Leadingin a Time

How McDonald’s Plans Ahead pg.14 Europe’s Jobs Turnaround pg.20 Building a Company of Entrepreneurs pg.24 Governing the Governors pg.36 The CEO Whisperer pg.44

2009.11 $19.95 us Leading in a Time $19.95 cnd €13.60 eur An Interview With Kenneth I. Chenault, £12.50 uk Chairman and CEO, American Express ¥1,770 jpy of Crisis 20.50 chf pg.52 73.50 aed ¥136.40 cny 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 descrip- tors of wondrous human capabilities to being code for nefarious activities. Ideas that mattered only a few months before fell into dis- repute. 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 Tal- ent 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-

welcomelated 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 evolv- ing 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 1/8” bleed built companies as never before. Harvard Business School Professor Jay W. in to this side 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 Econo- mist 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 vin- dicated 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 Cri- sis,” 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 come 14 24

6 comein.

52 36

20 c o n t e n t s

1 Letter from the CEO 6 Latest Thinking 6 leading with intent Real change requires process and time. 8 what makes leaders succeed? Leadership depends on more than static skills. 10 boards as advisers and bellwethers Boards can help CEOs plan for the future.

14 Succession

HOW MCDONALD'S PLANS AHEAD McDonalds became best-in-class at succession planning the hard way. BY DEBORAH l. JACOBS

20 Talent

20 EUROPE’S JOBS TURNAROUND Once a laggard at job creation, continental Europe is outpacing Britain and the United States. BY ADRIAN WOoLDRIDGE 24 BUILDING A COMPANY OF ENTREPRENEURS By blending Asian values and Western management techniques, Li & Fung has enhanced its competitiveness and growth. BY PAUL HEMP

44 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 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

62 In Review 62 “DRUCKER ON LEADERSHIP”

66 “SUCCESION: 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

4 2 0 0 9 . 1 T h e K o r n / F e r r y I n s t i t u t e

Cisco_KFI_Briefings_ad_8.375x10.875.indd 1 10/8/09 1:37 PM Live: 7.625 x 10.375 (1/4” from trim edges) Trim: 8.375 x 10.875 Bleed: 8.625 x 11.125 Mankind’s greatest achievements have come about by talking, and its greatest failures by not talking.

—Stephen Hawking L a t e s t t h i n k i n g

and acknowledge the discrepancy between Leading With Intent 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 How many leaders behavior and create a support network that does it take to screw Despite the accumulation of insights about encourages their new behavior. These steps in a light bulb? Demotional intelligence from decades of re- may seem intuitively obvious, but, in fact, few search, the concept commands little more change initiatives adhere to this approach. Just one, but he than pop-psychological status in most organi- Studies at the Weatherhead School of really has to zations. There is certainly increased aware- Management at Case Western Reserve Uni- ness in the corporate world that emotional versity, where Boyatzis is a professor of orga- want to do it. forces frequently underlie seemingly analyti- nizational behavior, psychology and cognitive cal decisions and that a leader who can man- science, have shown that following these five age these undercurrents in the workplace has steps leads to sustainable changes in habits, a clear advantage. But, for the most part, cor- perceptions and mood. These changes in turn porate leadership training has failed to culti- enhance individuals’ abilities to understand vate this advantage. their own and others’ emotions. In other Academia has not done any better at de- words, putting intentional change theory into veloping these capabilities in leaders. Gradu- practice can significantly develop emotional ates of highly ranked MBA programs have and social intelligence, or what Boyatzis refers shown only a 4 percent improvement in self- to as “resonant leadership.” awareness and self-management abilities and Common Mistakes in a 3 percent decrease in social awareness and re- Leadership Development lationship management skills from the time they began their programs. Leadership training programs and managers Richard E. Boyatzis*, a prominent inves- conducting annual reviews often make a cru- tigator of emotional intelligence for more cial mistake, according to Boyatzis. They skip than two decades, may have found the key to or give short shrift to the first step of ICT— developing leaders with greater emotional defining a desirable, achievable goal. Instead, and social competencies. Simply put, those in they jump directly to the second step — com- charge need to want to be leaders, he says. Self paring the real to the ideal. Examining the gap evident as that may sound, it is a crucial in- between one’s aspirations and reality through sight. Many people are pushed into leader- a variety of feedback mechanisms, such as vid- ship because of the expectations of others or eotaped interactions, can provide strong mo-

manic monday they pursue leadership positions, despite tivation for change. However, research shows strong reluctance, because of the allure of ca- that if an individual is not given a sense that reer advancement or social status. change is possible and if attention is focused Boyatzis’ formulations, enunciated in his on fixing his deficiencies rather than enhanc- “intentional change theory (ICT),” are based on ing his strengths from the outset, he will be- the idea that change in any system, whether come defensive and stressed and his perfor- that system is a single individual or an organi- mance will suffer. zation, occurs gradually and on many levels. Another weakness in many leadership And, what he calls “specific intention” is re- development efforts is that they do not pro- A third more accidents happen on Monday mornings quired to orchestrate and sustain change in vide explicit permission to experiment and than any other day of the the system. even to fail. A judgmental subtext often exists week, with Mondays marked Intentional change, is achieved through a in organizations that will sabotage a nascent by “low performance and inattentiveness as people try five-part process, says Boyatzis. First, an indi- leader’s early efforts. Permission to let go of to recover from the weekend.” vidual or group that seeks to change must en- old habits and try new approaches can come vision a desirable and achievable future. Next, from trusted consultants, coaches or peers. they must come to terms with their real selves Most organizations do not do enough to make 6 2 0 0 9 . 1 T h e K o r n / F e r r y I n s t i t u t e 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 comple- mented 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.

