incident was diffused by the soldier’s leadership initiative. In “The CEO Whisperer,” we profile Warren Bennis, a thoughtful, modest man to whom the world’s top leaders turn when they need a coach. We recount how Bennis uses this powerful event, which took place at the beginning of the Iraq war, to spark classroom debate: Are leaders born, or are they made?

And, in “How McDonald’s Plans Ahead,” Briefings goes inside the

leading global food-service retailer to illustrate how the company is as concerned with ensuring adequate succession as it is with evolving its menu from “super size” to salads and lattes. It is something the company learned the hard way. One CEO died in 2004, just before the start of a franchisee meeting. His successor fell ill shortly after and then passed away. These CEOs were architects of McDonald’s turnaround plan. In two years, McDonald’s had four CEOs. Perhaps this means that a board’s most important task is to select a company’s leaders and plan for succession.

In “Governing the Governors,” we explore corporate governance and explain that in times of turmoil, boards must understand their companies as never before. Harvard Business School Professor Jay W. Lorsch says, “One size doesn’t fit all. One company may thrive with a CEO who’s also a chairman; for another, it could be a big mistake.”

Throughout continental Europe, shifts in the labor market are challenging entrenched practices and forcing Old World countries to apply New World thinking or risk continued declines in competitiveness. In this inaugural issue, Adrian Wooldridge of The Economist writes about how continental Europe’s head start in recovering from the economic crisis is threatened by its chronic labor problems.

While Europe may feel that its generous social policies have been vindicated by early signs of renewed growth, its pride may be short-lived if deep-seated ills are not addressed.

In case any further evidence is needed for a flattening world, in “Building a Company of Entrepreneurs,” we review how one of Hong Kong’s oldest companies, Li & Fung Group, brings together Eastern family values with Western ideas of entrepreneurship to create competitiveness and growth. And finally, in “Leading in a Time of Crisis,” Briefings Editor in Chief Joel Kurtzman interviews Kenneth I. Chenault, chairman and CEO of American Express. Chenault shares personal insights about integrity, trust and achievable goals and how they are the foundations of leadership, especially in difficult times.

I hope you enjoy this issue of Briefings, and that its content, which is also available online at http://www.kornferrybriefings.com, engages you and makes you think.

Our aim for this magazine is nothing less than audacious: to provide great insights to help leaders lead.

—Gary Burnison, chief executive officer, Korn/Ferry International

1/8” bleed built in to this side

contents 1 Letter from the CEO

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24

6 Latest Thinking 6 l eading with intent Real change requires process and time.

8 w hat makes leaders succeed?

Leadership depends on more than static skills.

10 b oards as advisors and bellwethers Boards can help CEOs plan for the future.

14 Succession

1/8” bleed built in to this side

HOW MCDONALD'S PLANS AHEAD McDonald’s became best-in-class at succession planning the hard way.

BY DEBORAH l. JACOBS

20 Talent 2 0

EURO PE’S JOBS TURNAROUND O nce a laggard at job creation, continental Europe is outpacing Britain and the

come in.

United States.

6

BY ADRIAN WOoLDRIDGE

2 4 BUILDING A COMPANY OF ENTREPRENEURS By blending Asian values and Western management techniques, Li & Fung Group has enhanced its competitiveness and growth.

44

BY PAUL HEMP

36 Governance HOW TO GOVERN THE GOVERNORS Corporate boards are being asked to change. What should they do to improve the way they govern? BY VICTORIA GRIFFITH

44 Leadership WARREN BENNIS, THE CEO WHISPERER How a pioneer in the study of leadership teaches CEOs and others to be more effective at what they do. BY GLENN RIFKIN

52 36

52 Interview LEADING IN A time of CRISIS Kenneth I. Chenault, chairman and CEO of American Express, weathered 9/11 and the financial crisis. How he uses what he learned to keep his company on top.

BY JOEL KURTZMAN

Credit

Credit

62 In Review 20

6 2 “ DRUCKER ON LEADERSHIP” 6 6 “ SUCCESsION: ARE YOU READY?”

There’s never been a better time to change.

To find new ways to connect.

New ways to collaborate.

New ways to share human knowledge, to work together, solve problems together, and bring the world a little closer.

Together. that’s the human network effect

Mankind’s greatest

achievements

have come about by

talking,

Credit

©2009 Cisco Systems, Inc. All rights reserved.

Visit cisco.com for more information.

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The Korn/Ferry Institute

and its greatest failures by not talking.

—Stephen Hawking

Latest thinking

manic m onday

A third more accidents happen on Monday mornings than any other day of the week, with Mondays marked by “low performance and inattentiveness as people try to recover from the weekend.”

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Despite the accumulation of insights about emotional intelligence from decades of research, the concept commands little more than pop-psychological status in most organizations. There is certainly increased awareness in the corporate world that emotional forces frequently underlie seemingly analytical decisions and that a leader who can manage these undercurrents in the workplace has a clear advantage. But, for the most part, corporate leadership training has failed to cultivate this advantage.

Academia has not done any better at developing these capabilities in leaders. Graduates of highly ranked MBA programs have shown only a 4 percent improvement in selfawareness and self-management abilities and a 3 percent decrease in social awareness and relationship management skills from the time they began their programs.

Richard E. Boyatzis*, a prominent investigator of emotional intelligence for more than two decades, may have found the key to developing leaders with greater emotional and social competencies. Simply put, those in charge need to want to be leaders, he says. Self evident as that may sound, it is a crucial insight. Many people are pushed into leadership because of the expectations of others or they pursue leadership positions, despite strong reluctance, because of the allure of career advancement or social status.

Boyatzis’ formulations, enunciated in his “intentional change theory (ICT),” are based on the idea that change in any system, whether that system is a single individual or an organization, occurs gradually and on many levels.

And, what he calls “specific intention” is required to orchestrate and sustain change in the system.

Intentional change, is achieved through a five-part process, says Boyatzis. First, an individual or group that seeks to change must envision a desirable and achievable future. Next, they must come to terms with their real selves

sure such a support network exists.

Finally, most leadership programs fall short because they are one dimensional, focusing on individuals or on one level of an organization. ICT emphasizes the lattice-like nature of change. To take root and sustain itself, change at one level must be complemented by change at all levels. Change must be achieved at the individual level, in dyads, such as between bosses and subordinates, and at the team, group, organizational and community levels. Such holistic change is difficult and requires that leadership consultants and coaches facilitate the transmission of change at one level to other parts of the system.

As an example, Boyatzis cites a program in which a major pharmaceutical company employed ICT techniques to shorten product development times. The most striking aspect of the program was the intricacy of the communication, feedback and reinforcement structure that was created and how relentlessly team members were reminded of their purpose and the importance of their relationships with internal and external constituencies.

The example highlights Boyatzis’ key insight that although most organizations talk about the need to empower their leaders, few do what it takes to give their leaders a chance to succeed. Fostering leadership begins with firing up individual and group will with a vision of a desirable and attainable goal. It then requires devoting sustained attention and resources to creating an organization that is conducive to achieving that objective.

Common Mistakes in Leadership Development Leadership training programs and managers conducting annual reviews often make a crucial mistake, according to Boyatzis. They skip or give short shrift to the first step of ICT — defining a desirable, achievable goal. Instead, they jump directly to the second step — comparing the real to the ideal. Examining the gap between one’s aspirations and reality through a variety of feedback mechanisms, such as videotaped interactions, can provide strong motivation for change. However, research shows that if an individual is not given a sense that change is possible and if attention is focused on fixing his deficiencies rather than enhancing his strengths from the outset, he will become defensive and stressed and his performance will suffer.

Another weakness in many leadership development efforts is that they do not provide explicit permission to experiment and even to fail. A judgmental subtext often exists in organizations that will sabotage a nascent leader’s early efforts. Permission to let go of old habits and try new approaches can come from trusted consultants, coaches or peers.

Most organizations do not do enough to make

The Korn/Ferry Institute

Ken Orvidas/theispot

How many leaders does it take to screw in a light bulb?

Just one, but he really has to want to do it.

and acknowledge the discrepancy between their real selves and the ideals they are trying to become. They next must develop a plan for how to reach their goals, experiment with new behavior and create a support network that encourages their new behavior. These steps may seem intuitively obvious, but, in fact, few change initiatives adhere to this approach.

Studies at the Weatherhead School of Management at Case Western Reserve University, where Boyatzis is a professor of organizational behavior, psychology and cognitive science, have shown that following these five steps leads to sustainable changes in habits, perceptions and mood. These changes in turn enhance individuals’ abilities to understand their own and others’ emotions. In other words, putting intentional change theory into practice can significantly develop emotional and social intelligence, or what Boyatzis refers to as “resonant leadership.”

Hal Mayforth

Leading With Intent

* Richard Boyatzis is a co-author, with Daniel Goleman and Annie McKee, of Primal Leadership (Harvard Business Publishing, 2002), with Annie McKee, of Resonant Leadership (Harvard Business Publishing, 2005) and, with Annie McKee and Frances Johnston, of Becoming a Resonant Leader (Harvard Business Publishing, 2008). Boyatzis’ most recent papers on intentional change are “Leadership Development from a Complexity Perspective,” Consulting Psychology Journal (2008) and “Intentional Change Theory from a Complexity Perspective,” Journal of Management Development 25 (2006): 607-23. For more information about the ideas in this article and the work of Richard Boyatzis, contact him at richard. boyatzis@case.edu.

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La t e s t t hi n ki n g

Many development efforts may be missing the forest for the trees.

Certain psychological assessments can help identify individuals with learning and adaptability strengths. A flexible, learning orientation is also indicated by a history of responding well to feedback and coaching, prior success in a variety of jobs and roles and an ability to gracefully handle mistakes and failures while extracting key lessons. Observing how individuals respond to assignments that require new capabilities is also revealing.

Middle Manager

Supervisor

Talent Selection and Succession

Briefings on Talent & Leadership

h

The Korn/Ferry Institute

Most derailments occur because of the sinkor-swim mentality that pervades during many transitions. Companies like American Express and Pfizer, however, have increased their success rates by taking an active role in managing promotions. Best practices include creating a transition plan that identifies the unique demands and key risk factors of the new role and closely monitors how the transition is going. Smooth transitions are also

ug

Transition Management

o of Thr ck La llow Fo s es en

Managers are often promoted on the basis of their performance, but past performance by itself can not predict performance at a new level. Ironically, a history of success at lower levels often works against freshly minted executives. Newly appointed executives must reinvent their leadership styles; they must shed tendencies to micromanage, learn to build a team and develop confidence in assuming wider responsibilities. Selection committees need to examine untested areas of competence and ask, for example, whether a successful directive middle manager could empower her staff if she moved into the executive suite.

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Talent Acquisition

ra

8

Executive

Ab

Business owners have the highest overall well-being of any occupational group. Transportation and manufacturing workers have the lowest.

The combination of seven key behavioral characteristics most conducive to success is different at each level of leadership.

e Lif kor ce W lan Ba e tiv or hip pp rs Su ade Le g rin we ip po rsh Em ade Le ive ip ct h re rs Di ade Le

Half of all executives fall short of performance expectations and derail. Given the amount of time, energy and resources many organizations devote to talent management and leadership development, that is an alarming and baffling statistic. But it is perhaps not so baffling if you believe that most leadership development efforts are doing little more than allowing the Peter Principle to operate — ushering executives up the ladder until they reach the point where their skills are overmatched by the requirements of the job.

Another explanation, however, is that leadership is not a static set of teachable skills, competencies or behaviors, and that development efforts premised on a static model are ill-conceived. A good deal of research has shown, and practical experience confirms, that what makes an effective manager varies dramatically depending upon managerial level. So when the only constant among managerial challenges is change, the only competencies that count across the board are agility and adaptability, and that is where development efforts should be focused.

In “Testing the Leadership Pipeline,”* a paper forthcoming in The Leadership Quarterly, four researchers have taken a quantitative, analytical approach to the question of what constitutes the right stuff at each managerial level. Their goal is to help organizations predict effectiveness and translate that effectiveness as the manager rises to succeeding levels.

Analyzing the performance of 2,175 managers, researchers Robert B. Kaiser, S. Bartholomew Craig, Darren Overfield and Preston Yarborough identified seven facets of managerial behavior that were strong predictors of effectiveness at various managerial levels: learning agility, directive leadership,

Which Managerial Behaviors Predict Effectiveness?

ng ni ar y Le gilit A

Wa nt to Be H a ppy?

H ang ou t your S hingle

H

empowering leadership, supportive leadership, work-life balance, abrasiveness and lack of follow-through. But the researchers also found that these factors played very different roles in performance, depending upon which managerial level was being studied.

At the executive level, for example, directive leadership actually played a negative role.

Empowering leadership is what is required at this level. Although a top-down, commandand-control approach proved to be counterproductive, neither supportiveness nor abrasiveness differentiated the effectiveness of executives at this level. That is, interpersonal skills are not as important at the top as they are at other managerial levels. Interestingly, work-life balance proved to correlate negatively with effectiveness, confirming what most executives already assume: anything less than full devotion to the job may compromise results.

For middle managers, whose primary role is sharing information throughout the organization to build support for change initiatives, interpersonal skills are of primary importance. Supportive leadership is a crucial factor and abrasiveness is a fatal flaw. Unlike their superiors, middle managers thrive when they display directive behavior, while demonstrating empowering leadership is of less importance.

At the supervisor’s level, the only positive predictor of success, beyond learning agility, is work-life balance. This finding may reflect the primary importance of mastering defined skills and setting limited goals at this level.

Being extremely supportive, or abrasive, are counterproductive at this level, suggesting that to be most effective, supervisors should maintain a distance from rank-and-file employees.

So what are the practical implications of these observations? If your goal is enhanced effectiveness at all managerial levels of your organization, your development efforts

Hal Mayforth

What Makes Leaders Succeed?

should not be aimed at cultivating specific competencies. Instead, they should focus on identifying versatile, adaptable candidates. As Kaiser et al. write, “Learning and adaptability appear to be metacompetencies — general capabilities that enable the development of more specific competencies. Learning seems to represent the cognitive side of the equation, whereas adaptability suggests the behavioral aspect.”

facilitated by support mechanisms such as mentoring and feedback. Companies are also finding transition coaching helpful.

Just as there is no one formula for a successful leader, there is no single recipe for how to select and initiate new executives.

The one principle that seems to apply to any leadership transition is that those who have a proven ability to adapt to changing demands are most likely to succeed.

Strongly positive predictor of effectiveness Positive predictor of effectiveness Insignificant predictor of effectiveness Negative predictor of effectiveness

*Robert B. Kaiser is a partner with the executive development and research consultancy Kaplan DeVries Inc. and is co-author, with Bob Kaplan, of The Versatile Leader (Pfeiffer, 2006). S. Bartholomew Craig is an associate professor of psychology at North Carolina State University and an adjunct research scientist with Kaplan DeVries Inc. Darren Overfield is a senior consultant with Kaplan DeVries Inc. Preston Yarborough is the assistant director of leadership at the University of North Carolina at Greensboro. rkaiser@kaplandevries.com.

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CEOs say that the recent economic crisis has placed a new premium on information and changed how they interact with their boards.

Wh o’s G ett ing a G old Star

I

In the summer of 2008, Herbert Henkel, the chairman, president and CEO of Ingersoll Rand, was alarmed when he noticed that European orders in the company’s refrigerated transport business had slumped, even as business was still booming in other divisions.

“I couldn’t help thinking, ‘What if that figure really is indicative of what’s out ahead?”

Henkel said in one of a series of CEO interviews conducted by Michael Patsalos-Fox of McKinsey & Company, Dennis Carey of Korn/ Ferry International and Michael Useem of the Wharton School of the University of Pennsylvania. (The interviews and an analysis were published in a different form in the July 2009 issue of McKinsey Quarterly.*) Though analysts thought Henkel was mis­guided, he followed his instincts and forecast zero growth in Europe during the third quarter. He turned out to be wrong: growth actually declined by 15 percent. Nevertheless, as a result of Henkel’s prediction, Ingersoll Rand got a head start in responding to the economic crisis, quickly restructuring, reducing inventory and developing other contingency plans.

The abruptness of the recent downturn has underscored the value of anticipating economic trends, according to the CEOs and chairmen of many of America’s leading companies who were interviewed. The corporate leaders also said it is becoming more difficult to act decisively ahead of trends because they are increasingly reliant on incomplete and rapidly changing data.

Leading chief executives have responded to the challenge by rewiring their organizations’ neural networks, creating mechanisms for rapid communications, constant information flow and the transmission of strategic input throughout their organizations. Some

Confidence in corporate leadership is highest today in North America, followed by Asia Pacific, Central/South America and Europe.

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Dan Page/theispot

Boards as Advisors and Bellwethers

CEOs have focused on fine-tuning their internal monitoring systems to pick up signals of developments warranting quick responses.

Many have sharply increased the amount of time they spend communicating with investors — not only to provide information and transparency, but also to be strategically aligned with major investors in times of crisis.

But perhaps the most significant trend emerging from the recent crisis is a growing interest among many CEOs in having more active boards. Many CEOs have come to the realization that if directors are well-informed about their companies’ conditions, the board members are in a better position to offer support and advice.

“There are more surprises brewing in tough times than there are in good, so you naturally end up with more communications,” says George Buckley, the chairman, president and CEO of 3M. Many CEOs said their full board meetings have been supplemented by exchanges through letters, e-mails, intranet postings, informal discussions and conference calls. At Cardinal Health, Chairman and CEO R. Kerry Clark instituted board updates — conference calls held as frequently as every two weeks — and created a special committee, consisting of three board members, to interface with management and report regularly to the board.

