2005 - Top companies for leadership
Succession planning for the role
of chief executive is never easy. When Jack Welch
was chief executive of General Electric he kept
his immediate subordinates guessing right up to
the day he announced his departure, knowing that
headhunters were forever circling his top team,
looking for an opportunity to move for the unsuccessful
Annointing a successor too early
would have deprived the company prematurely of
some of its most formidable executives. At the
same time it would have removed the stimulus of
competition as a motivating force.
Misys, the banking and healthcare
software services group, believes it can go one
better than GE and keep each of its two leading
contenders for the chief executive position when
Kevin Lomax, the existing incumbent splits his
executive chairman role within the next three
This is why it created attractive
share bonus schemes worth up to £1.2m each
for Tom Skelton, head of healthcare, and Ivan
Martin, head of banking. The remuneration committee
believed that performance targets were tough enough
and attractive enough to retain the services of
both men beyond the changeover.
Opposition from shareholder bodies,
however, led to the withdrawal of the so-called
“retention incentivisation plan” before
Tuesday’s annual meeting. Misys argued that
its plan had been in the best interests of the
company but investor bodies had complained that
the payments would be setting a precedent.
The investors were right. Had
the Misys plan been approved it could have led
to a flurry of other succession payments in other
companies amounting to little more than the inflationary
practice of throwing money at people in order
to keep them.
Moreover, in creating something
unusual that risked the disapproval of investors,
the company drew media attention to its two contenders.
If headhunters had not previously taken note of
the company’s dilemma, they will have done
While the retention plan may
not have been the cleverest scheme to emerge from
a remuneration committee, it at least demonstrated
that Misys was trying to think ahead. Companies
that ensure their chief executives are involved
intimately in succession planning are likely to
outperform their competitors according to new
research carried out by Hewitt Associates, the
human resources consultant.
Its Top 10 Companies For Leaders*
(see table) list drawn from a survey of 101 large
public and private companies in nine European
countries found four consistent indicators of
effective leadership development:
- Active involvement of chief executives and
their boards in leadership development programmes,
including selection, recruitment and performance
- Differentiated development of those earmarked
as “high potentials”.
- Consistent delivery of programmes.
- Formal accountability – supported by
metrics – of the development teams responsible
for leadership programmes.
In short the study found a strong
correlation between long term financial success
and well executed leadership programmes.
“The best companies take
great pains to track their best people. They know
who they are and treat them as the life-blood
of the organisation,” says Mark Hoyal, head
of Hewitt’s European leadership consulting
practice. “They tend to have well thought
out plans that are tailored to their own businesses
and don’t just copy from others,”
He also says that the leading
companies in the survey regularly review their
identified talent pools, moving people in and
out of them at intervals depending on individual
One of the starkest differences
that appeared to differentiate the way the best
companies looked at leadership was the use of
measurement. Some 70 per cent of the top performing
companies in the survey measured the way people
on their leadership programmes relate to their
companies compared with just over 35 per cent
of the rest in the survey. Similar results were
recorded for measures of programme effectiveness.
The Hewitt survey was last carried
out in 2003 and not every company that participated
then was included in the latest research. Three
companies, however, have maintained consistently
impressive business performance over time in line
with their leadership scores. They are L’Oreal,
BMW and Vodafone.
My only concern with such research
is the way that it concentrates on good companies
and the work they do to make themselves effective.
You would think that so much of this material
is in circulation by now that the vast majority
of businesses would be following suit.
But another piece of research
conducted jointly by the London School of Economics’
Centre for Economic Performance and McKinsey &
Co, looking at 730 manufacturing companies in
France, Germany, the UK and the US, shows just
how broadly management practices vary.**
The researchers interviewed managers
selected for their knowledge of shopfloor practices.
The managers were not informed of the exact nature
of the study. This led to some interesting informal
observations such as the manager who said: “If
you work here you drew the short straw.”
The study looked at various management
practices - lean manufacturing, performance monitoring,
target setting and the use of incentives - that
earlier work by McKinsey had identified as significant
differentiators in productivity levels. As might
be expected US companies faired best, followed
by those in Germany and France with the UK bringing
up the rear.
The research found that older
companies tended to have some of the lowest scores
particularly in industries where there is little
competition. High levels of labour market regulation
also appeared to have an adverse impact on the
quality of management although not enough to place
Germany and France behind the UK, in spite of
its comparatively lighter regulatory regime.
These findings, like those of
the Work Foundation in another recent study where
it measured corporate performance against a set
of indicators in its Company Performance Index,
are doing much to identify the management features
that can be identified or measured in order to
rank companies on the quality of their management.
But participating companies are still afforded
anonymity in return for their co-operation.
Secondary schools in the UK are
no longer afforded anonymity in performance rankings.
If differences in management practices can, as
the CEP study suggested, account for between a
10 and 20 per cent variation in productivity,
it is time that company management was subjected
to the same kind of public scrutiny. Who is going
to do it?
*reports can be obtained
from Alita McGuinness ([email protected])