* Richard Boyatzis is a co-author, with Daniel Gole- man 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 Psychol- ogy Journal (2008) and “Intentional Change Theory from a Complexity Perspective,” Journal of Manage- ment Development 25 (2006): 607-23. For more information about the ideas in this article and the work of Richard Boyatzis, contact him at richard. [email protected].

B r i e f i n g s o n T a l e n t & L e a d e r s h i p 2 0 0 9 . 1 7 l A t e s t t hi n ki n g

What Makes

empowering leadership, supportive leader- Leaders Succeed? ship, work-life balance, abrasiveness and lack of follow-through. But the researchers also found that these factors played very different Many development roles in performance, depending upon which efforts may be missing Half of all executives fall short of performance managerial level was being studied. the forest for the trees. Hexpectations and derail. Given the amount At the executive level, for example, direc- of time, energy and resources many organi- tive leadership actually played a negative role. zations devote to talent management and Empowering leadership is what is required leadership development, that is an alarming at this level. Although a top-down, command- and baffling statistic. But it is perhaps not so and-control approach proved to be coun- baffling if you believe that most leadership terproductive, neither supportiveness nor development efforts are doing little more than abrasiveness differentiated the effectiveness allowing the Peter Principle to operate — usher- of executives at this level. That is, interper- ing executives up the ladder until they reach sonal skills are not as important at the top as the point where their skills are overmatched they are at other managerial levels. Interest- by the requirements of the job. ingly, work-life balance proved to correlate Another explanation, however, is that negatively with effectiveness, confirming leadership is not a static set of teachable skills, what most executives already assume: any- competencies or behaviors, and that devel- thing less than full devotion to the job may opment efforts premised on a static model compromise results. are ill-conceived. A good deal of research has For middle managers, whose primary shown, and practical experience confirms, role is sharing information throughout the that what makes an effective manager varies organization to build support for change dramatically depending upon managerial initiatives, interpersonal skills are of primary level. So when the only constant among importance. Supportive leadership is a crucial managerial challenges is change, the only factor and abrasiveness is a fatal flaw. Unlike competencies that count across the board their superiors, middle managers thrive are agility and adaptability, and that is where when they display directive behavior, while development efforts should be focused. demonstrating empowering leadership is of Want to Be Happy? Hang out your Shingle In “Testing the Leadership Pipeline,”* a less importance. paper forthcoming in The Leadership Quarterly, At the supervisor’s level, the only positive four researchers have taken a quantitative, predictor of success, beyond learning agility, analytical approach to the question of what is work-life balance. This finding may reflect constitutes the right stuff at each managerial the primary importance of mastering defined level. Their goal is to help organizations pre- skills and setting limited goals at this level. dict effectiveness and translate that effective- Being extremely supportive, or abrasive, are ness as the manager rises to succeeding levels. counterproductive at this level, suggesting Analyzing the performance of 2,175 that to be most effective, supervisors should managers, researchers Robert B. Kaiser, S. maintain a distance from rank-and-file em- Bartholomew Craig, Darren Overfield and ployees. Preston Yarborough identified seven facets of So what are the practical implications of managerial behavior that were strong predic- these observations? If your goal is enhanced tors of effectiveness at various managerial effectiveness at all managerial levels of your levels: learning agility, directive leadership, organization, your development efforts

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

8 2 0 0 9 . 1 T h e K o r n / F e r r y I n s t i t u t e should not be aimed at cultivating specific Which Managerial Behaviors Predict Effectiveness? competencies. Instead, they should focus on The combination of seven key behavioral characteristics most conducive to identifying versatile, adaptable candidates. As success is different at each level of leadership. 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.” Executive Talent Acquisition

Certain psychological assessments can help identify individuals with learning and adaptability strengths. A flexible, learning Middle orientation is also indicated by a history of Manager 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. Observ- ing how individuals respond to assignments that require new capabilities is also revealing. Supervisor Talent Selection and Succession

Learning Directive Empowering Supportive W Abrasiveness Lack of Managers are often promoted on the basis of Agility Leadership Leadership Leadership Balanceork-Life Follow-Through 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 Strongly positive must reinvent their leadership styles; they facilitated by support mechanisms such as predictor of effectiveness must shed tendencies to micromanage, learn mentoring and feedback. Companies are also Positive predictor to build a team and develop confidence in finding transition coaching helpful. of effectiveness assuming wider responsibilities. Selection Just as there is no one formula for a Insignificant predictor committees need to examine untested areas successful leader, there is no single recipe of effectiveness of competence and ask, for example, whether for how to select and initiate new executives. Negative predictor of effectiveness a successful directive middle manager could The one principle that seems to apply to any empower her staff if she moved into the leadership transition is that those who have a executive suite. proven ability to adapt to changing demands are most likely to succeed. Transition Management