“There are very few barriers and everybody’s very comfortable talking plainly to each other,” says Clark.

Even more than the frequency of communication with the board, the content of that communication has changed. Many CEOs described a shift in boardroom discussions from routine annual reporting by division heads to nearly constant war-gaming.

“The world moves at a pace today that requires strategy to be front and center all the time,” says William Nuti, chairman and CEO of NCR. “There are too many variables that come into play in a normal cycle, let alone this one, that can rapidly change the course of your company, so I bring strategy up at every single meeting.”

Nuti uses his board not only as a bell-

Hal Mayforth

La t e s t t hi n ki n g

wether, but also as an advisor in the formulation of strategy.

“You get great research when you can pull information from board members, each of whom sits on two or three boards,” says Nuti.

“You’re effectively getting the perspective of 18 different boards.”

Many CEOs said that working to get the people with the right experience onto their boards has been a priority for that reason.

Nuti credited his board with helping him quickly understand the magnitude of the recent downturn.

Eric Foss, chairman and CEO of the Pepsi Bottling Group, like others, said he welcomed more frequent communication with a talented board not just to build its trust but also to benefit from its experience. He had decided to include strategy discussions in every board meeting at the beginning of 2008, even before the economic crisis hit. It was a fortunate decision as the board made valuable contributions during the past year, according to Foss.

Some CEOs pointed out that it is still important to strike a balance between board engagement and executive autonomy.

“I think boards have to be very careful that they don’t take on the management responsibility,” says A.G. Lafley, chairman of Procter & Gamble. “If you’re doing that, then in effect you don’t have confidence in the chief executive and the management team. I think you have every right to ask any and all questions that are important for the health of the business, but I think you have to be real careful that you don’t get into managing the business.”

Similarly, Phillip Hildebrand, the president, director and CEO of HealthMarkets, believes management’s relationship with the board must remain well-defined if it is to be effective: “Get [board members] into an environment where you can sit and talk through issues, and it’s incredibly valuable. But they are the first to declare that they’re not operators. Realistically, you can’t try every one of their ideas and still run the business. So, you push and pull to prioritize. [If they tell you], ‘This is what we have to do,’ [you tell them], ‘We can do that, but there’s a tradeoff — you need to know that will put pressure on the

Briefings on Talent & Leadership

business.’ I’ve found real balance in them challenging us and pushing us, but at the same time stepping back and allowing us to run the company.” * These interviews were originally published in the McKinsey Quarterly (July 2009). The authors were Michael Patsalos-Fox, a director at McKinsey & Company, Dennis Carey, a senior client partner of CEO & board services at Korn/Ferry International and Michael Useem, a professor of management and director of the Center for Leadership and Change Management at the Wharton School of the University of Pennsylvania. Dennis.Carey@KornFerry.com

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TOGETHER, OUR IMPACT HAS

ONLY JUST BEGUN.

Celebrating 40 years in business, Korn/Ferry understands that attracting top talent to your organization is only the first step in long-term human capital success.

Korn/Ferry has developed a host of solutions that go far beyond executive recruitment, solutions designed to help you deploy, develop, retain and reward your talent. From succession planning to executive coaching, performance management to leadership development, Korn/Ferry has the tools to unlock your organization’s full talent potential.

40 Celebrating forty years.

Leading organizations worldwide have turned to Korn/Ferry for their talent management needs for more than four decades.

Isn’t it time you spoke with Korn/Ferry? www.kornferry.com

succession

How After losing two CEOs in rapid order,

mcdonald’s

McDonald’s revamped the way it does succession.

Plans

How a global company became best-in-class.

ahead

M

By Deborah L. Jacobs

McDonald’s Corporation had taken initial steps to revamp its succession

plan when a tragic sequence of events tested its bench strength. Gathered

with more than 12,000 franchisees, suppliers and employees in Orlando, Florida for the company’s 2004 worldwide convention, James R. Cantalupo, the chairman and CEO, died of a heart attack early on the morning of April 19, hours before the day’s proceedings

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Credit

were to get underway.

Briefings on Talent & Leadership

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the time Skinner took the reins at the end of 2004 following Bell’s brief tenure, there had been four CEO’s in just two years.

Since then, the leadership development process has continued to evolve. One crucial step was to create a Global Talent Management group within the human resources department. The group now oversees the succession process for roughly 1,400 positions worldwide — officers, senior directors and directors — the feeder pool for officer roles. David Small, who was promoted to head the group in July after four years of grooming, says that when these jobs turn over, 90 percent are filled from within the company.

Meanwhile, McDonald’s has undergone a wholesale reorganization to implement the principles of the Plan to Win. Responding to competition in the fast-food industry and a growing focus on healthier eating, it made several key acquisitions and began to rethink its business strategies.

Having executives in house ready to become CEO during the back-to-back tragedies of 2004 was essential to revitalizing the company, says Richard R. Floersch, head of the company’s

Every December, Skinner, president and COO Ralph Alvarez and senior management now assess the performance of the top officers. They rank each individual’s performance during the preceding year using the 20-70-10 model, identifying the top 20 percent of performers, those in the middle 70 percent and the bottom 10 percent.

Evaluations rely on multiple points of view rather than on a single boss’s perspective. Supervisors need to defend evaluations to their own peers. And others can weigh in with information about their experiences with the person being reviewed.

An “improve or remove” leadership development plan is then formulated. Ideally, it focuses on what people need to do better in their current positions or to be ready for advancement. Meanwhile, supervisors who are not familiar with the work of the high performers are expected to get to know them.

Calibrating evaluation standards has been crucial to bringing the company closer to its readiness goals, Small says. Today, there

Today, there are “one ready now, one ready future” for 79 percent of the

Catalyst for Change The succession pipeline that produced Skinner had begun to be reconfigured six years earlier. The catalyst for change was a mandate from the board. In 1998, after Jack Greenberg became CEO, the board asked for a succession plan that would identify two successors for each key spot — “one ready now, one ready future.” The future candidate was to be ready within two years.

With hindsight, the board directive seems prescient.

Greenberg, who had beaten out Cantalupo for the CEO job, stepped down at the end of 2002, just before McDonald’s announced its first quarterly loss as a publicly traded company.

Cantalupo, a retired executive with 28 years of service, was brought back to head the company but died 16 months later. By

a re we o ver sha ring?

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are “one ready now, one ready future” for 79 percent of the top 50 positions. The target is 100 percent.

human resources department. If an outsider had been hired instead, there is a good chance that the Plan to Win would have been abandoned in favor of a different strategic path, he says.

Still, for the process to work, “ready now” candidates must be at least as strong as the people they would replace, Floersch says. And that makes some people uncomfortable.

In a conversation several years ago, Skinner asked a manager whether his “ready now” candidate met the standard, Floersch recalls. When the manager hedged, Skinner told him that if the candidate did not yet meet all the requirements of the position, then he should be considered a “ready future” — not a “ready now.” If the manager’s position were to open the next day, a candidate should be sought from outside the company, Skinner said.

Getting Better all the Time

Calibrating Performance A key part of the enhanced succession process is performance guidelines for assessing the top 264 officers in the organization and analyzing the feeder pool for the senior director positions below them. It became apparent that “the bench strength at the senior director level was significantly lower than we needed it to be in order to fill key officer positions,” Small explains. “We knew that we could never make any progress in talent management if we couldn’t accurately differentiate performance.”

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Talent management and leadership development have been among Skinner’s top priorities ever since. His own career path exemplifies the company culture, which favors homegrown leaders over those hired from outside. Of the company’s top 50 executives, 40 percent started in the restaurants, some as hourly employees or manager trainees. Companies considering the overhaul of their talent management process might find the McDonald’s model instructive.

to be successful in their current job or the next one.

McDonald’s leadership development programs include an educational component. A special accelerated development program, targeted at the top 264 high-potential directors, senior directors and officers, is designed to enhance leadership capabilities. Participants learn to have candid conversations with subordinates during performance evaluations and otherwise hone their skills at coaching and developing talent.

Rather than send employees to offsite leadership development programs at prestigious universities as many other companies do, McDonald’s runs its own. These programs combine instruction by the company’s executive team with speeches by outside experts. The goal is to provide a natural link between

top 50 positions.

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Charlie Hill

Board members, most of whom had come to Florida for the convention, were alerted of the news at 5 a.m. and quickly convened an emergency meeting. By the start of the business day, they had appointed Charles H. Bell, a 44-year-old Australian who had spent his entire 28-year career at McDonald’s, as the youngest CEO and the first non-American to head the company. That afternoon, he delivered the opening address that Cantalupo had been scheduled to give.

But six months later, Bell too was gone; he resigned after becoming terminally ill with colorectal cancer. Again, there was a successor in the pipeline. James A. Skinner, who had begun his career at McDonald’s 33 years earlier flipping burgers, was promoted from vice chairman to CEO in December 2004, a month before Bell died.

Skinner was the last surviving author of the company’s “Plan to Win,” a turnaround program designed to address an unprofitable period that led to Cantalupo’s return. The plan, whose other authors were Cantalupo and Bell, listed “attract and retain the best talent” as one of the company’s “must do’s.”

At the heart of the McDonald’s succession process is a culture that favors continuous improvement and demands that every employee get better each year. Written guidelines were introduced for employees in the United States, Australia and the United Kingdom in 2008 and by 2010 will apply to all 1.6 million employees worldwide. They define eight leadership competencies that encapsulate the key skills and behaviors needed for business success. “Builds and leverages talent” is one of the items.

For each competency, McDonald’s clearly defines what is expected. The guidelines even include a list of “contrary behaviors” like “overemphasizes proving oneself and does not give credit to others” and “does not apply consistent criteria and standards when making talent management decisions.”

Talent management is premised on a familiar, predictable format developed from the company’s study of best practices elsewhere and adapted for the culture McDonald’s is trying to create. It starts with the drawing up annually of an individual performance plan that focuses on an individual’s goals and objectives and is reviewed at least once, at midyear. Separate individual development plans describe what individuals need to do

Briefings on Talent & Leadership

leadership development and the company’s business strategy, something that might be harder to achieve if executives went off campus for their instruction, Floersch says.

To varying degrees, the same process is followed at lower levels of the organization, Small says. Talent management is so much a part of the corporate culture that it usually extends to the restaurant level as well.

However, there are no guarantees of promotion. Whether someone is promoted depends on many variables. “We’re very clear with people who go into our high-potential accelerated programs that this program is not designed to get you promoted; it’s designed to help you step up your leadership capabilities, to get you ready in case you’re promoted,” Small says.

The promotion rate for the 264 high-potential leaders is about 40 percent.

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McDonald’s rigorous process, with its up or out mentality, may sound harsh and bureaucratic, but the company’s retention rate is high, says Small. The turnover of top talent is less than 2 percent per year, perhaps partly because McDonald’s is creative about letting people move into different kinds of positions, even if those moves are lateral. Perks like incentive stock options and restrictive stock also put some glue on the company’s talent.

Talent Management. Working with Skinner, Alvarez and Floersch, the group drafts a succession plan for the top 30 positions that is presented to the board each July.

Succession planning to develop a company’s future leaders, with the human resources department serving as trustee, has succeeded at other businesses, just as it has at McDonald’s, says Charan. But reaching the point where a company can have “one ready now, one ready future” is the outcome of a “bigger social process” in which people develop relationships working together, he says. In the course of these interactions, they can observe and acknowledge each other’s strengths.

The purpose is not only to find successors but also to create a culture that identifies and nurtures talent, Charan notes.

From this process, successors will emerge. In the meantime, this vehicle “muscle builds” the organization with talented people. “The process should go from bottom up also, starting

To follow up, board members try to get acquainted with those individuals they do not already know. The process is “a great opportunity for the board to become familiar with the candidates for senior positions, and as time goes on, they may well become candidates for the most senior position,” McKenna says.

Jeffrey Sonnenfeld, head of The Chief Executive Leadership Institute at the Yale School of Management and author of “The Hero’s Farewell: What Happens When CEOs Retire” (Oxford University Press, 1988), says there are additional advantages in hiring internally. When the board makes hiring decisions, there is an “unconscious bonding between outside candidates and the nominating committee” that can make the outsider overly dependent on those responsible for the hiring decision, Sonnenfeld says. Inside hires are more independent and have “a considerably stronger network and knowledge base than even the director has,” he says.

The purpose is but also to create a with the line leaders and staff leaders — not just from the top,” he says. “The process is bigger and longer and deeper than just the succession for the top. It is a methodology of building the talent pool for the future.”

While companies often publicize their promotion policies, the specific people who may move up should not be disclosed until a company announces its appointments, Charan says. The board should be informed about candidates for high-level positions, as should the candidates themselves, but no one else should know of the company’s intentions.

Personality and Politics

The framework for the McDonald’s succession process comes partly from “The Leadership Pipeline: How to Build the Leadership-Powered Company” (Jossey-Bass, 2000) by Ram Charan, Stephen Drotter and James Noel. McDonald’s has built on the six steps in the evolution of leadership identified in the book — from managing oneself to managing the enterprise — by defining the competencies that go with each. Employees, in partnership with their supervisors, are expected to create their own development plans geared to personal strengths and opportunities within the organization. Plans might include shadowing somebody, having a mentor or working on some special assignments.

The same process is replicated throughout the organization. Evaluations are conducted in the spring for global functional leaders in each area of the world and potential replacements are identified. Data from these evaluations, collected for approximately 1,400 employees worldwide, is sent to Global

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“The most important thing any board does is pick leadership, starting with the CEO,” says Andrew J. McKenna, nonexecutive chairman of the McDonald’s board since 2004. And the company’s board devotes most of its July meeting to the subject. Since the culture at the company favors homegrown leaders, only internal candidates are considered, McKenna says.

The meeting starts with a presentation by Skinner, Alvarez and Floersch on the company’s progress in developing leadership in the past year and future plans. Alvarez and Floersch talk about the performance of the individuals in the top 15 leadership positions and the succession candidates for these jobs. Then Skinner presents his assessment of the candidates developing for his position.

Following these presentations, the board meets in executive session. Since McDonald’s is a global company with 32,000 restaurants in 118 countries, the board looks at talent throughout the world. The objective is to follow the progress of individual candidates — what they have done, what they might be able to do and the likelihood that they will move up, McKenna says.

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Theoretical Underpinnings

The Korn/Ferry Institute

Does It Translate?

The willingness of McDonald’s to invest in its people is “in some ways a refreshing model and in some ways a reminder of how many great companies lost their way,” Sonnenfeld says. As recent events in the financial industry illustrate, the “disposable entity mindset matched with excessive short-termism has been destroying U.S. business strength,” he says.

But grooming leaders internally rather than speculating about whether an outsider’s skills are transferable, as McDonald’s does, is something only about a dozen American companies do well, Sonnenfeld says. These companies appreciate that “you have much better performance data from the people within — you know who is riding the coattails of others, who

not only to find successors culture that identifies and nurtures talent.

Boards that favor outside hires are shortsighted in various respects, he says. There is no reason “to believe that somebody else’s leadership development program is going to work better than yours,” he notes. And bringing in outsiders to fill the top positions becomes “a demoralizing thing that goes cascading down the ranks.”

Board Involvement

Sonnenfeld notes. In fact, an enduring culture can help people get past a disappointing quarter, he says.

Even the best-designed succession process, however, will occasionally bump up against workplace dynamics and human frailty. “There’s always a level of threat to this because basically everyone here is expected to find their replacements,” says Small. But, he adds, “This isn’t just a fun exercise or a HR practice. This is critical to running your business. Especially now, intellectual capital is the differentiator. Anyone can go out and copy our business model. They can’t copy the people who know how to run it well.”

The hiring process at McDonald’s fosters a collective culture by selecting for candidates who are willing to put the good of the organization ahead of individual ambition, says Floersch.

Team building starts at the restaurant level, where McDonald’s serves 58 million customers per day, he notes. “If you have a lunchtime crush going on, you have to depend on the team, as opposed to one individual in the store,” Floersch says.

At companies where there is an “appreciation for the common good, you don’t have a lot of pride of authorship,” Sonnenfeld observes. When there are successes, the glory is shared.

But when things go wrong, “you don’t have a vilification, finger-pointing culture,” like the ones that have surfaced at various troubled companies in recent years. McDonald’s has maintained its succession process through good times and bad,

Briefings on Talent & Leadership

deserves credit for successful teams and who were the stars on failing missions who perform superbly but were given a losing hand,” Sonnenfeld says.

Charan, the author and management consultant, says the process McDonald’s uses is very transferable to other companies, though the details of the process, like the various criteria for advancement, will vary. For example, a company that anticipates 50 percent or more future dependence on markets in China, India or Brazil would want to give future leaders experience in one of these countries.

Peter Cappelli, a professor of management at The Wharton School at the University of Pennsylvania and author of “Talent On Demand: Managing Talent in the Age of Uncertainty” (Harvard Business School Press, 2008), is skeptical that the McDonald’s model will translate to most other companies. In a company that is a leader in its industry, people might be willing to wait patiently on the bench hoping for “a shot at the very big time,” he says. Elsewhere, other opportunities might cause them to jump ship.

