Proof That the Right Leader Matters
After more than two decades of practice as an executive search consultant, I know a great deal about the importance of putting the right people in the right jobs. But the findings presented in the 2006 Harvard Business Review article “Are Leaders Portable?” still managed to surprise me.
Authors Boris Groysberg, Andrew McLean and Nitin Nohria looked at the impact that 20 former GE executives had had on the value of the companies they subsequently went on to lead and found that it ranged from an abnormal return of more than 60% per year to a yearly value destruction of 30% (adjusting for industry, size, and stock volatility). The message was clear: a strong pedigree and track record in one organization does not guarantee great performance in the next one if the executive doesn’t match up to the strategic, industry, relationship and company-specific challenges he or she will face. This was solid, relevant research, with practical applications, presented in an accessible way — completely in line with HBR’s tradition.
I read the article when I was finishing my book Great People Decisions, and it has dramatically influenced my thinking, practice, research, and teaching ever since. In fact, it prompted me to dig even further into new research on leadership and the conditions for getting senior appointments right. I also conducted some of my own studies on the impact and portability of executive talent, including global data analyses on the “stick rate” of my firm’s hired candidates, or how long they stayed with and performed well for our clients. I complemented this by talking to hundreds of practitioners and academics all over the world. I am now even more convinced that Groysberg, McLean and Nohria were right. An organization’s ability to choose the right leaders (looking both inside and out) is one of the most important controllable factors in creating or destroying company value. At the same time, this is no easy task to accomplish.
The conclusions and advice presented in “Are Leaders Portable?” are as valid and important as they were six years ago and perhaps even more urgent. Companies that want to thrive in today’s global, complex, fast-changing business environment need to spend more time assessing candidates, context and fit. They need to be trained in how to best manage high potentials and how to make great appointment decisions — involving the right people in the process, acknowledging and overcoming biases, and considering both internal and external candidates. Most senior leaders are still dangerously unarmed in this regard. In the case of CEO successions, for example, the vast majority of board members responsible for deciding on those key appointments have never been involved in the same sort of search before or have been exposed to only one. Nor are they trained in how to do the job. This is a mistake. I can only hope that HBR continues to focus on the importance of identifying, developing, and appointing the right leaders and continues to show its readers how to do it well. Lots of corporate value, employment and prosperity will come as a result.
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