Most derailments occur because of the sink- *Robert B. Kaiser is a partner with the executive or-swim mentality that pervades during development and research consultancy Kaplan many transitions. Companies like American DeVries Inc. and is co-author, with Bob Kaplan, of The Versatile Leader (Pfeiffer, 2006). S. Bartholomew Express and Pfizer, however, have increased Craig is an associate professor of psychology at their success rates by taking an active role in North Carolina State University and an adjunct managing promotions. Best practices include research scientist with Kaplan DeVries Inc. Darren creating a transition plan that identifies the Overfield is a senior consultant with Kaplan DeVries unique demands and key risk factors of the Inc. Preston Yarborough is the assistant director of new role and closely monitors how the transi- leadership at the University of North Carolina at tion is going. Smooth transitions are also Greensboro. [email protected]. B r i e f i n g s o n T a l e n t & L e a d e r s h i p 2 0 0 9 . 1 9 l A t e s t t hi n ki n g

CEOs have focused on fine-tuning their internal monitoring systems to pick up signals of Boards as Advisers developments warranting quick responses. Many have sharply increased the amount of time they spend communicating with and Bellwethers investors — not only to provide information and transparency, but also to be strategically aligned with major investors in times of crisis. CEOs say that the But perhaps the most significant trend recent economic In the summer of 2008, Herbert Henkel, the emerging from the recent crisis is a growing crisis has placed a Ichairman, president and CEO of Ingersoll interest among many CEOs in having more Rand, was alarmed when he noticed that active boards. Many CEOs have come to the new premium on European orders in the company’s refriger- realization that if directors are well-informed information and ated transport business had slumped, even as about their companies’ conditions, the board business was still booming in other divisions. members are in a better position to offer sup- changed how they “I couldn’t help thinking, ‘What if that port and advice. interact with their figure really is indicative of what’s out ahead?” “There are more surprises brewing in boards. Henkel said in one of a series of CEO inter- tough times than there are in good, so you views conducted by Michael Patsalos-Fox of naturally end up with more communications,” McKinsey & Company, Dennis Carey of Korn/ says George Buckley, the chairman, president Ferry International and Michael Useem of the and CEO of 3M. Wharton School of the University of Pennsyl- Many CEOs said their full board meet- vania. (The interviews and an analysis were ings have been supplemented by exchanges published in a different form in the July 2009 through letters, e-mails, intranet postings, issue of McKinsey Quarterly.*) informal discussions and conference calls. At Though analysts thought Henkel was Cardinal Health, Chairman and CEO R. Kerry misguided, he followed his instincts and fore- Clark instituted board updates — conference cast zero growth in Europe during the third calls held as frequently as every two weeks — quarter. He turned out to be wrong: growth ac- and created a special committee, consisting of tually declined by 15 percent. Nevertheless, as three board members, to interface with man- a result of Henkel’s prediction, Ingersoll Rand agement and report regularly to the board. got a head start in responding to the economic “There are very few barriers and every- crisis, quickly restructuring, reducing inven- body’s very comfortable talking plainly to tory and developing other contingency plans. each other,” says Clark. The abruptness of the recent downturn Even more than the frequency of com- Who’s Getting has underscored the value of anticipating munication with the board, the content of a Gold Star economic trends, according to the CEOs and that communication has changed. Many chairmen of many of America’s leading com- CEOs described a shift in boardroom discus- panies who were interviewed. The corporate sions from routine annual reporting by divi- leaders also said it is becoming more difficult sion heads to nearly constant war-gaming. to act decisively ahead of trends because they “The world moves at a pace today that are increasingly reliant on incomplete and requires strategy to be front and center all the rapidly changing data. time,” says William Nuti, chairman and CEO Leading chief executives have responded of NCR. “There are too many variables that to the challenge by rewiring their organiza- come into play in a normal cycle, let alone tions’ neural networks, creating mechanisms this one, that can rapidly change the course of for rapid communications, constant informa- your company, so I bring strategy up at every tion flow and the transmission of strategic single meeting.” input throughout their organizations. Some Nuti uses his board not only as a bell-

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

10 2 0 0 9 . 1 T h e K o r n / F e r r y I n s t i t u t e wether, but also as an adviser in the formula- tion 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, business.’ I’ve found real balance in them chal- believes management’s relationship with the lenging us and pushing us, but at the same board must remain well-defined if it is to be time stepping back and allowing us to run the effective: “Get [board members] into an envi- company.” ronment where you can sit and talk through issues, and it’s incredibly valuable. But they * These interviews were originally published in the are the first to declare that they’re not opera- McKinsey Quarterly (July 2009). The authors were tors. Realistically, you can’t try every one of Michael Patsalos-Fox, a director at McKinsey & Company, Dennis Carey, a senior client partner of their ideas and still run the business. So, you CEO & board services at Korn/Ferry International push and pull to prioritize. [If they tell you], and Michael Useem, a professor of management ‘This is what we have to do,’ [you tell them], and director of the Center for Leadership and Change ‘We can do that, but there’s a tradeoff— you Management at the Wharton School of the University need to know that will put pressure on the of Pennsylvania. [email protected] B r i e f i n g s o n T a l e n t & L e a d e r s h i p 2 0 0 9 . 1 11 KF_bridge_ad_halfinch.pdf 10/15/2009 11:20:43 AM

OUR IMPACT HAS JUST BEGUN.