This succession model also does not work when a company is changing rapidly because it is restructuring or responding to volatile demand for its products, Cappelli says. “Introducing salad is a trivial change compared to what you see in other industries,” he says. While McDonald’s is “ideally suited for reasonably predictable internal succession,” at other companies “by the time a successor has grown, the business has changed in important ways and the person you had developed for that job no longer fits.”

Deborah L. Jacobs is a financial writer who has contributed to many national publications, including The New York Times and BusinessWeek.

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talent

EU RO P E 'S

Jobs

Turnaround

By Adrian Wooldridge

“Ahead of the curve” is not a phrase that Anglo-Saxons naturally

which led the world into recession, would be the first to climb out, thanks to

associate with continental Europe. But “ahead” is exactly where Europe

their more flexible labor markets. Today America is still wheezing and Britain

rebounded in the second quarter of 2009, led by France and Germany, which both registered 0.3 percent growth rates that surprised almost everybody.

Only a few months ago, most observers predicted that America and Britain,

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The Korn/Ferry Institute

REUTERS/Kai Pfaffenbach

is when it comes to recovering from the recession. The European economy

looks, once again, like the sick man of Europe.

Economists are rightly cautious about the recovery. Spain and Ireland have been devastated by the bursting of their construction bubbles: the Spanish unemployment rate is already 16 percent and will hit 19 percent in 2010. Hungary

Briefings on Talent & Leadership

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21

and the Baltic States are deeply troubled. Italy is turning into a perennial also-ran.

The best and brightest

The German recovery owed something to a one-off cash-for-clunkers scheme.

While Europe may be condemning millions of people to idleness, it is also failing to mobilize the talents of many of its brightest young people. Most of the Continent’s universities are more wedded to the welfare state than to the new economy. France’s universities, with the exception of the exclusive grandes écoles, are overcrowded and lackluster. Germany’s universities, shadows of their former selves, are exclusive without being excellent. Germany has one of the lowest graduation rates in the advanced world.

Many of Italy’s universities are marginal at best.

Europe has no choice but to import people to dig itself out of its demographic ditch.

But the Continent’s immigration policies are in disarray. Europe continues to import an army of low-skilled workers who are failing to find a place in the labor market. The number of foreign residents in Germany more than doubled from three million in 1971 to 7.5 million in 2000, but the number of foreigners in the work force did not budge. At the same time, Europe is struggling to attract the most highly skilled workers. Only 1.7 percent of the working population are clas-

Besides, 0.3 percent growth rates are hardly enough to set either the Seine or the Rhine on fire.

Still, renewed growth represents a dramatic turnaround from the white-knuckle free fall of the last quarter of 2008, when both the European Union and the euro zone contracted by 2.5 percent. The French and Germans can be forgiven for a certain amount of crowing after years of being told that their Eurosclerotic regimes are being left in the dust by the Anglo-Saxons. The dirigiste French have not been forced to rescue a single big French bank from collapse, let alone nationalize one. An Italian company, Fiat, is now ensconced in the Chrysler building in Detroit, America’s secondlargest office complex after the Pentagon.

Consolidation’s effects Liberal economic policies, instituted by the European Union and national governments, have also had a benign effect. The single European market has created a tidal wave of consolidation as companies have reorganized to attain Continent-straddling scale and scope. In 2007, mergers and acquisitions in Europe were worth $1.59 trillion, compared with $1.54 trillion in the United States. The single European labor market has turned Polish plumb-

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ers and Italian restaurant workers into heroes to consumers across the Continent.

Thanks to Chancellor Angela Merkel’s welfare reforms, Germany’s long-term unemployment rate dropped by 40 percent between 2007 and 2008, the first time the number has fallen since the 1960’s. At the same time, venture capital has been flooding into Europe.

Between 2003 and 2006, European venture capital investment grew by an average of 23 percent a year, compared with just 0.3 percent in America.

Indeed, Denmark and Sweden have bigger venture capital industries, relative to the size of their economies, than the United States.

Yet the revival of the talent wars so soon into the recovery is also an indicator of an enduring constraint on Europe’s ability to grow: its problem-plagued labor mar-

Dismal demographics

are from mainland Europe, according to a 2006 survey by Forbes magazine. Small European countries such as Switzerland, the Netherlands and Sweden are home to a remarkable number of the world’s best global companies.

ket. One-tenth of Europe’s workers are unemployed.

But talent-hungry European engineering firms are already claiming that they face a choice between recruiting from the developing world and moving their most value-producing operations offshore. Benot Potier, the chief executive of Air Liquide, one of the world’s largest makers of industrial gases, told The Financial Times that the French group is hiring most of its skilled workers in emerging markets.

The Korn/Ferry Institute

Top: REUTERS/Francois Lenoir. Bottom: REUTERS/Regis Duvignau.

The European recovery is already restarting the talent wars. European engineering companies are once again

covery is further evidence of the wrong-headedness of former U.S. Defense Secretary Donald Rumsfeld’s dismissal of “old Europe.” Continental Europe, with a 30 percent share of the world economy, boasts a large number of world-class businesses. According to a 2005 survey by McKinsey & Company, Europe has 29 percent of the world’s top 2,000 companies.

And, half of the world’s 30 leading companies by revenue

Top: REUTERS/Peter MacDiarmid. Bottom: REUTERS/Arnd Wiegmann.

A new talent war?

combing the world for talent. Zug, one of Switzerland’s most economically vibrant cantons, is touting its investment opportunities in Mayfair, London’s hedge fund district. The Swiss calculate that some 20 percent of Britainbased hedge funds could decamp in the next year or so, put to flight by British Prime Minister Gordon Brown’s proposal to raise the top income tax rate to 50 percent.

Continental Europe’s re-

The Continent’s demographic future is dismal. The number of people of working age (i.e., 15 to 64 years-old) will decline from 395 million today to 255 million in 2050. At the same time, the number of elderly people will increase from 80 million to 140 million, putting an ever growing burden on an ever shrinking number of workers. By 2012, Germany will suffer from a deficit of 2.4 million people of working age, costing the economy more than a trillion dollars in lost productivity, according to McKinsey.

Europe’s antiquated social policies are contributing to this demographic disaster.

European labor laws divide workers into insiders, who enjoy lavish protections, and outsiders, who find it increasingly hard to get permanent jobs. This polarized structure

is creating a permanent underclass of the unemployed who are unavailable for work in good times as well as bad and so fail to exert a downward pressure on labor costs.

It is also producing horrendous levels of youth unemployment: about one-quarter of the French population under age 25 is unemployed.

This points to a paradox: the very automatic stabilizers, such as generous unemployment pay, that have helped Europe deal with the global recession will also make it more difficult for it to profit from the recovery.

Briefings on Talent & Leadership

sified as skilled immigrants, compared with 3.2 percent in the United States.

This situation is creating a rising tide of popular resentment against immigrants that is roiling politics in almost every country. One poll shows that only 19 percent of Europeans think that immigration is a good thing for their countries while 57 percent think that their countries have “too many foreigners.” At the same time, the malfunctioning immigration system is making it even more difficult to attract the people needed to fill the skill gaps of the future. It will be impossible to produce a workable immigration policy without reforming the welfare state.

Europeans can be forgiven for celebrating their early emergence from what they regard as a made-in-America recession. But if they treat this as an excuse for abandoning American-style reforms of their labor markets, they will be making a grave mistake and condemning themselves to remaining the losers in the talent wars that are defining the 21st-century economy.

Adrian Wooldridge is the co-author of several books and is the management editor for The Economist.

He is based in London.

About one-quarter of the French population under age 25 is unemployed.

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talent

LI & FUNG GROUP is one of the signature, if somewhat unlikely, business success stories of the past decade.

The Hong Kong-based trading company has reinvented the traditional supply chain and in doing so has created a possible model for the reinvention of the global business enterprise.

Li & Fung produces $14 billion worth of clothing and other timesensitive consumer goods annually for dozens of the world’s leading brands and retailers — companies ranging from Abercrombie & Fitch to Wal-Mart. And it does this without owning a single factory.

ENTREPR ENEURS BUILDING A COM P AN Y O F

AN INTERVIEW WITH WILLIAM K . F UNG O F LI & F UNG GROU P 且不论利丰集团是否能称为传奇，至少在过去的几十年里，这里诞 生的成功商业故事层出不穷。总部位于香港的利丰集团从一家传统 贸易公司成功转型为以供应链管理概念运作的现代跨国贸易集团。 利丰每年为包括Abercrombie & Fitch和沃尔玛在内的世界领先品 牌和零售商生产价值140亿美元的服装和其他快速消费品。而利丰本

B Y PAUL HEMP

Credit

Credit

身并不拥有任何生产工厂。

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取而代之的，是一个由12000多家独立供应商构成

商业模式所带来的挑战。 为了同时保证最大的灵活性

的完善的全球网络，为客户提供快速和定制的服务。

和可靠性，公司必须在认可供应商自行管理的同时，

例如，在收到GAP一份30万条女式短裤的订单后，利

对他们的日常运营施加一定影响。

丰会立即从越南订购纽扣、从日本订购拉链，从巴基

虽然利丰有限公司的“网络整合”模式收效显

斯坦购买丝线并在中国织造，最后在孟加拉缝制成

著，但是公司的人才管理模式同样也为其成功助有一

衣。基于效率最大而成本最低的原则，两周后收到的

臂之力。公司对全球14000名员工的独特管理方式，在

订单可能使用完全不同的供应链。利丰就是这样通过

一定程度上反映出自治和协同作为其创新商业模式核

它在全球40个国家的80个办事处管理着这个庞大而复

心的特点。与商业模式一样，利丰的人才管理模式也

杂的供应网络，或者用利丰自己的话来说，整合这个

能为其他行业的企业提供借鉴。 利丰的管理方法凸显了人才管理中的一个根本挑

供应网络。 集团主席冯国经和董事总经理冯国伦是利丰集团

战：在对管理人员进行激励的同时，如何保证他们和

第三代管理层。在他们的管理下，公司业务在近年来

企业目标之间的一致性？利丰在这方面似乎找到了

取得巨大成功。通过有机增长和并购，公司业务已从 香港拓展到世界各地。作为家族管理的利丰集团旗下 的上市贸易公司，利丰有限公司在2006至2008年间 收入翻番。在大部分零售业客户业绩不甚理想的情况 下，利丰在2009年上半年仍然实现13%的利润增长。同 时，利丰在客户中推广其成功的合作经验，并于近期 赢得纽约时装公司Liz Claiborne服装制作的全面合作。 冯氏两兄弟——冯国经和冯国伦——此前分别是 哈佛商学院的教授和学生。他们深谙以网络为基础的

Previous page: Ron Scholefield. This page: © epa/Corbis

Instead, it taps a fluid worldwide network of more than 12,000 independent suppliers so that it can provide rapid, tailored responses to each customer’s order. For example, the Gap might place an order with Li & Fung for 300,000 women’s shorts. Li & Fung responds by ordering buttons from, say, Vietnam, zippers from Japan and thread from Pakistan, then has the fabric woven in China and the shorts sewn in Bangladesh. The same order coming in two weeks later might set in motion an entirely different supply chain, one that maximized efficiency and minimized costs at that moment. Li & Fung manages — or orchestrates, to use the company’s term — its complex supply network through 80 offices in 40 countries.

Under the third-generation leadership of Victor K. Fung, group chairman, and William K. Fung, group managing director, the company has enjoyed enormous success in recent years.

From Hong Kong, it has expanded rapidly around the world, through both organic growth and acquisitions. Li & Fung Ltd., the publicly listed trading arm of the family-controlled Li & Fung Group, doubled its revenue between 2006 and 2008 and saw profits rise 13 percent in the first half of 2009, even as many of its retail customers were struggling. Replicating a typical arrangement between Li & Fung and its customers, the company recently took over all aspects of garment production for Liz Claiborne, the New York-based fashion company.

一种成功模式，不仅培养了每个管理人员的企业家精 神，同时又保证大家拥有同一种公司愿景。 “人才管理是其商业模式的核心，”宾夕法尼 亚沃顿商学院的温德（Yoram (Jerry) Wind）教授指 出。在温德教授与冯氏兄弟合著的《在平的世界中竞 争》（“Competing in a Flat World”，沃顿商学院出 版社，2007年）中，对网络整合的原则进行了阐述。 温德教授提到，尽管企业家精神和组织协调性看似冲 突，但两者在利丰却相得益彰。 温德还说，赋予170个业务单元的经理们充分的权 责，让大家朝着公司的三年目标共同前进，总部不对 其进行监控和频繁的目标回顾，这种方式有助于建立 公司和管理人员之间的信任，并提高他们的忠诚度。 而同样有效的做法是对目标达成给予经济奖励，同时 不对目标未能达成进行惩罚。这样做可鼓励管理人员 敢于接受极具挑战性的目标，并勇于为此承担风险。 加拿大人Bruce Rockowitz是现任利丰总裁，同时 也是董事总经理冯国伦的候选继任者，早在2000年， 其公司被利丰收购时，他就初尝了利丰独特的管理模 式。他说，冯氏兄弟始终坚持在业务单元独立性和公 司统一形象之间寻求平衡。早年间，这种平衡似乎过 多强调了独立性。他仍记得当初在上海办公室看到的 现象，两个事业部虽然身处同一楼层，内部装饰却完 全不同。

“感觉完全是从一家公司走到了另一家公

司，”他说。 Rockowitz指出，各业务单元出现不同的标识可 能并不完全不合逻辑，但这说明了事业部之间缺乏共 同的目标使命。员工办公桌的和谐统一在保证各部门 独立运作的同时，可以提醒员工与其他部门之间的联 系。“想在一个大型机构中保持大家的事业心高涨， 就必须全力关注那些真正重要的东西。”Rockowitz提 到。 公司不轻易裁员是培养忠诚度的重要组成部 分。“其根本的理念是不要总想着怎么摆脱某些员 工，”Rockowitz说，“其实我刚加入利丰时，没有冯

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The Korn/Ferry Institute

Briefings on Talent & Leadership

The Fung brothers — Victor is a former professor at and William is a graduate of Harvard Business School — understood the tension inherent in a network-based business model.

To maximize both its flexibility and reliability would require the company to acknowledge the autonomy of its suppliers while exerting some influence over their operations.

Although Li & Fung Ltd.’s “network orchestration” business model has received more attention, its talent management model also has been instrumental in its success. The company’s unusual approach to managing its 14,000 employees around the world in some ways reflects the mix of autonomy and coordination that is at the heart of its innovative business model. And like the business model, the talent management model provides lessons for companies in a range of industries.

Li & Fung’s approach addresses a fundamental talent management challenge: How do you cultivate individual initiative among managers while keeping them aligned with established corporate goals? Li & Fung seems to have found a successful model for fostering in its managers both a dynamic entrepreneurial spirit and a shared commitment to the organization.

“People management is critical to their business model,” says Yoram (Jerry) Wind, a professor at the University of Pennsylvania’s Wharton School and a co-author with Victor and William Fung of “Competing in a Flat World” (Wharton School Publishing, 2007), which explains the principles of network orchestration. Wind says that although entrepreneurial initiative and organizational cohesion might seem in conflict, they complement each other at Li & Fung.

Empowering the managers of the 170 business units to work toward ambitious three-year company goals and avoiding invasive corporate oversight and frequent revision of targets build trust and engender loyalty to the company, Wind says.

So do the generous financial rewards managers receive when those goals are met and the absence of punishment when they are not. The latter encourages managers to embrace challenging goals and take risks to achieve them.

Bruce Rockowitz, a Canadian who is now the group president of Li & Fung and in line to succeed William Fung as managing director, first got a taste of this management environment when his own company was acquired by Li & Fung in 2000. He says the Fung brothers have continually worked to get the right balance between business-unit independence and corporate citizenship. In the early years, the balance probably tipped too much in favor of independence, Rockowitz says. He recalls that as he walked from one division location to another on the same floor of the company’s Shanghai offices, he was struck that each space was decorated differently. “It felt like you were moving from one company to another,” he says.

This display of individual business-unit identity, while arguably inconsequential, symbolized the divisions’ lack of a strong shared mission, Rockowitz says. Harmonizing the look of their work spaces reminded employees of their inter-

2 0 0 9 . 11

27

connectedness without undermining the individual units’ operational freedom. “You have to home in on what is truly important in keeping an entrepreneurial spirit alive in a large organization,” says Rockowitz.

The company’s reluctance to fire or lay off employees plays a big part in nurturing loyalty. “The underlying philosophy is that you don’t get rid of people,” Rockowitz says. “In fact, when I got here, you couldn’t get rid of someone without William’s signature.” The aim is to find a way for everyone to perform well. “If someone isn’t working out in one place, the assumption is that there’s another place where he’ll do better. That puts a big onus on managers.”

This approach is not motivated simply by soft-heartedness, Rockowitz says. “We don’t own factories,” he says. “What keeps our business going is people.”

William Fung describes Li & Fung’s talent management practices and critiques those of other firms in this edited interview by Paul Hemp, a former senior editor for the Harvard Business Review and a contributing editor for The Korn/Ferry Institute’s Briefings on Talent and Leadership.

