No manager has yet had to manage his company in an economic climate as tense as the one we are facing. Here is a plan summarizing the strategies that could ensure their effectiveness for leaders
confirming what everyone had suspected for a long time, the National Bureau of Economic Research (NBER) recently announced that the American economy had entered into recession since December 2007 already. The Dow Jones Industrial Average (DJIA) fell more than 35% last year; as for unemployment, it rose by almost 7%. The current global economic situation is unprecedented, which begs the question: is your CEO prepared to play by the rules imposed by the current economic environment, or is he or she uniquely gifted? in the game that preceded the onset of the recession?
And how can boards ensure that their decisions regarding the direction and succession of their company will properly place their pawns on the chessboard of tomorrow?
We argue that the skills required to run a business have really evolved. It is particularly the CEOs, whose skills are most marked at a broad conceptual level, who are exposed to risk. Executive offices are no longer the place for today’s CEOs. Times are too uncertain for such leaders to convincingly chart a course for a society. Here is a list of factors to consider:
Given our assertion that no one has run a company in such economic circumstances, we certainly cannot say that experience will determine which CEO succeeds. However, there are instances where, in our view, leaders currently running a business possess the skill set required to participate in today’s game. More specifically, we believe that leaders working within resilient operating environments [such as Marc Hurd at Hewlett-Packard (HPQ), Jamie Dimon at JP Morgan Chase (JPM), Muthar Kent at Coca-Cola (KO ) or even Marius Kloppers at PHP Billiton (BHP)] are better equipped than before to face the current challenges.
It is essential that the leaders of a company know to what extent their various decisions will pose financial problems to the latter (or, on the contrary, which will be beneficial to it). However, this ability, like operational strength, does not mean that leaders are exempt from the duties of CEOs. Indeed, managers must encourage and motivate the whole organization to avoid a moral contagion which would only aggravate the problems.
The right mix
For the past decade, the chief responsibility of CEOs has been to sell the corporate image (to the Wall Street Stock Exchange, to shareholders, employers, and other market participants). This duty has required many of the CEOs to spend no less than 80% of their time dealing with tasks other than running their business. How do you recognize a competent CEO today? Our work in collaboration with many companies around the world leads us to believe that the director best suited to the economic situation is thus made up immediately: CEO at 20%, CEO at 40% and CFO at 40% as well.
The 20% – 40% – 40% composition implies that the director is able to move from one activity of his company to another in a homogeneous way (from the management office to the production line), thus demonstrating what Bill Watkins, CEO of hard drive manufacturer Seagate (STX), calls ‘micro-steering’. The micro-director is perfectly aware that his company is independent of the circumstances of the moment, and knows not only how and why certain decisions will come to compromise an operation, but also the extent of their financial consequences.
At the same time, the micro-director is able to encourage his employees and the actors outside his company to develop strategies and anticipate the future.
An up-to-date succession
The fundamental shifting of pawns on the chessboard (as well as the skill set required of managers to compete effectively) also requires that they strive to develop a succession plan that allows a company’s employees to move up the ladder. different levels of his hierarchy. In this respect, companies revising their succession plan must, when identifying their successors, take into account the percentages 20% – 40% – 40% which constitute the set of skills required of them, and then train them.
However, there is a similarity between the current economic situation and the old one. Indeed, most companies have established short lists of successors and identified all the possible shortcomings of these, based on the economy of the past. Board members and senior management should review their succession plan strategies to ensure that candidates and their development plans are aligned with the demands of the new economy. It is quite possible that the candidate who previously seemed to fit the profile is no longer viable.
Identification of evaluation problems
How should boards redefine their succession plans? First, they must strive to identify the shortcomings of executive evaluations as they are currently practiced. All too often, evaluation feels like a ritual rather than a strategy. The former is devoted to the execution of a process, while the latter requires that the members of a company are fully aware of the probable future of the latter and must consider whether or not the executives have the adequate methods to the direction of a new environment (or if they can develop them).
A company’s board has failed when executive assessments become a summary exercise focused on how their company’s operations are run, instead of exploring the cracks in the armor protecting executives that could expose the latter to future battles. Too much advice today beats around the bush when it comes to CEO and senior management topics, and when it comes to discussing reviews in detail through constructive coaching and the resulting feedback. A tough and honest evaluation and appropriate feedback should include the best elements of the flowchart.
Identify and repair errors
The path to progress, which consists of a simple sequence of two steps, is traveled far too often in an expeditious manner. First of all, the board of a company must each year define the strategic management of the company as well as the operational requirements to come. Neither companies nor the skills required of their directors to guarantee the success of their activities are immutable. As a strategy evolves, will the CEO and potential successors be able to keep up? For example, even though “cash management is king” in today’s economy, many CEOs of Fortune 500 companies are far from being in a position where they manage Treasury. As a result, they don’t set a good example of managing capital. If CEOs have to assess the potential risks to which their own business is exposed, they cannot distance themselves from cash and its management even if the structure of their establishment is so solid that no one would have imagined it would ever be. exposed to risk.
The second step is to create and then apply inflexible development plans to tackle the weaknesses identified in current and future candidates. First of all, you have to fully understand the risk incurred by the director, and then make efforts to remedy it.
We challenge corporate boards to ensure that their leadership research and succession planning efforts are forward-looking, and – this being the most important point – that all applicants were assessed against both macroeconomic conditions and future business needs. As the rules of the game evolve, the skills of the players must also evolve, especially those of the people at the top of the hierarchy of large corporations.