Celebrating 40 years in business, Korn/Ferry understands that attracting top talent to your organization is only the rst 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. Leading organizations worldwide have turned to Korn/Ferry for their talent management needs for more than four decades. 40 Isn’t it time you spoke with Korn/Ferry? Celebrating forty years. www.kornferry.com 12 2 0 0 9 . 1 T h e K o r n / F e r r y I n s t i t u t e KF_bridge_ad_halfinch.pdf 10/15/2009 11:20:43 AM

OUR IMPACT HAS JUST BEGUN.

Celebrating 40 years in business, Korn/Ferry understands that attracting top talent to your organization is only the rst 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. Leading organizations worldwide have turned to Korn/Ferry for their talent management needs for more than four decades. 40 Isn’t it time you spoke with Korn/Ferry? Celebrating forty years. www.kornferry.com B r i e f i n g s o n T a l e n t & L e a d e r s h i p 2 0 0 9 . 1 13 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 By Deborah L. Jacobs

McDonald’s Corporation had taken initial steps to revamp its succession plan when a tragic sequence of events Mtested 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 were to get underway.

14 2 0 0 9 . 1 T h e K o r n / F e r r y I n s t i t u t e B r i e f i n g s o n T a l e n t & L e a d e r s h i p 2 0 0 9 . 1 15 Board members, most of whom had come to Florida for the time Skinner took the reins at the end of 2004 following the convention, were alerted of the news at 5 a.m. and quickly Bell’s brief tenure, there had been four CEO’s in just two years. convened an emergency meeting. By the start of the business Since then, the leadership development process has con- day, they had appointed Charles H. Bell, a 44-year-old Austra- tinued to evolve. One crucial step was to create a Global Tal- lian who had spent his entire 28-year career at McDonald’s, as ent Management group within the human resources depart- the youngest CEO and the first non-American to head the com- ment. The group now oversees the succession process for pany. That afternoon, he delivered the opening address that roughly 1,400 positions worldwide — officers, senior directors Cantalupo had been scheduled to give. and directors — the feeder pool for officer roles. David Small, But six months later, Bell too was gone; he resigned af- who was promoted to head the group in July after four years of ter becoming terminally ill with colorectal cancer. Again, there grooming, says that when these jobs turn over, 90 percent are was a successor in the pipeline. James A. Skinner, who had be- filled from within the company. gun his career at McDonald’s 33 years earlier flipping burgers, Meanwhile, McDonald’s has undergone a wholesale reor- was promoted from vice chairman to CEO in December 2004, a ganization to implement the principles of the Plan to Win. Re- month before Bell died. sponding to competition in the fast-food industry and a grow- Skinner was the last surviving author of the company’s ing focus on healthier eating, it made several key acquisitions “Plan to Win,” a turnaround program designed to address an and began to rethink its business strategies. unprofitable period that led to Cantalupo’s return. The plan, Having executives in house ready to become CEO during whose other authors were Cantalupo and Bell, listed “attract the back-to-back tragedies of 2004 was essential to revitalizing and retain the best talent” as one of the company’s “must do’s.” the company, says Richard R. Floersch, head of the company’s Today, there are “one ready now, one ready future” for 79 percent of the top 50 positions.

Talent management and leadership development have human resources department. If an outsider had been hired been among Skinner’s top priorities ever since. His own ca- instead, there is a good chance that the Plan to Win would have reer path exemplifies the company culture, which favors home- been abandoned in favor of a different strategic path, he says. grown leaders over those hired from outside. Of the company’s Still, for the process to work, “ready now” candidates top 50 executives, 40 percent started in the restaurants, some must be at least as strong as the people they would replace, as hourly employees or manager trainees. Companies consid- Floersch says. And that makes some people uncomfortable. ering the overhaul of their talent management process might In a conversation several years ago, Skinner asked a manager find the McDonald’s model instructive. whether his “ready now” candidate met the standard, Floersch recalls. When the manager hedged, Skinner told him that if Catalyst for Change the candidate did not yet meet all the requirements of the po- The succession pipeline that produced Skinner had begun to sition, then he should be considered a “ready future” — not a be reconfigured six years earlier. The catalyst for change was a “ready now.” If the manager’s position were to open the next mandate from the board. In 1998, after Jack Greenberg became day, a candidate should be sought from outside the company, CEO, the board asked for a succession plan that would identify Skinner said. two successors for each key spot — “one ready now, one ready Calibrating Performance future.” The future candidate was to be ready within two years. With hindsight, the board directive seems prescient. A key part of the enhanced succession process is performance Greenberg, who had beaten out Cantalupo for the CEO job, guidelines for assessing the top 264 officers in the organization stepped down at the end of 2002, just before McDonald’s an- and analyzing the feeder pool for the senior director positions nounced its first quarterly loss as a publicly traded company. below them. It became apparent that “the bench strength at the Cantalupo, a retired executive with 28 years of service, was senior director level was significantly lower than we needed it brought back to head the company but died 16 months later. By 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.”

are we oversharing? More than six billion minutes are spent on Facebook each day worldwide.