国伦先生的批准，谁都解雇不了。”公司希望为每个人

其实为利丰工作有助于他们成为更好的企业家。这些管

都找到合适他们的位置。“如果一个员工在某一职位的

理人员对他们的市场、产品和客户都十分了解。我们不

表现不好，可能在另一个职位上他能做的更好。这是管

希望他们在行政或其他工作上浪费时间，而在小型家族

理人员所要承担的责任。”

企业中，这种繁琐工作通常要占据40%到50%的时间， 而这些包括IT、财务和人力资源在内的后台支持功能对

这并非简单的心软，Rockowitz说道。“我们没有

业务并不产生直接影响。

工厂，”他说，“正是员工保证了我们的业务持续前

通过为他们提供完善的办公室支持系统，他们得以

进。” 本访问收录了冯国伦先生对利丰人才管理实践的阐

有更多时间投入业务中，而这些完善的系统对小型家族

述及对其他公司的评论，《哈佛商业评论》前高级编

企业而言，即使采用外包手段也很难企及。相对于经营

辑、《光辉国际研究中心人才和领导力简报》特约编辑

自家的贸易公司，利丰的经理们在盈利方面更加成功。

Paul Hemp对本访问进行了编辑。

作为具有事业心的企业家，他们从这个大型的组织中得

利丰时常被大家称为是一家由企业家组成的公司，这是

益。但是，相对于他们自身的利益，你如何保证他们会

什么原因？

更看重利丰的利益呢？

首先你需要了解我们公司的历史和所处的行业。在

是的，我们并不仅仅是一家为150个成功单位提供

香港大约有四万家贸易公司，既包括只有两三个人，握

后端支持的控股公司，这点很重要。这些共享的系统除

有几份和纽约某公司签署的合同的公司，也有像利丰这

了提供强大的营运支持外，更是利丰价值观的体现。管

样的企业，早在1906年便成立，目前在40个国家拥有

理企业家就如同对猫进行放牧一样并非易事，但是只要

Why is Li & Fung sometimes referred to as a company of entrepreneurs?

14000名员工。大部分贸易公司都是由企业所有人亲自

你有能力让他们朝着同一个方向前进，就能成就非常出

经营的，他们强烈渴望争取到新业务，他们会亲自到机

色的业绩。

FuNG: You have to know the history of our company and our industry. There are an estimated 40,000 trading companies in Hong Kong, everything from two guys with a few contacts in New York to Li & Fung, which was founded in 1906 and has 14,000 employees in 40 countries. Most of these companies are owner operated. They’re run by people who hustle for business, who meet their customers at the airport, who know the names of their customers’ wives and where their children go to school.

When my brother and I first came back to Hong Kong from the U.S. in the early ‘70s, we wanted to build Li & Fung, which was much smaller then, into a professionally run organization. But we knew that if we were to compete with all of these owner-operated rivals, we had to maintain an entrepreneurial character. A buyer at Wal-Mart doesn’t want to deal with a big bureaucracy. The buyer wants to deal with someone who will kill for Wal-Mart, who will die for Wal-Mart, get it the best prices, get it the fastest delivery.

场去接送客户，他们记得客户家人的名字，甚至知道他

How do you inculcate – or in your case, preserve – this entrepreneurial spirit?

所有决策进行控制。

FuNG: First, we’ve tried to retain the characteristics of an owner-operated company in our business units. We have a very flat organization. Many of the 150 operating units are self-contained profit centers. We don’t give them detailed guidance on how to work. Thousands of small decisions are made throughout the company every day, and there’s no way you can control that from the center.

Then we incentivize the folks who run those individual profit centers as if they were owner-operators of those businesses. There’s a big emphasis on profit sharing. Being an en-

他们把自己当作这个机构的所有者。我们强调利润分

28

2 0 0 9 . 11

所以，我们建立了一个基本的经营理念——如何管 理员工，如何服务客户，如何与供应商合作——这是每

们的孩子在哪里上学。 70年代初，我和哥哥从美国回到香港。当时的利丰

一个员工所拥护的理念。我们每年两次将300多名高层

规模比现在小得多，而我们希望将它打造成一家专业的

管理人员聚集在一起，讨论业务计划和表现。但是最重

企业。但是我们知道如果想要和那些家族式企业竞争，

要的是，在此过程中我们将公司的理念传递给这些管理

就必须保持进取的企业家精神。一个沃尔玛的采购人员

人员，在他们回到自己的岗位时，即使我们不进行微观

肯定不希望和带有官僚作风的公司打交道，他希望看到

管理，他们也知道如何精诚合作。

的是供应商愿意为沃尔玛尽心尽力，提供最好的价格和 和我们谈谈这些理念吧。 © James Leynse/Corbis

最快的交货速度。 你如何培养——或者对你来说——如何保持这种企业家 精神？ 首先，我们尽可能地保持家族企业的特色。我们的

同时关注长期和短期利益是其中的重要元素。和美国以

trepreneur isn’t a 9-to-5 job. These people work their guts out, and we pay them accordingly. In fact, unlike most companies, but similar to law or accounting partnerships, there’s no cap on upside earnings that a business unit manager can make.

Despite the autonomy and the incentives, don’t your entrepreneurially minded managers chafe at working within a big corporation?

FuNG: Actually, being part of Li & Fung allows them to be better entrepreneurs. Most of these guys, they know the market, they know the products, they know their customers. What you don’t want them to do is to spend any time on administrative or other work — work that normally takes up to 40 percent to 50 percent of an owner-operator’s time. Things like IT, finance and accounting, HR — all of the back-office functions that don’t have a direct impact on their businesses.

By providing them with very sophisticated back-office systems — systems they’d never have access to, even on an outsourced basis, as the owner-operators of a small company — we free them up to be more entrepreneurial. They can be more financially successful than if they were running their own trading company.

As entrepreneurs, they benefit from being part of a large organization. But how do you get them to further Li & Fung’s interests as well as their own?

FuNG: Yes, it’s important to realize we’re much more than simply a financial holding company providing back-office systems for 150 successful independent businesses. Those shared systems, besides offering tremendous operational support, are an outward sign of the shared values and culture that define Li & Fung. Herding cats — herding entrepreneurs — isn’t easy. But if you can get them moving in the same direction, you will have a very powerful business.

及其他西方国家不同，我们考虑的是公司的三年规划， 这是为了结合灵活性和稳定性——灵活性可以让我们的 业务单元迅速根据客户需求和业务环境做出回应，而稳

组织机构相当扁平，150个运营机构中的大部分都是独 立的利润核算中心，对其运作我们并不给予详细指导。 公司每天需要通过成千上万个大小决策，总部不可能对 然后我们对这些利润中心的负责人进行激励，希望 享。作为一个企业家，你不能享受朝九晚五的正常工作 时间。这些人拼尽全力工作，同时也得到相应的报酬。 事实上，不同于其他很多公司，我们的运作模式更像是 律师事务所或会计师事务所的合伙人制度，业务单元经

如果不考虑管理自由度和激励政策，这些充满事业心的 经理人在这样一个庞大的组织中是否会感到烦躁呢？

Credit

理们的收入并不设上限。

The Korn/Ferry Institute

Briefings on Talent & Leadership

2 0 0 9 . 11

29

So we’ve established a general business philosophy — how we handle people, how we serve customers, how we work with suppliers — that everyone embraces. Twice a year, we bring together all of our top managers, up to 300 of them. We talk about our business plan and how we’re doing. But mostly we try to inculcate our philosophy with this group, so that when they go back out into the field, they know how to work in unison, without us micromanaging them.

Talk a little about that philosophy.

FuNG: Taking a long-term as well as a short-term view of the business is a big element of it. Consider our three-year planning process, which is different from the business plans you normally encounter in the American or Western context. The aim is to combine flexibility and stability — flexibility so that our business units can respond rapidly to changes in customer needs and the business environment, stability so that they can maintain strong customer relationships and not lose sight of ambitious company goals.

Our process obviously includes annual budgets and financial goals, which business units and their leaders are measured against. But it also includes three-year stretch goals, created in conjunction with the business-unit leaders and designed to force a significant rethinking of the business, at either the operating unit or the company level. Unlike the rolling targets common in many companies, these stretch goals don’t change.

The stretch goals are unusual in another way: Falling short of them isn’t punished. Business-unit leaders still receive rewards based on their meeting incremental financial targets.

This encourages people to set stretch targets that are truly ambitious, instead of more modest goals they know they can meet. Let me add, though, that no business unit leader wants to have to explain the failure of a stretch goal to his peers at one of the semiannual meetings!

定性可以保证他们有稳固的客户关系，同时不偏离公司

家知道如果自己整个职业生涯都在利丰度过，那么他所

目标。

赚到的钱足以让他在退休之后衣食无忧。

当然，我们的流程包括年度预算和财务目标，用以 考核业务单元及其管理层的表现。但是，流程中还包括

那你的意思是他们对公司的忠诚度基本上是取决于他们

极具挑战性的三年目标，和业务单元的管理层一起建立

变得富有的可能性？

这些目标时，给了下属单位和总部一个重新审视业务的

不是，这正是我要解释的。到现在我们只谈到硬性

重要机会。与很多其他公司常见的滚动目标不同，这些

激励，即金钱的奖励。但是还有一种软性激励，那就是

极具挑战性的目标是不予调整的。

价值观。你甚至可以说是家庭价值观。

极具挑战性的三年目标的另一个不同点在于：未能

让我通过一个故事来和你解释。23岁时我从哈佛商

完成该目标并不会受到惩罚。只要达到当年的财务增长

学院毕业回到香港，为我的父亲工作，当时我觉得自己

目标，业务单元的负责人仍然能够获得应有的奖励。这

什么都懂。父亲放手让我工作，

样，大家更乐意去设立真正富有挑战性的目标而不是那

爸爸，你手下有很多老人家，很多人都已经干不大动

些明知自己能够完成的目标。但是我还要补充的一点是

了。他们年纪大了不中用了。”当时，我觉得年龄是很

在年中会议上，大概不会有业务单元的负责人愿意向他

重要的因素。 我的父亲是这样回答我的：“你觉得这个人已经是

的同僚们解释自己为什么未能达成挑战性目标的吧。

老朽之辈了吗？你知道吗，四年前就是他做成了公司有 短期和长期目标相结合又是如何促进你的管理层将企业

史以来最大一笔生意？那边那个人，他曾经做了这个，

家精神和协同公司目标这两者巧妙融合的呢？

做了那个。”他想说的是，你不能只根据一时的表现来 判断一个人的工作效率，可能当时他们正在经历人生中

这不仅是以长期的眼光来对待业务，更反应在对待

一段艰难的时间，比如离婚，或者家人生病等等。

人上。 我们很多管理人员自从踏入社会就在利丰工作。如

你必须以长远的眼光来评估人才，不仅是看过去，

果说丰厚的利润分享是关键动力，可能听起来很短视，

更要着眼未来。如果在困难时期你帮助了他们，之后他

但是它其实是一个长期的理念。员工分享业务的成功，

们会加倍报答你。 我的父亲教会了我一点，那就是员工对待公司的态

加之我们为各业务单元提供的巨大支持功能和系统，大

度同时反映出公司对待员工的方式。它是一面镜子。可 能你的公司会说：“这个人没有全力工作，应该解雇 他。”之后，保安就马上出现在他身后，看着他清理自 己的办公桌并离开公司。如果是这样的话，你的员工也 会这样对你。一旦在别处找到机会，他们一定会马上离 开公司。至少，在中国社会里情况就是这样。 另一点是，即使刚才的情况是解雇了一位年长的员

How does combining short-term and long-term views of the business contribute to this distinctive blend of entrepreneurial spirit and alignment with company goals among your managers?

工，结果也同样如此。我父亲说过：“你如何对待年长 的员工，年轻的员工都看在眼里。”可能在美国，年轻 人看到年纪大的员工离开会很开心，因为这预示着他们 机会的来临。但是在中国人的眼里完全不同。年轻人会

FuNG: It’s not just a long-term view of the business. It’s a long-term view of people.

Many of our managers spend their entire career with us. It sounds very short-term to say that generous profit sharing is a key motivator. But it’s basically a long-term philosophy. People share in the continued success of the business. Combine that with the tremendous back-office support systems we offer to the business units, and people know that if they spend their whole career at Li & Fung, they’ll have made enough money to retire very comfortably.

30

2 0 0 9 . 11

想：“我现在30岁，但是等我到50岁的时候，公司也会 这样对我。我最好早作打算。” 年轻人看着年长的员工被保安护送出门，这一场景非常 令人震撼。 我觉得这可能就是中国人和美国人不同之处之一。 美国人可能更关注短期，这么说并没有恶意。我并不完 全推崇日本的终生雇佣制度，但是对待员工你必须有一 Associated Press

种适度的尊重和忠诚度。忠诚是双向的。 Associated Press

Are you saying that their loyalty to the company is based primarily on the likelihood that they’ll become rich?

有一天我对他说：“

看来似乎只有利丰这样的中国公司才能培养出企业家精 神和公司忠诚并存的管理人员。

Briefings on Talent & Leadership

FuNG: No, I’m getting to that. We’ve only talked so far about the hard piece of the motivation: monetary rewards. But there’s also the soft piece of the motivation: values. You might even say family values.

Let me tell you a story to explain what I mean by this. I came back to Hong Kong from Harvard Business School at the age of 23, thinking I knew everything, and went to work for my father. He gave me a pretty free hand early on, and one day I said to him, “You know, Dad, you’ve got a lot of deadwood here. Some of these guys aren’t pulling their weight. They’re old, they’re not efficient anymore.” You know, age was a big thing with me then.

And here’s what my father said to me: “You think this guy is deadwood? Do you know that four years ago, he pulled off the biggest deal in the company’s history? And that guy there, he did this and this in the past.” What he was saying was, you can’t look at someone at any one point in time to judge their efficiency. They may be going through a difficult time in their personal life — a divorce, an illness in the family.

You have to take a long-term view in evaluating people — not just in the past, but in the future. If you nurture them through a difficult period, they’ll come back and make incredible contributions for you.

My father taught me that how employees treat the company reflects how the company treats them. It’s a mirror. You may be the sort of company that says, “This guy’s not operating at maximum efficiency, he’s out.” And so a guard stands over him as he cleans out his desk. And then he’s escorted out. Well, if that’s the case, this is how your employees will treat you. When an offer comes along from the outside, they’re out of there. At least, that’s the way Chinese society works.

2 0 0 9 . 11

31

That’s a powerful image, those young people anxiously watching the older guy getting escorted out the door.

FuNG: I think it’s one way the Chinese and the Americans are different. Americans — no offense meant here — are much more short-term in their thinking. I don’t advocate the Japanese system in which employment is a guaranteed lifetime thing. But you have to have an intermediate kind of decency and loyalty toward your employees. Loyalty is a two-way street.

It sounds like fostering both entrepreneurial drive and company loyalty among managers can occur only at a Chinese company like Li & Fung.

FuNG: It’s true that this combination of family loyalty and entrepreneurial spirit is often associated with Chinese culture.

Here’s another story. I came back from business school in the U.S. with the typical Western idea that a corporation should have a life of its own, that it deserves the best people to run it.

And one of my uncles said to me: “William, why do you always talk about the ‘company’? You mean, the ‘family.’ The company is only an extension of the family — the means by which we keep the family in the lifestyle to which it has become accustomed!” What he was saying was that the company itself is not alive, it’s nothing. It’s a means to an end, not an end in itself.

It’s also true that the Chinese are a very entrepreneurial people, which is why communism as a philosophy now exists in China in name only. The idea of being your own “laoban” — the word for “boss” in Chinese — is very important. We’re able to harness that drive and let people form teams that have a strong entrepreneurial spirit.

是行不通的，在这点上我们和很多跨国企业不同。

的确，这种家庭式的忠诚和企业家精神的相结合通常都

不过，我们收购一家公司之后，也会惊讶地发现

和中国文化有关。 还有一个故事。从美国的商学院回来时，我抱有

文化上的很多共同之处。以我们在1996年进行的第一桩

的完全是西方理念，觉得一家企业应该具有自己的生

大型收购为例，当时我们收购了英之杰集团（Inchcape

命，由最优秀的人才来经营。我有一位叔伯曾经问

Group）旗下的Dodwell公司。和我们的很多竞争对手

我：“William，你为什么总是在说‘公司’？你说的

一样，Dodwell以“商行”形式起步，是一家典型的英

是‘家’，公司只是家的延伸——只是我们用来维系

式贸易公司，17世纪建立并从亚洲向英国出口货物。 尽管此项收购在所有的商业衡量标准上都完美契

家庭生活的一种方式，而这种方式已经成为习惯！”他 想告诉我，公司本身并没有生命，它其实什么都不是。

合，但是我们的客户绝大部分是美国人；而Dodwell的

公司是通往一个终点的途径，而不是终点本身。

客户主要为欧洲人。当时很多分析师认为我们在文化上

同时，中国人是非常具有企业家精神的民族，这也

不可能完全融合。我们是一家充满中式家庭文化，在实

是为什么共产主义的哲学如今在中国只是徒有其名而

务上又略带“美国商学院派”的公司，而他们是典型的

已。每个人都想成为自己的“老板”，我们也基于这

英国商行。利丰看重利润分享，如果经理得到足够的奖

一点，鼓励大家组建自己的团队，并鼓励这种企业家精

励，他可以给自己买一辆保时捷。而他们看重的是给予

神。

外派经理人的福利，比如为他们提供香港山顶的豪宅， 轿车和司机。

你所说的这些方法中是否有西方企业可借鉴之处？

但是结果却出乎分析师所料。我们发现如果深入 Dodwell公司外派经理人的内心，他们的想法和那些希

其实我们和西方企业有很多共同之处，这一点可以

望成为老板的中国员工并没什么不同。也许等他们退休

从我们整合几家被收购企业的成功案例中反应出来。

之后，他们希望在Surrey安享晚年。但是当他们身处亚

成功的原因之一并非关乎文化。我们的后台支持系

洲时，他们希望和中国同事一样尽力赚取报酬。

统即插即用，因此任何被收购公司的运营都可以立即和 我们现有业务对接。在收购世界其他地方的公司时，我 们偶尔也会刻意弱化我们自身的文化。我们希望成为变 色龙，吸收一些当地社会的特色、价值观和实践方式。 我们觉得从香港派一个中国人去管理一家在捷克的公司

© dbimages/Alamy

One other thing: What I’ve said is true even if the guy being escorted out the door is an older employee. My father said, “What you’re doing to the older people, well, the younger people are watching.” I think the Americans have the idea that younger people are happy when older workers are let go because it allows them to advance. But the Chinese view is different. The young people are thinking, “I’m 30 years old. But what you’re doing to this guy at 50 is what you’ll do to me when I’m 50. So I better plan for that.”

