Forget celebrity CEOs
Top performers often come from inside the company

When Jean Monty and John Roth announced that they were stepping down from the top jobs at BCE Inc. and Nortel Inc., their successors Michael Sabia and Frank Dunn were chosen from inside the ranks of their organizations. But had their companies been located south-of-the-border the outcome might have been different.

In an era of instant results and higher profile of corporate CEOs, -- such as Steve Jobs, Matthew Barrett and Al Dunlop -- in times of weakness, U.S. companies - like sports franchises - are increasingly pressured to bring in a new guy from outside the organization to "light a fire under the team."

"One of the big differences between Canadian and American management philosophies is that Canadians are much less likely to fall prey to the celebrity CEO phenomenon," said Jim Collins author of Good to Great: Why Some Companies Make the Leap and Other's Don't.

For example when Mickey Drexler decided to retire as CEO of San Francisco-based Gap Inc. last week, speculation immediately turned to whether the board of directors would bring in an outsider to clean up the troubled clothing retailer.

Drexler, 57, had been given much of the credit for building the company from a small California chain into a 4,200 outlet giant. But he committed the unpardonable sin of presiding over two bad years. The hope was that with Drexler out of the picture, the board could hire an industry pro to turnaround the Gap quickly.

But according to Collins, companies like the Gap ought to think twice before hiring a celebrity CEO.

Collins conducted a study of 11 S&P 500 companies that made the transition from adequate to superior performance, and compared them with others in similar industries. Surprisingly, he found in almost all cases the top companies were led by managers who were brought up from the organization's ranks.

"Larger-than life CEO's who come in from the outside were negatively correlated with taking a company from good to great," said Collins, a former Stanford Business School professor, in a telephone interview.

The companies that Collins chose to study were from a variety of industries including steel, pharmaceutical products, retail and information technology. But all of them had several things in common: they had a period of average returns, followed by a 15-year stretch during which the company's stock outperformed the market by a margin of three to one.

Surprisingly, only 11 companies fit the bill, including such well-known names as Abbott Labs, Wells Fargo, and Gillette. What is not as well known is the CEOs of the top performing companies.

"Can you tell me who George Cain, David Maxwell and Coleman Mockler are," asked Collins. Some of the leaders wouldn't be recognized within even their own companies.

"The good-to-great leaders all showed considerable modesty and humbleness in both their personal and professional lives," said Collins. "They were more concerned with achieving organizational goals than they were about personal fame."

This focus on the organization's success, rather than the CEO's own is what Collins characterizes as Level 5 leadership. "The big difference is that these leaders were able to build up such strong organizations that when they retired, their success continued," said Collins. "Many of today's CEOs do perform well, but they only achieve personal success. When they retire, the people they leave behind are so weak, that everything falls apart."

Collins calls this the "genius with a thousand helpers," phenomenon, which occurs when a super-talented ego-driven individual takes over an organization. Often these leaders don't want or even need skilled helpers, and they thus surround themselves with sycophants and yes-men. Incredibly, the system works - until the leader leaves, and all that's left behind is the detritus.

Worse, according to Collins in many cases ego-centric CEO's often want their successors to fail and sub-consciously set them up to do so, in the belief that the successor's failure only re-asserts how indispensable the CEO was to his organization in the first place.

The era of the celebrity CEO began when Lee Iacocca, a former Ford executive took on the top job at Chrysler and turned the company around generating excellent results for several years.

As a result of the huge publicity surrounding Iacocca's success, companies began increasingly looking outside their ranks for management messiahs - one of the reasons that CEO salaries have skyrocketed during the last two decades.

But according to Collins, Iacocca then became enamored with his own self image and began doing television commercials, making innumerable public appearances and even letting on that he was thinking of running for president. During the ensuing years many of the gains that Iacocca made were lost and the company soon found itself in trouble again.

 

 

 

Diekmeyer can be reached at peter@peterdiemkeyer.com

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