16 2 0 0 9 . 1 T h e K o r n / F e r r y I n s t i t u t e Every December, Skinner, president and COO Ralph Alva- to be successful in their current job or the next one. rez and senior management now assess the performance of the McDonald’s leadership development programs include top officers. They rank each individual’s performance during an educational component. A special accelerated development the preceding year using the 20-70-10 model, identifying the program, targeted at the top 264 high-potential directors, se- top 20 percent of performers, those in the middle 70 percent nior directors and officers, is designed to enhance leadership and the bottom 10 percent. capabilities. Participants learn to have candid conversations Evaluations rely on multiple points of view rather than on with subordinates during performance evaluations and other- a single boss’s perspective. Supervisors need to defend evalua- wise hone their skills at coaching and developing talent. tions to their own peers. And others can weigh in with informa- Rather than send employees to offsite leadership develop- tion about their experiences with the person being reviewed. ment programs at prestigious universities as many other com- An “improve or remove” leadership development plan panies do, McDonald’s runs its own. These programs combine is then formulated. Ideally, it focuses on what people need to instruction by the company’s executive team with speeches by do better in their current positions or to be ready for advance- outside experts. The goal is to provide a natural link between ment. 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 top 50 positions.

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

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 King- dom in 2008 and by 2010 will apply to all 1.6 million employees worldwide. They define eight leadership competencies that encapsulate the key skills leadership development and the company’s business strategy, and behaviors needed for business success. “Builds and lever- something that might be harder to achieve if executives went ages talent” is one of the items. off campus for their instruction, Floersch says. For each competency, McDonald’s clearly defines what is To varying degrees, the same process is followed at lower expected. The guidelines even include a list of “contrary behav- levels of the organization, Small says. Talent management is so iors” like “overemphasizes proving oneself and does not give much a part of the corporate culture that it usually extends to credit to others” and “does not apply consistent criteria and the restaurant level as well. standards when making talent management decisions.” However, there are no guarantees of promotion. Whether Talent management is premised on a familiar, predictable someone is promoted depends on many variables. “We’re very format developed from the company’s study of best practices clear with people who go into our high-potential accelerated elsewhere and adapted for the culture McDonald’s is trying to programs that this program is not designed to get you pro- create. It starts with the drawing up annually of an individual moted; it’s designed to help you step up your leadership capa- performance plan that focuses on an individual’s goals and ob- bilities, to get you ready in case you’re promoted,” Small says. jectives and is reviewed at least once, at midyear. Separate indi- The promotion rate for the 264 high-potential leaders is about vidual development plans describe what individuals need to do 40 percent. B r i e f i n g s o n T a l e n t & L e a d e r s h i p 2 0 0 9 . 1 17 McDonald’s rigorous process, with its up or out mental- Talent Management. Working with Skinner, Alvarez and ity, may sound harsh and bureaucratic, but the company’s re- Floersch, the group drafts a succession plan for the top 30 posi- tention rate is high, says Small. The turnover of top talent is less tions that is presented to the board each July. than 2 percent per year, perhaps partly because McDonald’s is Succession planning to develop a company’s future lead- creative about letting people move into different kinds of posi- ers, with the human resources department serving as trustee, tions, even if those moves are lateral. Perks like incentive stock has succeeded at other businesses, just as it has at McDonald’s, options and restrictive stock also put some glue on the compa- says Charan. But reaching the point where a company can have ny’s talent. “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 The purpose is not only to find successors but also to create a culture that identifies and nurtures talent.