所以，我们并没有为他们提供山顶豪宅，而是发放 住房津贴，这样他们可以选择和决定自己的居住条件。 我们也没有为达到一定级别的经理人提供轿车和司机， 而是让他们自行选择是购买法拉利还是大众。 我们发现，无论文化背景如何，每个人都具备成为 企业家的能力。 所以西方企业也许可以从他们的管理层之中发掘以前从 未意识到的企业家精神？但是你刚才提到的互相忠诚又 是什么意思呢？ 我承认这点可能很难做到。在美国，许多公司只是 说说而已，但是并不身体力行。他们会说：“是啊，人 力资源是我们最宝贵的资产。”但是，接下来又怎么样 呢？一旦经济情况出现任何问题，员工就可能被遣散。

Is there anything in your approach that Western companies can adopt?

这是因为公司只关注短期利益和季度业绩。

FuNG: Actually, I believe we have a lot in common with Western businesses. Look at the success we’ve had integrating the numerous companies we’ve acquired.

One reason for this success isn’t exactly cultural. The plugand-play nature of our back-office systems allows an acquired company to immediately mesh its operations with our existing businesses. We also have occasionally sought to downplay our own culture when acquiring a business in another part of the world. We try to be a bit of a chameleon, adopting some of the character, values and practices of the community we’re working in. We don’t believe in sending a Chinese guy from Hong

已经是公司的第三代管理者了，而第四代接班人也已经

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对一个家族生意而言，我们考虑的是好几代人。我 在这里工作。我们考虑的并不是下个季度，而是下一代 的问题，能让下一代经营并仍能获利的战略。 另外，因为我们不过分强调短期利润，所以就和我 刚才说的一样，我们在对待员工时更为大度和宽容。我 们给予的一点点包容，就可以让员工有时间解决自己的 问题，而并不要求他们每时每刻都保持最高效的状态。 这是不是一个不可逾越的文化鸿沟呢？ 到最后，我其实不敢肯定究竟是不是文化的原因。

The Korn/Ferry Institute

Briefings on Talent & Leadership

Kong to run something in the Czech Republic. In this, we’re different from a lot of multinationals.

Still, you’d be surprised at some of the cultural similarities that have emerged after we’ve acquired another company.

Take our first big acquisition, in 1996, of Dodwell, part of the Inchcape Group. Like many of our bigger competitors, Dodwell began as a “hong,” one of the English trading companies set up in the 1800’s to export Asian goods to England.

Although the business parameters for the acquisition created a perfect fit — for one thing, our customers were mostly American; Dodwell’s were primarily European — most analysts said that we could never absorb them culturally. We were the Chinese family company with the American business school bent; they were the quintessentially British hong. We were big on profit sharing, and if a manager made enough money, he could buy a Porsche. They were big on corporate perquisites for their expatriate managers — houses on the Peak in Hong Kong, chauffeur-driven cars.

But we surprised the analysts. We found that if you went beneath the surface with Dodwell’s expat managers, their aspirations were not that different from the Chinese guys who want to be their own boss. The English expat may want to retire and die in Surrey, but while they’re out in Asia, they want to make as much money as their Chinese counterparts.

Instead of giving them a company house on the Peak, we give them a housing allowance, and if they want to live more cheaply, then they can do that. Instead of being given the obligatory car and driver when they reach a certain rank, they can buy a Ferrari, or a VW. It’s their choice.

We found that there’s the ability to be an entrepreneur in people who seemed culturally anything but that.

So Western companies may be able to tap an entrepreneurial streak in their managers that they didn’t know existed. But what about the sense of mutual loyalty you describe?

FuNG: I admit, that may be harder to achieve. In America, a lot of companies talk the talk but they don’t walk the walk. They say, “Yeah, human resources are our greatest asset,” but guess what happens. Any small downturn comes along and people are out of there. That’s because the company is focused on the short-term, quarterly results.

In a family business, we think in terms of generations.

I’m the third generation of our family in the company, and the fourth generation is already working here. We’re not thinking about the next quarter; we’re thinking about the next generation. What’s the best strategy so that the next generation can have a profitable business?

Also, because we don’t emphasize short-term profits, we’re able, as I said earlier, to be more generous and forgiving in dealing with people. We can show a little tolerance, let people work through their problems, not require that they be at peak efficiency all the time.

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down t im e Is this a cultural chasm that can’t be crossed?

我们和员工之间具备相互的信任和忠诚。但这并不是

FuNG: In the end, I’m not sure this is about culture. We enjoy some mutual trust and loyalty with our employees. But it’s not because we’re Li & Fung, not because we have Chinese family roots, not because we’re an Asian company.

In the end, I think it’s about ownership, not culture. Ultimately, a company responds to the owners. And if the owners are short-term — fund managers who hold a company’s shares an average of six months rather than five years or even three years and are only interested in maximizing profits in the next quarter so they can sell out — you can’t expect a company to think long-term, even if it’s in the best interests of the company.

That short-term thinking affects not only how a company treats its people but how people view their work. A lot of bankers tell their employees: “We just want you here for two or three years. Consider us part of your CV. Maximize your opportunity and do what you can in two or three years. Then you should be out of here so we can bring in some young blood.”

That is a totally different philosophy from ours.

因为我们是利丰，不是因为我们的中式家庭根基，也 不是因为我们是一家亚洲公司。 归根结底，我认为这是一种主人翁精神，而不是 文化。公司的表现是由公司的所有者所决定的。如 果公司的所有者目光短浅——好比一个基金经理通 常只持有某一个公司的股票六个月而不是五年或十 年，那么他所关注的是在下一季度获得最大收益而套 现，——那么即使是出于公司的最大利益考虑，你也 不可能指望这个公司具有长远规划。 这种短期思维的方式，不仅会影响公司对待员工 的态度，也会影响员工对待工作的态度。很多银行家 三年。把银行看作你简历上的一部分。尽可能抓住机 遇，在这两到三年里尽情表现。之后你们就可以离 开，我们也会再招收新鲜血液。”

Clockwise from top left: © Christopher Weyant/Condé Nast Publications/www.cartoonbank.com, © Richard Cline/Condé Nast Publications/www.cartoonbank.com, Hal Mayforth, © Bruce Eric Kaplan/Condé Nast Publications/www.cartoonbank.com, Hal Mayforth, © Leo Cullum/Condé Nast Publications/www.cartoonbank.com

而这，是和利丰完全不同的理念。

© Michael Prince/Corbis

告诉他们的雇员：“我们只需要你们在这里工作两到

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The Korn/Ferry Institute

th e fairer, an d m ore em ploye d, sex?

More than 80 percent of job losses in the United States since November have fallen on men.

o u r nau ght y se c r et

Lingerie sales have risen by more than 50 percent since the start of the recession.

Briefings on Talent & Leadership

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governance As the world emerges from recession, policy makers, regulators, investors

HOW TO

and analysts are taking a new look at corporate governance. What approaches make most sense?

GOVERN THE GOVERNORS

T

BY VICTORIA GRIFFITH

The financial crisis of 2008 unleashed intense public fury at the corporate world, much of it aimed at chief executive officers and

their boards of directors. Corporate governance in the United States has become a topic for front-page news articles and televi-

sion talk shows. Concentrated public scrutiny is placing corpo-

rate boards under increasing pressure as they grapple with a broad range of challenges, including the allocation of resources and accounting transparency. A push for sweeping new federal regula-

tions may accelerate changes that were already under way.

The prospect that there will be significantly different rules in

the United States governing the way companies are run frightens some observers. “With the exception of Sarbanes-Oxley, which was

professor at Harvard Business School and author of books on the

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Credit

who want to legislate corporate governance,� said Jay W. Lorsch, a

Marc Rosenthal

very specific, for the first time there are people at the federal level

Briefings on Talent & Leadership

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37

ENTER THE LEAD DIRECTOR

subject. “That’s never happened before and it could be dangerous.” (The Sarbanes-Oxley Act of 2002 is a federal law aimed at increasing auditing transparency at United States corporations.)

Apart from possible new federal regulations, public pressure is already forcing boards to re-

More than half of the companies in the Fortune

assess what are perceived as “best practices.” It’s important for directors to maintain a firm sense

500 combine the roles of chief executive officer and

of purpose. In the midst of the tumult, a consensus is beginning to form on how boards can

chairman, and so a Securities and Exchange Com-

maintain and improve performance. Here are a few hard and fast rules boards can live by:

Don’t let compliance issues get in the way of strategic thinking.

When regulations become more stringent, there’s a tendency to focus on dotting i’s and crossing t’s. But it’s a mistake to lose sight of the forest for the trees. Professor Charles Elson, of Business & Economics at the University of Delaware, warns of the dangers of a checklist mencause a lot of boards thought that as long as they were complying with that, their job was done,”

Korn/Ferry International, recommends that directors stay grounded by examining items on the board meeting agenda. They should start by asking themselves how much time is dedicated to long-term strategic issues. “If that’s not most of the meeting, then there may be an issue,”

increasingly popular model at many corporations. “It

behind it,” said Chris Andersen, who himself acts as the lead director for Terex, the construction equip-

nance expert with Korn/Ferry International. “General

ment company.

A lead director performs a role very similar to

separate the two, and that hasn’t turned out so well.”

that of a nonexecutive chairman — a chairman who

Citibank and Bank of America, at the center of last

doesn’t hold an operational management position.

year’s financial crisis, follow a similar model.

But a chairman can do two things a lead director can’t

corporation often makes sense. In the interest of succession planning, for instance, a long-term CEO may

do: call board meetings and set the agenda of those meetings.

Still, lead directors have real power. “The main

Regardless of what happens legislatively, certain constants remain. One is the definition

assume the chairmanship role for a limited time while

thing is that when I talk to management as a lead

of a board of directors’ central role: finding a good CEO, or getting rid of a bad one. “Without an

the new CEO learns the ropes. It can also be a way for

director, they know I represent the views not just of

appropriate and effective CEO in place, no amount of hard work will protect shareholders from

a highly successful executive to maintain a hand in a

one board member, but of all the board members,”

disappointment,” said William F. Pounds, the former dean of the Sloan School of Management at

company’s operations. Bill Gates, for instance, ceded

Andersen said. “I have the right — and I’ve used it,

M.I.T. “And only the board has the power to hire and fire CEOs.” So how do you get a great CEO? Despite widespread criticism and even outrage over CEO pay in the United States in the aftermath of the financial crisis, a fatter salary remains a powerful way

the CEO position at Microsoft to Steve Ballmer in

on occasion — to add something to the agenda of a

2000, but kept the title of chairman.

meeting or insist that we schedule plant visits, for

Sometimes, the chairman and CEO perform

to attract talent. A 2007 report by the consultancy Watson Wyatt (admittedly, it was conducted

very separate and well-defined roles. In 2004, for

instance, if the board feels it wants more information on a specific issue.”

before the 2008 stock market collapse) concluded that the link between CEO compensation and

instance, the software company Computer Associates

corporate performance is strong. For many executives, it seems, money still talks. And, because

appointed Lewis Ranieri to serve as its chairman. His

tive chairmanship. Often they have staffed offices

hiring competition for high-level operating talent has also been coming from deep-pocketed pri-

main job was to deal with a federal investigation of

within a corporation and so have a useful familiarity

vate equity, venture and hedge funds, CEO pay has been rising.

the company, leaving the day-to-day operations to

with day-to-day operations. “The main advantage

other managers.

there is that you’ve got someone who knows what’s

Yet, others see this reasoning as flawed. Not all CEOs appear to be motivated by pay alone.

Yet having two top executives can lead to confu-

are great public relations moves for companies in which these CEOs hold a lot of stock. Still, the low salaries challenge the notion that managers’ commitment depends solely on compensation.

Marc Rosenthal

the American CEOs who this year accepted an annual salary of $1. Skeptics argue that $1 salaries

Hal Mayforth

Eric Schmidt of Google, Larry Ellison of Oracle and Vikram Pandit of Citigroup are just a few of

Britain and Canada follow a model of nonexecu-

going on but can lift his or her head above the throng

sion about who makes the final decisions. “Some-

to provide a somewhat objective viewpoint,” Ander-

times you’ve got a chairman who wants to be the

sen said. The primary disadvantage of nonexecutive

CEO, and you create a rivalry that is not healthy for the

chairmen is that they usually make more money than lead directors. Unless the conditions of their office are

In fact, it may not be absolute pay, but pay

explicitly spelled out, they can also be difficult to get

relative to other CEOs in the same industry that The country with the highest percentage of the population at work is the Cayman Islands, at 68 percent. The West Bank and Gaza have the lowest percentage, with just 22 percent of the population employed.

creates a nonoperational, nonmanagement office that still has the weight of the independent directors

practice,” said Robert Hallagan, a corporate gover-

Having two different people at the helm of a

Hallagan said.

g et a jo b!

in the United States.

Motors was one of the first big companies to officially

New rules could worsen the problem. Robert Hallagan, a corporate governance expert at

Remember the board’s main role: picking the right CEO.

executive and nonexecutive leadership roles. The appointment of a lead director of the board is an

“There’s no proof that splitting the two is a better

he said.

be to separate not the chairman and CEO, but the

far-reaching consequences for corporate governance

issue of corporate governance in the United States.

tality. “Sarbanes-Oxley, although it was well-intentioned, ended up causing more problems, be-

The real challenge for American companies may

mission proposal to prohibit the practice could have

The proposed move risks oversimplifying a key

who is chairman of the John L. Weinberg Center for Corporate Governance at the Lerner College

corporation,” Hallagan said.

rid of.

matters most. Sarbanes-Oxley requires corpo-

Because corporations have different needs, cor-

rate boards to justify CEO salaries, and most do

porate governance experts say, it may be wise to allow

so in part by benchmarking those salaries against

them to choose a solution for themselves. “One size

others in the industry. The rule has had some

doesn’t fit all,” said Jay W. Lorsch, a professor at Har-

unintended consequences. The financial econo-

vard Business School. “One company may thrive with

mists Jun Yang and Michael W. Faulkender

a CEO who’s also a chairman; for another, it could be

noted in a study this year that benchmarking

a big mistake.”

tends to encourage CEO salaries to rise in “leapfrog” fashion, as no company wants to be seen as paying their top gun less than its competitors.

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The Korn/Ferry Institute

Briefings on Talent & Leadership

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39

Don’t disregard succession planning.

HOW TO PAY YOUR CEO

One excellent, and often disregarded, way to limit CEO compensation is through effective succession planning, an issue that is not part of the current corporate governance overhaul discussion. Building a strong bench internally keeps CEO pay under control for two

The biggest trends in CEO pay guidelines, according to the Center on Executive Compensation

reasons. First, corporations have a tendency to offer more when they recruit their top guns from

Corporate boards are increasingly likely to include the

the outside. Second, if another manager is poised to take over, the board is likely to be less be-

following stipulations in their compensation contracts

holden to the CEO. So if the top person makes unreasonable demands or fails to perform, direc-

with top managers:

tors can transition smoothly to their second in line.

• A requirement that CEOs own shares in the

Most boards in the United States fail miserably in this area, Professor Lorsch says. “Corpo-

company equivalent to at least six times their salary.

rate directors will talk a good game when it comes to succession, but in reality it’s too easy to put

• Claw-back clauses that make it possible to

it off to the next meeting,” he said. Succession planning is impossible to regulate and difficult to

recover a portion of compensation if performance

assess. It entails important but “soft” human resource skills, like accurately evaluating second-

is poor.

and third-tier managers, and ensuring that promising executives get the right assignments to de-

• Stock awards linked to performance measures

velop their skills.

like cash flow, earnings per share and return to

Hewlett-Packard has been much maligned for its succession planning, which many said left

shareholders, generally over a period of three years

the company wed to Carly Fiorina for too many years. When the board dismissed her in 2005, it

(though many believe a longer time frame would be

had to scramble for a replacement.

even better).

• Retention clauses that require CEOs to stay on

McDonald’s, on the other hand, benefited from its strong bench when its CEO, Jim Canta-

the job for five years or more in order to qualify for

lupo, died unexpectedly in 2004. A few weeks later, the man chosen to replace him, Charlie Bell,

stock awards.

learned he had cancer, and the board was able to make another orderly replacement (See “How

• Limits on golden parachute payouts to three

McDonald’s Plans Ahead,” by Deborah Jacobs, also in this issue).

Look for ways to align CEO pay with long-term corporate performance.

(See opposite page)

times or even two times the CEO’s annual salary.

Compensation is not just about salary. In the 1990s, corporate boards thought they had stumbled upon an almost foolproof method for aligning the CEO’s interests with those of the corporation: stock options. It makes sense, the theory goes, to make the CEO a substantial owner. If the The federal judge Richard Posner probably reflected the

company performed well, its value would rise, thereby benefiting top management. Corporate

views of many when he wrote in an opinion last year that CEO pay is “excessive because of the

America passionately embraced this new philosophy.

feeble incentives of boards of directors to police compensation. Directors are often CEOs of other

The global financial crisis of 2008 showed, however, that this method does not always work.

As the United States Treasury Secretary, Timothy F. Geithner, remarked earlier this year, too of-

companies and naturally think that CEOs should be well paid.” There is a general fear that corpo-

ten “the incentives for short-term gains overwhelmed the checks and balances meant to mitigate

rate boards are overly cozy with top managers and part of a culture of “I’ll scratch your back if you

against the risk of excess leverage.” In other words, stock options may encourage executives to

scratch mine.” It’s essential that the independent board of directors is just that — completely in-

manipulate short-term stock prices by taking unnecessary and ill-advised long-term risks.

dependent.

Over the next few years, greater attention is likely to be paid to the type of compensation be-

will be under pressure to make sure that a CEO’s interests align with those of the

One new proposal for the United States by the Securities and Exchange Commission would be nothing less than an earthquake for corporate management: the mandatory separation of the roles of CEO and chairman of the board. Although common in other coun-

corporation, not just in the short term but in the long term as well. One option is to build greater

tries, like Britain and Canada, both of which are highly rated with regard to their corporate gov-

ing handed out. In the United States, in certain regulated industries, like banking and financial services, compensation that encourages excessive risk taking will be curbed. In addition, boards

flexibility into compensation packages, creating bonuses that would be at risk. If earnings flag,

ernance practices, separating the CEO and chairman roles is not mainstream in the United States.

for instance, bonuses would be reduced.

According to the Millstein Center for Corporate Governance and Performance at the Yale School

Gene Sperling, a counselor to Mr. Geithner, recommends linking pay to relative perfor-

of Management, 60 percent of Fortune 500 companies have CEOs who also serve as chairmen of

mance in a given sector. By this measure, CEOs would be compared with competitors in the same

the board.

industry, thereby avoiding giving an executive too much credit when a bull market was helping almost all stocks.

many boards are still led by the CEO — the person who is obviously conflicted in fulfilling the es-

There’s no doubt that some corporate boards have neglected their main task, which is to ensure that CEOs behave responsibly. At times, this may be the result of an overly cozy rela-

Gary Wilson, a former chairman of Northwest Airlines and a current director at Yahoo.

tionship with top management.

interest by appointing a “lead director” to preside at executive sessions and evaluate manage-

At Enron, the energy company whose apparent success was built on accounting fraud, some of the directors, investigators discovered, were deeply beholden to the corporation’s executives for lucrative consulting contracts and big donations to their favorite charities.

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(See page 23)

The Millstein Center calls the shared role of CEO and chairman a mistake in most cases. “Too sential duty of providing oversight and monitoring the CEO and senior management team,” said A growing number of American corporations are trying to address any possible conflict of Marc Rosenthal

Ensure that the board is truly independent.

Consider splitting the CEO role from the chairman’s, or alternatively, appointing a lead director.

ment. The lead director role is a uniquely American approach to corporate governance especially when the roles of CEO and chairman are combined. Where the CEO serves in a dual role as chairman, 84 percent have taken this step, according to Korn/Ferry International.

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41

Boards are paying increasing attention to shareholder demands. According to the consulting and research firm RiskMetrics Group, for example, almost two-thirds of the Standard & Poor’s 500 companies have adopted “majority voting” rules, which require a director to obtain at least 50 percent of the shareholder votes in an election.

Expect shareholders, particularly institutional investors, to become more vocal.

In addition, “say on pay” resolutions, which allow investors to vote on executive compensation packages, have been filed at more than 100 United States corporations this year. Apple, Edison International, Honeywell, KB Home, Lexmark International, Pfizer and Marathon Oil are just a few of the companies whose investors have called for a say on pay.

Nevertheless, public anger in the United States over corporate governance is likely to fade quickly. The average individual shareholder is rationally apathetic about corporate management.

“It’s simply not worth most people’s time to read several hundred pages of proxy statements if they hold just a few corporate shares,” says Charles G. Tharp, head of the Center on Executive Compensation, a Washington-based research group.

Institutional investors, on the other hand, will probably continue to flex their muscles. Companies with large proportions of such investors are generally governed more aggressively. A high concentration of institutional ownership, for instance, means lower pay and greater performance demands, according to a recent study by the McCombs School of Business at the University of Texas at Austin.

Pension funds and unions, in particular, are becoming increasingly bold and specific in their demands. Earlier this year CalSTRS, the California State Teachers’ Retirement System, said it would

Be aware that boards are under increasing time pressures, so be prepared to pay more and work harder to recruit them.

urge corporations in which it has a stake to put more women on their boards, citing a study that

“Twenty years ago, board members would meet for an hour, then go play a round of golf,” Hallagan said. “Those days are over. They’re more professional. They go to training sessions and

found the presence of female directors as a positive influence on financial performance.

are constantly trying to improve performance.”

state-owned investment fund Temasek Holdings, which has stakes in Merrill Lynch and Bar-

International investors, too, are expected to push for a bigger voice. In August, Singapore’s clays and once owned a large piece of Bank of America, updated its investment charter to pledge

Board members are working longer hours. Directors in North America, for instance, reported spending 16 hours per month on the work of each board they serve on, according to a Korn/Ferry

“sustainable returns by engaging with the boards and management of our portfolio companies.”

International study; 20 years ago, the figure was 9.5 hours. Because of the longer hours and a per-

Other groups are likely to follow suit.

ceived increase in legal liability — highlighted by the Enron scandal and ensuing shareholder lawsuits against board members — some are becoming more reluctant to serve. “I’ve heard people

An excess of caution can undermine the effectiveness of corporate governance. Boards

say serving on a board is just not worth the time and the liability any more,” said Ralph Walkling,

must remember that successful organizations are built on taking sensible risks. “What one fears

head of the Center for Corporate Governance at LeBow College of Business at Drexel University.

with increasing regulation is that boards just go through the motions — be forced into what’s

Remember that corporations are meant to take risks.

called the checklist mentality,” Mr. Walkling said. “We also don’t want them to avoid sensible

As a result, directors are being paid significantly more than they were just a few years ago.

risk, which is after all what builds corporate success.”

According to Korn/Ferry International, the average cash payment to directors rose 45 percent

Over the next few years, the pace of corporate governance reform is likely to accelerate. So

from 2002 to 2007, to about $62,000.

far, big multinationals have been at the forefront of shifting standards. Their practices will begin

Demand is also shifting in favor of directors who can provide specialized experience. This has coincided with a shift in power from the general board to board committees, in particular the

to be absorbed by smaller groups. “Over the next couple years, we’ll see a cascading down of these

audit and compensation committees.

practices to smaller companies,” Mr. Tharp predicted.

For the most part, the overhaul will probably be a positive thing. But concern is growing

Financial experts are increasingly desirable as board members in the United States. The demand for accountants as directors, in particular, rose sharply in the wake of the Sarbanes-Oxley

that the pendulum may swing too far in favor of rules and regulations. According to Korn/Ferry

legislation of 2002, which required that audit committees have at least one member who is an ex-

International, directors say they have less time to strategize as they are forced to comply with

pert in finance. That rule led to what Professor Pounds calls a “bonanza for retired CPAs.”

new regulations and shareholder expectations. This could be a worrisome trend.

Su mm er B ab ie s Make Gre at Bo ss e s

What makes for the success of corporate boards is positive human interaction. Directors

Continuing education for board members is gaining momentum, too, leading to a surge in supportive board services. Consultants say demand for their business has increased sharply. The

must be able to work together well, make sensible demands of management and think strategi-

greater use of consultants gives boards access to important expertise, but it also puts the onus on

cally. These qualities are worth striving for, since they could make the difference between corpo-

boards to make sure those consultants are truly independent and do not have conflicts of interest.

rate failure and corporate success.

very much of value,” Robert H. Frank, an economist at Cornell University, explained. “In the future, they’ll be expected to do more, but in turn, they’ll be handsomely compensated. It’s the new model.”

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Hal Mayforth

positive for corporate governance. “Before, boards weren’t paid as much, but then they didn’t do

Marc Rosenthal

Many observers see the rise in pay, commitment and responsibility of board members as a big A long-time correspondent for The Financial Times, Victoria Griffith covers business from Boston.

The market value of S&P 500 firms with CEOs born in the summer is about $8 billion higher than the average.

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leadership

“The process of becoming a leader is similar, if not identical, to becoming a fully integrated human being.”

­—Warren Bennis

The CEO Whisper er 44

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Photographs by Gary Moss

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By Glenn Rifkin

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The story Warren Bennis tells his students as the new semester begins at the University of Southern California came from a New Yorker article published in January 2005. Although the “Mission Accomplished” banner had already been unfurled and President Bush had declared victory, the war in Iraq was just heating up and American soldiers were coming to grips with the precarious situation into which they had been deployed. Journalist Daniel Baum described a scene early in the war.

He had been watching CNN from his office in Baghdad as a small unit of American soldiers marched into Najaf, a city which was home to Iraq’s holiest mosque. As the squad entered the city on foot, hundreds of angry Iraqis began to pour out of buildings and surround the soldiers. Screaming and shaking fists, the mob grew ever larger and more threatening as the soldiers, confused and terrified, stood their ground. Watching on television, Baum was certain he was about to witness “the Iraq war’s version of My Lai.” A shot would ring out, the soldiers would open fire with automatic weapons and a bloodbath would ensue.

But then, a young American officer wearing dark sunglasses moved into the picture. He held his rifle high above his head and pointed the muzzle downward toward the ground.

“Against the backdrop of the seething crowd, it was a striking gesture — almost biblical,” wrote Baum. He ordered his squad to do the same. Then he barked, “Take a knee!” and the soldiers sank to the ground in a nonthreatening posture. Startled by the action, the crowd grew quieter and then started to move away.

The officer ordered his soldiers to withdraw and the standoff ended without a shot being fired.

Intrigued by this signal act of leadership under such extreme circumstances, Baum spent two months tracking down the young officer. Eventually, he found Lt. Col. Chris Hughes back home in Iowa on leave. In a phone conversation, Baum asked him what he had been thinking about and why he acted as he had. Baum wondered: How had Hughes been schooled to handle the potential disaster with such calm and decisive command? Hughes responded with mild surprise at the question. He did not see his actions as particularly special. Hughes had learned before entering Najaf about the Iraqi culture and the holiness of the mosque and realized immediately that the Iraqis saw the soldiers’ presence as a grievous sign of disrespect. By turning their weapons downward and kneeling, the soldiers would offer “a gesture of respect.” When pressed,

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Hughes admitted that he had not been taught how to handle such a situation; it was just an intuitive decision on his part.

The article went on to describe the difficulty the army has in getting its officers “to do precisely what [Hughes] did: innovate and think creatively.”

The story offered multiple lessons and yielded yet another epiphany for the renowned 84-year-old scholar regarding his signature subject — leadership. After spending nearly six decades studying, teaching and writing about leadership, Bennis retains a passion for discovery, fresh insights and new learning.

For his class, Bennis finishes his story by playing Aretha Franklin’s hit song “Respect” and, while the students sway to the contagious rhythm, he points out the increasing importance of this attribute in today’s leaders.

Wisdom’s realm In his soft-spoken, thoughtful manner, with his shock of white hair, deeply tanned face and dapper, understated style of dress, Bennis brings his students into the inner realm of his accumulated wisdom. Just 42 lucky juniors and seniors make it into the class “The Art and Adventure of Leadership” while 300 are turned away. Bennis is legendary and his class is perennially among the most popular on campus. Bennis suggests that the Iraq story illustrates a defining moment in the emergence of young military officers.

Hughes’s quick and decisive action flew in the face of what an outside observer might have expected from an ill-prepared army entering into a questionably tenable conflict. Unable to adequately train its officers for this unique landscape, seething population and unanticipated style of engagement, the army had deployed them with little more than crossed fingers. But something unexpected and welcome happened. Hughes came to exemplify a generation of young officers who would do battle in Iraq and demonstrate out of pure necessity an intuitive ability to adapt and thrive in a menacing conflict. His response was rich with learning opportunities.

Bennis considers his current crop of students part of what he calls “The Crucible Generation” and he believes that it “longs to grant and be granted respect.” In the face of daunting economic and social problems, these young people will rise,

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like Hughes, to the leadership challenge in surprising ways, Bennis predicts.

“To respect someone is to pay attention, to view somebody, to really see that person,” Bennis explains. “When you think about leadership in the current global environment, you need respect, not just tolerance. One must also get to know the territory. I call it contextual intelligence. I would guess that Chris Hughes was a brave and competent officer, but he was probably like a lot of other ordinary leaders who do extraordinary things.

He wasn’t being overly modest. He had just gotten to know the territory and it informed his actions.”

Underlying the impact of Bennis’s insights, including his latest — he is already contemplating a book on respect — is his thirst for knowledge and his insatiable curiosity. James O’Toole, a professor of business ethics at the University of Denver’s business school and Bennis’s colleague for more than 30 years, said of him, “I believe this ability to change how others think begins with his own manifest willingness to challenge him-

Briefings on Talent & Leadership

self, to try out new ideas, and, indeed, to recreate himself.” At a time in life when most people have long since retired, Bennis remains an energetic force and an inspirational voice in a discipline that is as relevant today as when he began his career after World War II.

Leaders are made Over the decades, he has articulated countless insights about leadership that have become core tenets of the discipline. For example: Great leaders are not born, they are made; leaders are people who do the right thing, managers are people who do things right; the era of the Great Man, that one John Waynetype leader around whom the troops rally, has ended and has been replaced by leadership teams; and, successful leaders need to support transparency and a culture of candor within their organizations or they will fail.

In his seminal 1989 book, “On Becoming a Leader,” Bennis

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startled a complacent generation of executives by illuminating the slippery slope to failed leadership. “We are at least halfway through the looking glass, on our way to utter chaos,” he wrote. “When the very model of a modern manager becomes CEO, he does not become a leader, he becomes a boss, and it is the bosses who have gotten America into its current fix.”

For Bill George, who was moving from Honeywell into the CEO’s chair at Medtronic, the medical technology giant based in Minneapolis, Bennis’s book was cathartic. “It had a big impact on me,” said George, now a professor of management practices at Harvard Business School. “He spoke of leadership as character and the importance of finding empathy and meaning through work. It was one of the reasons I made the switch to Medtronic. But it really spoke to me about how you become a leader by becoming deeply engaged with the people in the business, whether they are customers, recipients of our products or employees, as opposed to focusing on the numbers and

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chasing short-term results.”

Bennis’s words ring as true today as 20 years ago but Bennis is unflagging in his efforts to offer new solutions. In a small nod to his advancing years, he has cut back his consulting and eliminated air travel. Beyond that, his softened voice is the only indicator that age has touched this celebrated scholar and international superstar. Bennis has written more than 30 books, including his newly released “The Essential Bennis” (JosseyBass, 2009), and thousands of articles and touched the careers of several generations of executives.

Starbucks CEO Howard Schultz has relied on Bennis as a trusted advisor for 20 years. “He has wisdom and understanding of both business and the human condition,” Schultz said.

“He sees the world and is able to extract very conflicting concepts and synthesize those in a way that is both understandable and applicable. He leaves his ego at the door and is always there to help.”

Schultz, for example, turned to Bennis for advice when returning to the leadership position at Starbucks in January 2008. “I spoke to Warren about how the first 90 days should be framed,” Schultz said. “It was such an important period and Warren advised me about the discipline required and focus necessary to align the organization around the things we needed to accomplish. He also stressed the importance of the leader and the confidence needed to inspire people, to have them believe. Part of his strength is his authenticity.”

Bennis has been called elegant, witty and graceful by his innumerable admirers. His generosity and the warm welcome he gives to all who seek his advice make it difficult to find anyone with a bad word to say about him. He is as comfortable chatting with an undergraduate as with Barack Obama. Mostly, he keeps seeking answers to the questions he has asked for the past 60 years: What makes a leader effective? Why do so many of them fail? And what qualities will leaders need in the future? Though he is an academician by trade, his laboratory is the real world of organizations — corporate, governmental and academic — experiencing traumatic change. “Theory sheds no blood,” Bennis writes in his new book. “When you fail in the real world, the pain is palpable and often widespread.”

Bennis’s fascination with leadership began when he was a child growing up in an unsettled Jewish home in northern New Jersey. He was impressed by the ability of one of his older twin brothers to effortlessly organize the neighborhood children into activities while the other “couldn’t influence his way into a stickball game.” Why, he wondered, was one twin a natural leader while the other was not? Midway through World War II, Bennis enlisted and completed officers and infantry training at Fort. Benning, Ga. In 1944, Bennis, a 19-year-old newly commissioned lieutenant, was sent overseas and became the youngest infantry officer to serve in the European theater.

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He served as a platoon commander and later a company commander during the chaotic end of the war against Germany. As a teenager leading battle-weary soldiers who had survived the Battle of the Bulge, Bennis relied heavily on his commanding officer, a Captain Bessinger, whom he credits with keeping him alive. Among the skills he quickly acquired was the ability “to know when and how to duck.”