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. Board Involvement

“The most important thing any board does is pick leadership, Theoretical Underpinnings starting with the CEO,” says Andrew J. McKenna, nonexecutive The framework for the McDonald’s succession process comes chairman of the McDonald’s board since 2004. And the compa- partly from “The Leadership Pipeline: How to Build the Lead- ny’s board devotes most of its July meeting to the subject. Since ership-Powered Company” (Jossey-Bass, 2000) by Ram Charan, the culture at the company favors homegrown leaders, only in- Stephen Drotter and James Noel. McDonald’s has built on the ternal candidates are considered, McKenna says. six steps in the evolution of leadership identified in the book — The meeting starts with a presentation by Skinner, Al- from managing oneself to managing the enterprise — by defin- varez and Floersch on the company’s progress in developing ing the competencies that go with each. Employees, in partner- leadership in the past year and future plans. Alvarez and Flo- ship with their supervisors, are expected to create their own ersch talk about the performance of the individuals in the top development plans geared to personal strengths and opportu- 15 leadership positions and the succession candidates for these nities within the organization. Plans might include shadow- jobs. Then Skinner presents his assessment of the candidates ing somebody, having a mentor or working on some special as- developing for his position. signments. Following these presentations, the board meets in execu- The same process is replicated throughout the organiza- tive session. Since McDonald’s is a global company with 32,000 tion. Evaluations are conducted in the spring for global func- restaurants in 118 countries, the board looks at talent through- tional leaders in each area of the world and potential replace- out the world. The objective is to follow the progress of individ- ments are identified. Data from these evaluations, collected for ual candidates — what they have done, what they might be able approximately 1,400 employees worldwide, is sent to Global to do and the likelihood that they will move up, McKenna says. 18 2 0 0 9 . 1 T h e K o r n / F e r r y I n s t i t u t e To follow up, board members try to get acquainted with Sonnenfeld notes. In fact, an enduring culture can help people those individuals they do not already know. The process is “a get past a disappointing quarter, he says. great opportunity for the board to become familiar with the can- Does It Translate? didates for senior positions, and as time goes on, they may well become candidates for the most senior position,” McKenna says. The willingness of McDonald’s to invest in its people is “in Jeffrey Sonnenfeld, head of The Chief Executive Leader- some ways a refreshing model and in some ways a reminder of ship Institute at the Yale School of Management and author of how many great companies lost their way,” Sonnenfeld says. As “The Hero’s Farewell: What Happens When CEOs Retire” (Ox- recent events in the financial industry illustrate, the “dispos- ford University Press, 1988), says there are additional advan- able entity mindset matched with excessive short-termism has tages in hiring internally. When the board makes hiring de- been destroying U.S. business strength,” he says. cisions, there is an “unconscious bonding between outside But grooming leaders internally rather than speculating candidates and the nominating committee” that can make the about whether an outsider’s skills are transferable, as McDon- outsider overly dependent on those responsible for the hiring ald’s does, is something only about a dozen American com- decision, Sonnenfeld says. Inside hires are more independent panies do well, Sonnenfeld says. These companies appreciate and have “a considerably stronger network and knowledge that “you have much better performance data from the people base than even the director has,” he says. within — you know who is riding the coattails of others, who The purpose is not only to find successors but also to create a culture that identifies and nurtures talent.

Boards that favor outside hires are shortsighted in various deserves credit for successful teams and who were the stars on respects, he says. There is no reason “to believe that somebody failing missions who perform superbly but were given a losing else’s leadership development program is going to work better hand,” Sonnenfeld says. than yours,” he notes. And bringing in outsiders to fill the top Charan, the author and management consultant, says the positions becomes “a demoralizing thing that goes cascading process McDonald’s uses is very transferable to other compa- down the ranks.” nies, though the details of the process, like the various criteria for advancement, will vary. For example, a company that an- Personality and Politics ticipates 50 percent or more future dependence on markets in Even the best-designed succession process, however, will oc- China, India or Brazil would want to give future leaders experi- casionally bump up against workplace dynamics and human ence in one of these countries. frailty. “There’s always a level of threat to this because basically Peter Cappelli, a professor of management at The Whar- everyone here is expected to find their replacements,” says ton School at the University of Pennsylvania and author of “Tal- Small. But, he adds, “This isn’t just a fun exercise or a HR prac- ent On Demand: Managing Talent in the Age of Uncertainty” tice. This is critical to running your business. Especially now, (Harvard Business School Press, 2008), is skeptical that the Mc- intellectual capital is the differentiator. Anyone can go out and Donald’s model will translate to most other companies. In a copy our business model. They can’t copy the people who know company that is a leader in its industry, people might be will- how to run it well.” ing to wait patiently on the bench hoping for “a shot at the very The hiring process at McDonald’s fosters a collective cul- big time,” he says. Elsewhere, other opportunities might cause ture by selecting for candidates who are willing to put the good them to jump ship. of the organization ahead of individual ambition, says Floersch. This succession model also does not work when a com- Team building starts at the restaurant level, where McDonald’s pany is changing rapidly because it is restructuring or respond- serves 58 million customers per day, he notes. “If you have a ing to volatile demand for its products, Cappelli says. “Intro- lunchtime crush going on, you have to depend on the team, as ducing salad is a trivial change compared to what you see in opposed to one individual in the store,” Floersch says. other industries,” he says. While McDonald’s is “ideally suited At companies where there is an “appreciation for the com- for reasonably predictable internal succession,” at other common good, you don’t have a lot of pride of authorship,” Son- panies “by the time a successor has grown, the business has nenfeld observes. When there are successes, the glory is shared. changed in important ways and the person you had But when things go wrong, “you don’t have a vilification, fin- developed for that job no longer fits.” ger-pointing culture,” like the ones that have surfaced at various troubled companies in recent years. McDonald’s has main- Deborah L. Jacobs is a financial writer who has contributed to many tained its succession process through good times and bad, national publications, including The New York Times and BusinessWeek. B r i e f i n g s o n T a l e n t & L e a d e r s h i p 2 0 0 9 . 1 19 talent

EUROPE'S Jobs Turnaround By Adrian Wooldridge

“Ahead of the curve” is not a phrase that Anglo-Saxons naturally associate with continental Europe. But “ahead” is exactly where Europe is when it comes to recovering from the recession. The European economy 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,

20 2 0 0 9 . 1 T h e K o r n / F e r r y I n s t i t u t e Turnaround

which led the world into recession, would be the first to climb out, thanks to their more flexible labor markets. Today America is still wheezing and Britain 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

B r i e f i n g s o n T a l e n t & L e a d e r s h i p 2 0 0 9 . 1 21 and the Baltic States are deeply troubled. Italy is turning into a perennial also-ran. The German recovery owed something to a one-off cash-for-clunkers scheme. 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 res- cue 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 second- largest office complex after the Pentagon.

combing the world for tal- covery is further evidence of ent. Zug, one of Switzerland’s the wrong-headedness of for- most economically vibrant mer U.S. Defense Secretary cantons, is touting its invest- Donald Rumsfeld’s dismiss- ment opportunities in May- al of “old Europe.” Continen- fair, London’s hedge fund dis- tal Europe, with a 30 percent trict. The Swiss calculate that share of the world econo- some 20 percent of Britain- my, boasts a large number of are from mainland Europe, based hedge funds could de- world-class businesses. Ac- according to a 2006 survey by camp in the next year or so, cording to a 2005 survey by Forbes magazine. Small Euro- A new talent war? put to flight by British Prime McKinsey & Company, Eu- pean countries such as Swit- The European recovery is al- Minister Gordon Brown’s pro- rope has 29 percent of the zerland, the Netherlands and ready restarting the talent posal to raise the top income world’s top 2,000 companies. Sweden are home to a remark- wars. European engineer- tax rate to 50 percent. And, half of the world’s 30 able number of the world’s ing companies are once again Continental Europe’s re- leading companies by revenue best global companies.

Consolidation’s effects ers and Italian restaurant Indeed, Denmark and Sweden ket. One-tenth of Europe’s Liberal economic policies, in- workers into heroes to con- have bigger venture capital in- workers are unemployed. stituted by the European sumers across the Continent. dustries, relative to the size But talent-hungry Europe- Union and national govern- Thanks to Chancellor Angela of their economies, than the an engineering firms are al- ments, have also had a be- Merkel’s welfare reforms, Ger- United States. ready claiming that they face nign effect. The single Euro- many’s long-term unemploy- Yet the revival of the tal- a choice between recruiting pean market has created a ment rate dropped by 40 per- ent wars so soon into the re- from the developing world tidal wave of consolidation as cent between 2007 and 2008, covery is also an indicator of and moving their most val- companies have reorganized the first time the number has an enduring constraint on ue-producing operations off- to attain Continent-strad- fallen since the 1960’s. At the Europe’s ability to grow: its shore. Benot Potier, the chief dling scale and scope. In 2007, same time, venture capital problem-plagued labor mar- executive of Air Liquide, one mergers and acquisitions in has been flooding into Europe. of the world’s largest mak- Europe were worth $1.59 tril- Between 2003 and 2006, Eu- ers of industrial gases, told lion, compared with $1.54 tril- ropean venture capital invest- The Financial Times that lion in the United States. The ment grew by an average of 23 the French group is hiring single European labor mar- percent a year, compared with most of its skilled workers in ket has turned Polish plumb- just 0.3 percent in America. emerging markets. 22 2 0 0 9 . 1 T h e K o r n / F e r r y I n s t i t u t e The best and brightest sified as skilled immigrants, While Europe may be con- compared with 3.2 percent in demning millions of people the United States. to idleness, it is also failing to This situation is creating mobilize the talents of many a rising tide of popular resent- of its brightest young peo- ment against immigrants that ple. Most of the Continent’s is roiling politics in almost ev- universities are more wed- ery country. One poll shows ded to the welfare state than that only 19 percent of Euro- to the new economy. France’s peans think that immigration universities, with the excep- is a good thing for their coun- tion of the exclusive grandes tries while 57 percent think écoles, are overcrowded and that their countries have “too lackluster. Germany’s univer- many foreigners.” At the same sities, shadows of their former time, the malfunctioning im- selves, are exclusive without migration system is making being excellent. Germany has it even more difficult to at- one of the lowest graduation tract the people needed to fill rates in the advanced world. the skill gaps of the future. It Many of Italy’s universities will be impossible to produce are marginal at best. a workable immigration poli- Europe has no choice but cy without reforming the wel- to import people to dig itself fare state. out of its demographic ditch. Europeans can be forgiv- Dismal demographics is creating a permanent un- But the Continent’s immi- en for celebrating their ear- The Continent’s demographic derclass of the unemployed gration policies are in disar- ly emergence from what they future is dismal. The number who are unavailable for work ray. Europe continues to im- regard as a made-in-Ameri- of people of working age (i.e., in good times as well as bad port an army of low-skilled ca recession. But if they treat 15 to 64 years-old) will decline and so fail to exert a down- workers who are failing to this as an excuse for abandon- from 395 million today to 255 ward pressure on labor costs. find a place in the labor mar- ing American-style reforms of million in 2050. At the same It is also producing horren- ket. The number of foreign their labor markets, they will time, the number of elderly dous levels of youth unem- residents in Germany more be making a grave mistake people will increase from 80 ployment: about one-quar- than doubled from three mil- and condemning themselves million to 140 million, put- ter of the French population lion in 1971 to 7.5 million in to remaining the losers in the ting an ever growing burden under age 25 is unemployed. 2000, but the number of for- talent wars that are defining on an ever shrinking num- This points to a paradox: the eigners in the work force did the 21st-century economy. ber of workers. By 2012, Ger- very automatic stabilizers, not budge. At the same time, many will suffer from a deficit such as generous unemploy- Europe is struggling to attract Adrian Wooldridge is the co-author of 2.4 million people of work- ment pay, that have helped the most highly skilled work- of several books and is the man- ing age, costing the economy Europe deal with the global re- ers. Only 1.7 percent of the agement editor for The Economist. He is based in London. more than a trillion dollars in cession will also make it more working population are clas- lost productivity, according to difficult for it to profit from McKinsey. the recovery. Europe’s antiquated social policies are contributing to this demographic disaster. About one-quarter of the European labor laws divide workers into insiders, who French population under enjoy lavish protections, and outsiders, who find it increas- age 25 is unemployed. ingly hard to get permanent jobs. This polarized structure B r i e f i n g s o n T a l e n t & L e a d e r s h i p 2 0 0 9 . 1 23 talent