With bombs bursting and rifles blazing, Bennis learned how to differentiate between the sounds of particular kinds of shells. There were just seconds to identify an incoming mortar or rifle fire and to find cover. “It was about being able to anticipate what was going to happen,” Bennis recalls, suggesting that the skills he acquired are pertinent in today’s global business environment. In addition, the war gave rise to the practice

ate the study of the human aspect of business.

Every stop in his journey brought energizing new thoughts, techniques and inspiration. He spent time in Bethel, Me., at Lewin’s famed National Training Laboratories where he encountered the T-groups and the investigation of group behavior, an experience that had a profound impact on his thinking about leadership. A four-year stint at the State University of New York at Buffalo in the late 1960’s as part of a new administrative team striving to remake the university left Bennis humbled by the failed experiment. Organizations will not change unless they want to change, he realized.

From 1971 until 1978, Bennis shed his theoretician’s robes to try his hand at actual leadership. His tenure as president of the University of Cincinnati provided another lesson in hu-

“One of the things lacking in most if not all of today’s organizations is time given to reflect and to see what went wrong and why.” of debriefing — taking the time after a battle to reflect on what happened and what lessons could be learned.

“One of the things lacking in most if not all of today’s organizations is time given to reflect and to see what went wrong and why,” he says. “When you are moving at such a rapid pace, how do you find those interludes to learn to take a look at where you are going and what you are doing? I honestly don’t know of any organization that gets its executive team together to really analyze why something went wrong or something went right. It’s all part of knowing how and when to duck.”

Intellectual development After the war, taking advantage of the G.I. Bill of Rights, Bennis went to Antioch College in Yellow Springs, Ohio, where his formal introduction to academia and the study of organizations began. He made postgraduate stops at the Massachusetts Institute of Technology, Boston University and Harvard and found himself in the company of a large cohort of seminal thinkers who developed the study of organizational dynamics and leadership. From Douglas McGregor, Antioch’s pioneering president whom Bennis credits for shaping his life, to famed psychologist Kurt Lewin, Bennis was exposed to many of the leading minds of an era of intellectual ferment. He was swept up by the postwar thinking about the United States as the burgeoning new economic powerhouse. At MIT, he earned a doctorate in economics while studying under Nobel laureates such as Paul Samuelson, Franco Modigliani and Robert Solow and was surrounded by a group of young scholars who would cre-

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mility. Spending 14-hour days buried under a bureaucratic avalanche left him stressed, frustrated and disappointed. In “The Essential Bennis,” he writes, “Routine work drives out nonroutine work and smothers to death all creative planning, all fundamental changes in the university — or any institution, for that matter.”

A year after leaving Cincinnati, Bennis suffered a severe heart attack while attending a gathering of scholars at Windsor Castle in England. He spent three months recuperating in Middlesex Hospital, the same hospital, Bennis likes to tell people, where Rudyard Kipling was taken with a perforated duodenum. Kipling died a week after he was admitted, but fortunately, Bennis left the hospital weakened but alive. He recuperated for three months in England before returning to the United States restored and healthy. He landed back in academia but this time as a university professor at the University of Southern California, where he has spent 30 contented and productive years.

From his academic perch, Bennis has advised presidents and chief executives through tumultuous times. He has seen play out many of the trends he predicted. Together, the flattened organization, the demise of the Great Leader and the powerful forces of globalization have produced what he calls “a leadership vacuum.” This vacuum “reveals that even the best business schools have not done their finest at teaching some core aspects of leadership,” he wrote in a Forbes magazine essay. He compares the next generation, the Crucible Generation, to his own “Greatest Generation,” and writes, “The truth may be that history, in its kindness, gave this new generation a

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“It’s all part of knowing how and when to duck.”

Advisor to CEOs Although Bennis stopped formally consulting four years ago, he continues to advise CEOs on an informal basis and he remains in demand. “He’s still got it,” said O’Toole. “So many times I have seen people either individually or in groups struggling with an issue, trying to come to terms with a problem.

Warren will come in, cut through the clutter, get right to the nub of the issue, define it and put a name on it. He gets to the big `aha.’ ” Bennis’s genuine warmth and compassion make it difficult for him to say no when he is asked for advice. He hopes his teaching and writing help people understand their own lives better and perhaps “feel less lonely.” When asked by political pundit David Gergen, one of Bennis’s many leadership students, what he would like to have written as his epitaph, Bennis replied, “I want to be known as generous company.” He will get no argument about that.

“He just connects with people,” says Ira W. Krinsky, a senior client partner at Korn/Ferry International. “Most people of his standing get caught up in their own importance. Around Warren, he makes you feel important. He’s just very comfortable with who he is.”

Bennis also has the enduring ability to train his focus on the future without being encumbered by his past. He welcomes new insight with the relish of a hungry man anticipating a fine meal. Indeed, his memoir, scheduled to be published in 2010, is called “Still Surprised.” Bennis says that the qualities of leadership that will be significant in the next 10 to 15 years will differ from those required in the past. “In my lifetime, I don’t think I’ve experienced a world with so many unknowns, so many issues, so many possibilities and so many options,” Bennis says.

In 2007, when Hillary Clinton was heavily favored as the Democratic presidential nominee, Bennis announced his preference for Barack Obama in a Wall Street Journal essay that he wrote with Noel Tichy. After a five-year study of leadership, Bennis and Tichy concluded that judgment trumps experience.

“Our central finding is that judgment is the core, the nucleus of exemplary leadership,” they wrote. It was a powerful endorsement, which drew a call of appreciation from Obama.

Today, nearly a year into Obama’s presidency, Bennis has further thoughts on the challenges the current divisive envi-

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ronment present. When asked what he would tell Obama now, Bennis says, “I wouldn’t tell him anything. I’d ask him a question, `What is your top priority right now?’ I would suggest he has to show the steel that I know is in him. His natural tendency is to bring people together, but he’s going to have to lay down clear parameters about what is acceptable.”

Among Bennis’s strengths is his broad knowledge and command of metaphor. He draws from “King Lear” and Norman Lear. A consummate storyteller, Bennis calls up relevant anecdotes from a seemingly bottomless well. When thinking about Obama and current leadership pressures, he recalls a story about Franklin D. Roosevelt. When Roosevelt died in April 1945, the nation was devastated, Bennis recounts. When the funeral cortege made its way along Constitution Avenue in Washington, the route was lined with citizens mourning the president. As the hearse passed, one middle-aged man broke down sobbing and was so overcome with grief he almost fell to his knees. “After the hearse passed, he regained whatever dignity he thought he’d lost and pulled himself together,” Bennis says. “A guy next to him, a stranger, leans over and says, `You were so overcome. Did you know the president?’ And the man responded, ‘No, no. I never met him. But he knew me.’ ” For Bennis, this is a profound lesson for prospective leaders. The ability to make people feel known and to soothe people’s fears, exemplified by Roosevelt’s fireside chats, is a powerful tool. He suggests that Obama has that capacity, as evidenced by his stirring address to the Muslim world in Cairo. “A Hamas leader in Syria said, `Finally, a Western leader spoke in a way that made me think he understood us,’ ” Bennis recounts. “People felt he knew them. This is extremely difficult in large organizations, but it is possible.”

For Bennis, the chaotic swirl of current events is a “global arrhythmia” and young leaders are on the verge of experiencing a “very exciting, scary, adventurous, unprecedented period of unknowns and possibilities.” He mentions a tag line that Hillary Clinton used while still campaigning against Obama in the primary, “Will he be ready on Day 1?”

“The truth is, there is no Day 1,” Bennis says. “Every Day 1 is a surprise, which is why adaptive capacity and openness are as much a part of the executive’s repertoire as doubt and uncertainty. The legitimacy of doubt, of really not knowing but wanting to discover as much as one can about what one needs to know, that is what great leaders must now embrace.”

Glenn Rifkin has written for The New York Times, Fast Company, Strategy + Business, and many other publications. He is co-author of “MBA in a Box: Practical Ideas from the Best Brains in Business,” and other books.

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grand crucible challenge, as it did my own. The young of today have been summoned to receive that same kindness through the collective failures of their elders.”

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interview

leading in a time of crisis

An Interview With Kenneth I. Chenault, Chairman and CEO, American Express

The terrible events of Sept. 11, 2001, took place five months after Kenneth I. Chenault was named chairman and chief executive officer of American Express. In addition to the human toll, the events of 9/11 dealt difficult blows to nearly all of American Express’s major lines of business: charge and credit cards, financial and investment services, travel and insurance. What’s more, the World Trade Center was located headquarters. The collapse of the twin towers damaged the

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company’s headquarters, forced it to shut down for nearly a year and

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directly across the street from American Express’s Manhattan

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Briefings: You led American Express through two major crises — 9/11, when you were a new CEO, and the global financial and economic crisis. What have these crises taught you about leadership? chenault: I came up with a saying right after 9/11 when I was talking to my leadership team. It just popped into my head. It’s that leadership reputations are made or lost during times of crises. What’s important about that are the following: to reaffirm and reinforce the privilege and responsibility of leadership. At the end of the day your responsibility is to the institution, to the people, to your customers, to your shareholders and to society at large. That’s where your responsibilities lie and if you don’t make good on those, then that’s where you lose the privilege to lead. But I also learned another important lesson from 9/11 that’s been of critical help to me in this financial crisis. That is, it’s important to connect to people and to understand the anxieties and issues they are dealing with in their business and personal lives.

How do you do that? chenault: You have to understand the feelings people have in a crisis. The uncertainty they feel, the anxiety they have when the markets collapse. And you have to acknowledge to them that “this is indeed frightening.” You have to acknowledge that what is happening is a cause for anxiety. But you also have to explain

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that there are good reasons why they should also feel confident.

You have to explain that our company has been around for 159 years and that we’ve been through a range of crises during that time. And you have to remind them that we have a very strong commitment to the hallmark of our company, which is service.

When you’re in the people business, like we are, you’ve got to have people motivated, you’ve got to have people engaged and you’ve got to have people composed, because if you think about all of the issues during 9/11, and about the financial crisis, our people have to be a solid force for our customers and our clients. We have to be a reassuring voice for them.

Now this is a very important point. Prior to any crisis, you have to have built integrity, which I think is the foundation of leadership. I say that because I can give you the most rational strategy and you might say, “Well, wait a minute, 9/11, the downturn, and you’re telling me we’re going to be fine?” In a crisis, with even the most rational strategy, there has to be a trust. It has to be there because how else can people believe in the strategy or in leadership unless they’ve seen consistency?

against that principle.

The second principle was to stay profitable. That was important because what I was then able to say — even in the midst of chaos — was that there’s a way we can differentiate ourselves from other financial-services companies, by staying profitable. And, I actually believed we could stay profitable.

That’s important for the future of our company, that’s important for our employees, that’s important for our shareholders, that’s important for our customers.

Our third principle was to selectively invest in growth.

Growth? In a time of crisis? chenault: Yes. Now, that takes me back to the leadership maxim that I’ve used for probably the last 20 years of my career.

It is something I’ve paraphrased from Napoleon, that I used in 9/11, and that I used in the financial crisis. In fact, I start off probably 80 percent of my leadership speeches by talking about it. To me it is the essence of the definition of leadership.

It is that the role of a leader is to define reality and give hope. So, you can see in my mantra that while I laid out some very practical objectives, what I really was doing was reflecting back and saying, “How do I define reality for the organization and how do I define hope?” Now, I emphasize with regard to reality that there’s nothing more real than saying, “We’re going to stay liquid.” And the hope was that we could actually grow in this environment. We could invest, we could plan for the future. It’s critical that we do that even in this time of financial crisis.

So, to lead in a crisis, you have to have built up your reputation for integrity in advance of the crisis. Do I have that right? chenault: Yes. People have to believe in your leadership. They have to see consistency and values. That’s why I talk about integrity so much. But, in addition, people are also looking for courage. I define courage in this context as a willingness to make tough calls, to speak up about issues. And they also look for compassion. Real compassion. “Does the leader care about me?” “Do the leaders care about the company or do they just care about themselves?”

How did you know whether your messages were getting through to the thousands of people in the organization?

What other traits does a leader have to exhibit in a crisis?

chenault: I knew that those messages were get-

chenault: Decisiveness. You have to be absolutely decisive.

And that means you may bruise some feelings. But you’ve got to risk people being upset with you, because you have to take action. So, what was important both in 9/11 and in the financial crisis was that very early on I asserted what were the key priorities that we needed to focus on as a company. In the financial crisis I came up with what I called the mantra, which were our three priorities. They were based on my assessment of the environment and what I thought was important to motivate and galvanize the organization, because part of what I think a leader has to do is motivate followership around a vision.

ting through during the financial crisis because the organization didn’t freeze and the organization didn’t panic. Let’s be clear, people were anxious, they were nervous, they were scared, they were concerned. But they just didn’t come to work and sit at their desk. They were focused against the objectives I mentioned.

Now, one of our overriding priorities is that we’re in the service business, so we have to serve our people. Our front-line employees and our entire management team really galvanized behind that notion of service. Now, we live in uncertain times, and if our customers can trust American Express in these times to deliver service, we can gain an advantage. And what we talked about was “don’t just think in the short term.” Don’t let your selfworth be defined by the daily fluctuations of our stock price when, in fact, we are operating in the worst economic environment since the 1930s. So, I reminded people to look for some signs of progress. One was, we have remained profitable, which was a goal. We’ve made major reductions in our expenses. While difficult, we eliminated 17 percent of our work force to align with the current economic environment. We did these things.

What was the reaction of people in the organization to following the objectives you set out? chenault: An interesting thing happened. We do an employee survey every year. The employee survey was administered close

the role of a leader

is to define reality

and give hope.

What are the three principles you used to motivate people during the financial crisis? chenault: First, stay liquid. Now, one might say, “Gosh, Ken, what’s inspiring about that?” Well, let’s face it, for financial services companies in the midst of a financial crisis, that was a big concern. In addition, I wanted the organization to understand that I’m realistic. Survival is critical, and to do that we have to stay liquid. So we needed to orient and align our actions

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Charlie Powell

required the emergency relocation of 4,000 people who worked in the building. It was during this time that Chenault realized a leader’s reputation is made in times of crisis.

When Lehman Brothers shut its doors in 2008 and the global financial crisis began in earnest, Chenault’s leadership principles were tested once again. Building on what he had learned from the turmoil of 9/11, Chenault immediately reached out to people in the company and to clients, customers and shareholders. He worked hard to build confidence and allay fears. He held televised town-hall meetings, served as host of smaller local sessions, engaged his leadership team and visited sites around the world. Chenault connected.

He also set clear goals — stay liquid, stay profitable and invest for market share — all of which the company met.

One page from Chenault’s leadership playbook is borrowed directly from Napoleon: define reality, give hope. Another is common sense: when people are fearful, get them focused. Yet another is derived from his ethical approach: leadership begins with integrity.

Chenault grew up on Long Island, N.Y., studied history at Bowdoin College, trained as a lawyer at the Harvard Law School and worked as a consultant and lawyer before joining American Express in 1981.

In this interview with Joel Kurtzman, editor in chief of The Korn/Ferry Institute’s Briefings on Talent and Leadership, Chenault discusses what leadership means in times of crisis and what a company needs to do to prepare.

Briefings on Talent & Leadership

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accountability for making things happen. And one of the points I’ve made to the organization, and I also use this in my approach to leadership, is that I believe leadership has to be exhibited irrespective of title or level. So I’m not into hierarchical leadership. I would call our customer-care professionals and say: “You’re leaders. You need to focus on being leaders.”

It’s my belief that everyone should have a sense of common purpose and that everyone can play a leadership role. I often talk about how do you know if someone’s a leader? I say look at their followership. And I say to a customer-care professional: “You know how to know you’re a leader? When your colleagues come to you and ask you for advice and ask for your

everyone should have a sense of and everyone can play a What leadership techniques did you employ to produce those results? chenault: We set priorities, we were decisive, we demonstrated compassion. And from a communications standpoint, we connected the dots. You have to be visible to the organization. Now, I’m not just talking about me. I’m talking about my entire leadership team at every level. They got out to see people and talk to them about business issues they’re confronting, and about personal issues.

I just came back from doing a visit to one of our largest facilities in the country — Phoenix, Ariz. — and while I was there we hosted a satellite town-hall meeting around the world.

One of the purposes of that town hall was to acknowledge the progress we’ve made, but also to let people know that there are still major issues with the economy that we are dealing with.

Another purpose was to recognize that a number of our people were personally impacted by the downturn. They were affected by unemployment in their families, the housing price crisis, and so on. And we wanted to acknowledge that and they were still coming to work and serving our customers incredibly well.

We wanted to acknowledge that by doing that, they were reinforcing the mission of the company. My point is, it is essential that you are visible, that you are communicating the context for the decisions you need to make and for the actions that you need to take.

So you’ve conducted town-hall meetings. What are some of the other things you’ve done during the financial crisis to keep the organization focused? chenault: I’ve done a range of things. I really believe it’s important to set the tone from the top. At the same time, you have to have a leadership team that takes personal ownership and

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common purpose leadership role.

judgment, and ask you for support. If they do that, you’re an outstanding leader. So, you’ve got to focus on learning those leadership attributes.” And one of the things that has helped us is we’ve taken the training of our leaders very seriously at all levels over the last 15 years. We have what we call our authentic leadership program.

What do you mean by authentic leadership? chenault: There are people who are born leaders. But I think at the end of the day, as with any natural athlete, unless you work at the skills and capabilities of leadership, it’s very hard to evolve in a sustainable way into an outstanding leader. So, the authentic leadership program is all about educating and teaching our people to be authentic, genuine leaders, and about how to engage with employees, how to set an agenda, how to galvanize support around a vision and a mission, and how to put things in context.

chenault: It goes through the manager level of the organization, which is what might be called middle management. We have some leadership training programs at the manager level, at the entry manager level, too.

Everyone has a leadership development plan that is reviewed through the hierarchy with the key elements checked by the individual and by their leaders to make sure there’s progress against the plan. Let’s face it, a lot of people put together plans that say, “I’ll do this or that.” But the check has to be, well, what progress has been made against their leadership plan? How are they performing against it? And, I think it goes back to reinforcing through your overall recognition and compensation system, that you take leadership very seriously. And

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so if you look at our compensation system, what we’ve said is that since we’re in the service business, we obviously want to perform for our shareholders, but our customers are paramount. So 50 percent of our weighting for compensation is shareholder performance; 25 percent is based on our customer evaluations and satisfaction scores; and 25 percent is based on the employee survey.

Is that throughout the organization?

Do you get evaluated the same way?

chenault: Yes. It’s throughout the organization.

chenault: Yes, I do. Actually, I get input from my peers and subordinates and it’s a very useful exercise. And, what I also encourage — and it’s part of our values — is constructive confrontation.

chenault: That’s absolutely right. Everyone has a stake in the customer no matter what they do in the organization because, at the end of the day, we’re a customer-driven organization.

Now, in some cases, those customers may be internal, with some overlay of the external customer.

We also have a very comprehensive feedback program — upward feedback, peer feedback, 360 feedback. My point is, I don’t care who you are, you can always learn from feedback, and part of what we evaluate in the performance of our people is, obviously, we’re very focused on outcomes and results, but then we are also very focused on how those results were achieved.

How far does this program reach into the organization?

How do you select people to become your future leaders? chenault: We’re very outcome driven, so we want to have people who achieve results, but the “how” part comes into it. What type of leadership behaviors have they exhibited? So we give people a goal rating and a leadership rating. And there are situations where someone could score a 1 on goals and a 3 or 4 on leadership, and then there would be an intervention. We’d say, “Here’s what you need to do on the leadership side,” because what our analyses have shown is that someone who has that profile hits a wall. They move up to the vice president or senior vice president level — where leadership skills are even more important — and all of a sudden their performance drops.

So everyone has a stake in growing shareholder value, customer satisfaction and employee satisfaction?

So results are not enough. It’s how you get those results that counts?

Charlie Powell

to the low point of the downturn, and we received an overall rating of 1 on our survey, which means best, which means trust, which means confidence in the leadership, and in our strategies. So, there was alignment with my mantra, which meant people understood what our priorities were. This meant the messages were getting through. By the way, during 9/11, we saw the same result. Some people back then even said not to administer the survey. But we did it and we got the same result.

We scored very high. And this time, there was the recognition that in these challenging times, I was not holding back on the issues we were dealing with. Not on the economy, or the rating agencies, and not with our customers, and our clients.

Chenault: Yes. We want to know what were the leadership behaviors that you exhibited to get your results. Did you demonstrate integrity? Decisiveness? Did you demonstrate a level of concern for your employees? Are you providing continuous feedback? Are you developing leaders?

Briefings on Talent & Leadership

How do you define constructive confrontation? chenault: It’s giving feedback on issues. You can do this in a respectful and appropriate way without being personal. To have an effective team, you need as much transparency as possible.

So if I want to know where you stand on an issue, you should feel comfortable giving me feedback on that issue, and you should be able to deliver that feedback in a direct way, without being disrespectful. And if there are areas that I need to improve in, or areas that I need to be focused on, or if there’s a business issue about which we disagree, you should be able to tell me directly.

So, when you talk about leadership, you’re not just talking about leading in a crisis. You’re talking about how you run the company and about the traits you value throughout the organization. Is that correct? chenault: Absolutely. Even our board is involved with it. Our board regularly spends time going through talent issues in the organization. As part of my regular update with the board, I

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• Customer Commitment We develop relationships that make a positive difference in our customers’ lives.

• Quality We provide outstanding products and unsurpassed service that, together, deliver premium value to our customers.

• Integrity We uphold the highest standards of integrity in all of our actions.

• Teamwork We work together, across boundaries, to meet the needs of our customers and to help the company win.

• Respect for People We value our people, encourage their development and reward their performance.

• Good Citizenship We are good citizens in the communities in which we live and work.

• A Will to Win We exhibit a strong will to win in the marketplace and in every aspect of our business.

• Personal Accountability We are personally accountable for delivering on our commitments.

take them through personnel issues and development issues, and I actually get individual board members involved. In fact, we spend close to a full day a year on these topics. In addition, in the regular board meetings, we have a session with directors where I go through these issues, where we discuss different people in the organization, where we talk about what they are confronting. I do it to get input from the board. In addition, on a formal basis, I will ask board members who have certain experience to spend some time with some of our people. I’ll ask board members to share their business and leadership perspectives. I really think our people can benefit from a board member’s feedback.

Do you discuss succession and bench strength issues as well? chenault: Absolutely. The key thing is that we go through this regularly. People are constantly updating the succession and bench strength list, so we have two or three successors for each senior job. We go through that, we talk about rotating people in and out of roles to make sure we have people that have a range of business experiences and a range of leadership experiences.

An important obligation and responsibility of leadership is to make sure that you’re building a foundation that will continue the success, and that means you’ve got to have that bench strength. I believe it is important to develop bench strength internally, but I also think we want to ask ourselves whether there are positions where we should bring in people from the outside.

In my view, you don’t want to have 100 percent home-grown tal-

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How do you evaluate when to go outside for talent? chenault: We look at the competencies we think we need to build the organization. We look at where we need people. For example, a few years ago we said we needed to have a broader range of people with Internet and online experience in the company. We also needed people who had certain types of marketing experience and service-development experience, and we also wanted people with specific geographic expertise. We then went through our lineup of internal talent, and we said it’ll be useful to add certain skills and experiences. In addition, we also said, on a selected basis: “I think in this particular area, so and so is one of the best people in the world. Let’s see if we can get that person to join us.”

How do you do the analysis? chenault: We’re constantly scanning. Part of what we do is scan for senior jobs, and we do this periodically. We actually match our people up against people that we consider best-inclass in different industries and different companies. So, we look at a particular finance role and ask, do we have the best finance person in that particular area? To find out, we benchmark ourselves against companies that are reputed to have the best people, and then we compare ourselves to them. We constantly compare and contrast because we want to make sure we’re not totally internally focused.

Do you compare your people to those in other organizations on a regular basis? chenault: Yes. We would rank people inside our organization, from top to bottom, and then we do a peer ranking review, just as you would on a business. I want to know, is my customer service the best? Fortunately, in the card business it is. But I want to constantly monitor that. I want to monitor and see where the talent is, how we compare, and where we see there are gaps we need to fill from the outside, and where we need to develop our people and put in programs to give our people the experiences they need to close those gaps and develop their skills.

It sounds as if you don’t draw a distinction between management and leadership, the way some people do. chenault: That’s correct. We don’t draw a distinction between the two because at the end of the day, we’re asking everyone to be a leader. And it’s not up for negotiation. If you want to be in management in this company, you have to embrace the leadership principles of the company, and you have to be focused on becoming a good leader.

Thank you.

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in review

Wharton School Publishing

Peter Drucker's Leadership Playbook

An invaluable resource for business leaders, Wharton School Publishing provides timely, practical knowledge from some of the most acclaimed thought leaders in business today. As an extension of Wharton’s long-standing commitment to excellence in business education, Wharton School Publishing engages in the creation and dissemination of knowledge and innovative thinking. A Wharton faculty review board ensures that all titles are timely, important, empirically based, conceptually sound, and offer ideas and strategies that can be implemented in real-life business situations.

WSP members can take advantage of significant discounts and special offers by registering at the Wharton School Publishing website: www.whartonsp.com. Books can also be purchased directly through Amazon.com (U.S.A., U.K., Canada, etc.) or Barnes & Noble.com and at other major booksellers.

“Drucker on Leadership: New Lessons from the Father of Modern Management,” by William A. Cohen, Ph.D., (Jossey-Bass, 2009).

J

Learning from Catastrophes

affected by the writings of Peter Drucker. He is the author of more than 35

Strategies for Reaction and Response Howard Kunreuther and Michael Useem

books, many of them groundbreaking, including “The End of Economic Man”

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(1939), “Concept of the Corporation” (1946), “The Age of Discontinuity” (1969)

Stephen J. Kobrin

and “Management Challenges for the 21st Century” (1999). He was the first to

Franklin Allen Raphael (Raffi) Amit Elizabeth E. Bailey Peter Cappelli Thomas Donaldson Peter S. Fader Marshall L. Fisher Richard J. Herring Stephen J. Hoch Christopher Ittner John R. Kimberly Howard Kunreuther Daniel A. Levinthal Ian C. MacMillan Eric W. Orts Mukul Pandya Jagmohan S. Raju David J. Reibstein Kenneth L. Shropshire Harbir Singh Michael Useem Joel Waldfogel

Just about anyone who reads this book will have read or been

articulate countless fundamental business concepts such as decentralization, management by objective and the rise of the “knowledge worker,” a phrase he coined in 1969. Drucker has been called, with justification, “the father of modern management” and “the guru’s guru.” But, as far-reaching as his inquiries were, he never expounded a theory or wrote a book about leadership.

Throughout much of his career, Drucker seemed to have little use for the concept of leadership. His concern was management. “Management is leadership,” he wrote in Harper’s in 1947. “Leadership cannot be taught or learned.” He was skeptical of the notion that there were specific qualities that defined leadership and if there were such qualities, he questioned whether they were worthy of emulation. As an Austrianborn Jew who saw the disastrous effect of Hitler’s aura, Drucker especially distrusted

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This is the book Peter Drucker might have written on a topic he wrestled with his whole career — leadership.

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Five Major Themes Cohen distilled from Drucker’s work five insights that form the basis for his philosophy of leadership: 1. The leader’s main work is strategy. “The difference between a manager and a leader is that a manager focuses on doing things right, while a leader focuses on doing the right things,” said Drucker. Figuring out the right things is the goal of strategy and devising strategy is a full-time job that should never be delegated to committees, according to Drucker.

2. Abiding by business ethics and maintaining personal integrity are prerequisites for leadership. It is clear from his earliest writings that Drucker believed that leadership was established through character and that personal

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val­ues should not be fenced off from business practices. Employees may forgive a leader for many things, but if his integrity lapses, he quickly loses his claim to leadership, Drucker said.

3. The military offers the best lessons in leadership development. Drucker admired the military as a model for developing business leadership. He believed that its emphasis on applied and practical training, early and continual talent development and evaluation, follow-through and a rational system of promotion were highly effective. Drucker frequently said, “The army trains and develops more leaders than do all other institutions put together — and with a lower casualty rate.”

4. Effective leadership depends upon knowing what motivates people. Drucker spent a good deal of time pondering the motivational levers of leadership. He felt that allowing employees to be self-directed and giving them responsibility — so-called Theory Y leadership — had merit. But, he said it could never work without the imposition of some authority and the provision of guidance. He thought that making employee satisfaction a primary objective was a recipe for mediocrity.

In later years, as he increasingly focused on the nonprofit sector, he came to believe that what motivated volunteers was similar to what motivated employees: the desire to gain experience and competency, to feel effective, to achieve balance, to be part of a social network and to give something back.

5. Leadership is really marketing. Late in his career, Drucker began to explore the notion that workers — especially knowledge workers — are like customers or partners.

It is the organization’s job to figure out what they want and need and then satisfy those requirements, he suggested. Leadership, according to this notion, becomes a marketing job. When a leader is doing her job, motivation is organic; neither customers nor employees need to be sold.

Drucker seems never to have resolved his ambivalence about the nature of leadership and as a result “Drucker on Leadership” contains many inconsistencies. But, Drucker’s deliberations on the subject, deftly described in this book, enrich ongoing debates about the substance and value of leadership.

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Drucker did conclude in his later years that leadership was a capability distinct from management and that it could be learned.

charisma, which he thought could too easily be used to manipulate and as an instrument of what he called “misleadership.”

Although strands of that philosophy remained woven into his writings throughout his career, Drucker did conclude in his later years that leadership was a capability distinct from management and that it could be learned. While he did not address leadership, per se, at length and never concisely defined the role, it can be argued that Drucker wrote incessantly on the subject and had a coherent concept of leadership.

That is the premise of “Drucker on Leadership: New Lessons from the Father of Modern Management,” and in it author William A. Cohen attempts to provide the orderly exposition on the topic that Drucker never did.

Cohen is well qualified for the job. He knew Drucker for 30 years, first as his student, then as his colleague and collaborator. He is also an accomplished executive, teacher, lecturer and author in his own right.

Cohen draws on Drucker’s extensive writings, speeches, lectures, presentations and even personal conversations to tease out a unified philosophy of leadership attributable to Drucker. To make the theory hold together, Cohen infers a good deal of connective tissue, for instance, by inventing a methodology for developing strategy that he assigns to Drucker. Despite taking such license, Cohen remains faithful to the spirit of Drucker’s thinking and teaching.

Briefings on Talent & Leadership

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in review

A GREEN GUIDE FOR SURVIVING THE RECESSION

AND THRIVING IN THE UPTURN

This Way Out “Succession: Are You Ready?” (Memo to the CEO series, Harvard Business School

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ships, politics and self-interest that accompany succession.

Part of Harvard Business Publishing’s “Memo to the CEO” series, the book packs a good deal of insight into a highly readable, almost chatty package. At 125 pages, it is a little gem, an indispensable handbook in the spirit of William Strunk Jr. and E.B. White’s classic “The Elements of Style.” Despite its often philosophical tone and provocative style, Goldsmith’s book is eminently practical. It reads like a personal letter from a candid and trusted friend who clearly has the interests of its CEO audience at heart.

The book guides the CEO methodically through the process of making the decision to leave, preparing for the transition, choosing and developing a successor and, finally, passing the baton. Its principal instructions to departing CEOs are: be sure you know

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what you want; maintain your dignity; help your successor and your organization

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Making the Decision to Leave

“If retiring and playing golf were really more fun than being a CEO, you would already be retired,” Goldsmith writes.

An authority on how leaders can achieve positive and lasting behavioral change, Goldsmith clearly knows the CEO psyche and deals upfront with the weighty issues of ego and motivation. He bluntly advises CEOs who are considering their exit to confront any demons they may harbor.

“Being a ‘used-to-be’ CEO isn’t the same,” he warns. “To be honest, it isn’t even close.”

Your sense of happiness and self-worth may be much more wrapped up in wealth, perquisites, status, power and work relationships than you are willing to admit, he says. “If you cannot make peace with losing [these things], don’t retire!”

Nor should CEOs be seduced by the mythical allures of rest, relaxation and more quality time with family, Goldsmith says.

While these are necessary for a healthy life, they are not enough to sustain a post-CEO life, he warns.

“If retiring and playing golf were really more fun than being a CEO, you would already be retired,” Goldsmith writes. “You will probably have too much drive and ambition to be a successful ‘retiree.’ ” While his experience is unquestionable, Goldsmith is not entirely convincing on this point. He skirts the issue of what is to be valued in life, and correctly so; it is the subject of a different book.

This fundamental question aside, Goldsmith encourages CEOs to consider their post-CEO options early and realistically, well before they leave their current posts.

“Don’t get overly enamored with yourself when you start looking for the next great challenge in life,” he writes. “[It] might not be as easy as you think. Get real offers — with real salaries, real job descriptions, real co-workers and real board members.” Realistic decisions cannot be made based on vague, idealized scenarios, he observes.

Choose the Right Successor Goldsmith also gives some tactical advice on the topic of choosing and developing a successor. Frequently, but not always, a successor should be chosen from within the company,

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he says. External candidates do make sense if the organization is seeking a dramatic change in corporate culture, it is facing a sea change in market conditions or it does not have the luxury of time to develop a new chief executive.

However, hiring a name-brand CEO from outside who does not know the internal workings of a company, nor possibly its industry, is risky, Goldsmith warns. Failure can be costly in terms of money, morale, the integrity of internal operations and the company’s reputation. Choosing and developing a successor from within is more likely to produce continuity of vision and send the right message throughout the company. “[It] shows that you, as CEO, have made the same effort to develop internal talent that you are asking from everyone else,” Goldsmith says.

Goldsmith also underscores the importance of the input of key stakeholders — the board, peers, employees and major customers — in choosing a successor. While acknowledging that these stakeholders’ judgments may be based on incomplete information and their own agendas, Goldsmith cautions that their lack of participation could derail a new CEO’s chances of success.

Indeed, Goldsmith emphasizes the need for any successful candidate to be highly attuned to the political aspects of assuming the CEO mantle. Carelessness about what they say to whom and how they say it or about their demeanor in meetings can undermine otherwise stellar performances.

“As the world has changed, the role of the CEO has changed,” he says. “The bad news is that you are under far more scrutiny and pressure than ever before.” With the advent of the Internet, disaster is just a blog post or cellphone-camera upload away, he says.

This highlights a potentially disturbing aspect of what it takes to become a top executive today. That is, sensitivity and deference to constituencies may be overemphasized such that they trump ability and job performance.

But, this concern too strays beyond the scope of Goldsmith’s book. While issues of succession inevitably introduce questions about future leadership, the focus here is on how a CEO can step aside while protecting her own and her organization’s best interests.

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