ENTREPRENEURSb u i l d i n g A c o m P a n Y O F AN INTERVIEW WITH WILLIAM K. FUNG OF LI & FUNG GROUP 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 time- sensitive 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. ENTREPRENEURS AN INTERVIEW WITH WILLIAM K. FUNG OF LI & FUNG GROUP

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。而利丰本身并不拥有任何生产工厂。 BY PAUL HEMP

2 0 0 9 . 1 25 Instead, it taps a fluid worldwide network of more than 取而代之的，是一个由12000多家独立供应商构成 12,000 independent suppliers so that it can provide rapid, 的完善的全球网络，为客户提供快速和定制的服务。 tailored responses to each customer’s order. For example, the 例如，在收到GAP一份30万条女式短裤的订单后，利 Gap might place an order with Li & Fung for 300,000 women’s 丰会立即从越南订购纽扣、从日本订购拉链，从巴基 shorts. Li & Fung responds by ordering buttons from, say, 斯坦购买丝线并在中国织造，最后在孟加拉缝制成 Vietnam, zippers from Japan and thread from Pakistan, then 衣。基于效率最大而成本最低的原则，两周后收到的 has the fabric woven in China and the shorts sewn in Bangla- 订单可能使用完全不同的供应链。利丰就是这样通过 desh. The same order coming in two weeks later might set in motion an entirely different supply chain, one that maximized 它在全球40个国家的80个办事处管理着这个庞大而复 efficiency and minimized costs at that moment. Li & Fung 杂的供应网络，或者用利丰自己的话来说，整合这个 manages — or orchestrates, to use the company’s term — its 供应网络。 complex supply network through 80 offices in 40 countries. 集团主席冯国经和董事总经理冯国伦是利丰集团 Under the third-generation leadership of Victor K. Fung, 第三代管理层。在他们的管理下，公司业务在近年来 group chairman, and William K. Fung, group managing direc- 取得巨大成功。通过有机增长和并购，公司业务已从 tor, the company has enjoyed enormous success in recent years. 香港拓展到世界各地。作为家族管理的利丰集团旗下 From Hong Kong, it has expanded rapidly around the world, through both organic growth and acquisitions. Li & Fung 的上市贸易公司，利丰有限公司在2006至2008年间 Ltd., the publicly listed trading arm of the family-controlled 收入翻番。在大部分零售业客户业绩不甚理想的情况 Li & Fung Group, doubled its revenue between 2006 and 2008 下，利丰在2009年上半年仍然实现13%的利润增长。同 and saw profits rise 13 percent in the first half of 2009, even 时，利丰在客户中推广其成功的合作经验，并于近期 as many of its retail customers were struggling. Replicating a 赢得纽约时装公司Liz Claiborne服装制作的全面合作。 typical arrangement between Li & Fung and its customers, the 冯氏两兄弟——冯国经和冯国伦——此前分别是 company recently took over all aspects of garment production 哈佛商学院的教授和学生。他们深谙以网络为基础的 for Liz Claiborne, the New York-based fashion company.

26 2 0 0 9 . 1 T h e K o r n / F e r r y I n s t i t u t e 商业模式所带来的挑战。为了同时保证最大的灵活性 The Fung brothers — Victor is a former professor at and 和可靠性，公司必须在认可供应商自行管理的同时， William is a graduate of Harvard Business School — under- 对他们的日常运营施加一定影响。 stood the tension inherent in a network-based business model. 虽然利丰有限公司的“网络整合”模式收效显 To maximize both its flexibility and reliability would 著，但是公司的人才管理模式同样也为其成功助有一 require the company to acknowledge the autonomy of its suppliers while exerting some influence over their operations. 臂之力。公司对全球名员工的独特管理方式，在 14000 Although Li & Fung Ltd.’s “network orchestration” busi- 一定程度上反映出自治和协同作为其创新商业模式核 ness model has received more attention, its talent manage- 心的特点。与商业模式一样，利丰的人才管理模式也 ment model also has been instrumental in its success. The 能为其他行业的企业提供借鉴。 company’s unusual approach to managing its 14,000 em- 利丰的管理方法凸显了人才管理中的一个根本挑 ployees around the world in some ways reflects the mix of 战：在对管理人员进行激励的同时，如何保证他们和 autonomy and coordination that is at the heart of its innova- 企业目标之间的一致性？利丰在这方面似乎找到了 tive business model. And like the business model, the talent 一种成功模式，不仅培养了每个管理人员的企业家精 management model provides lessons for companies in a range of industries. 神，同时又保证大家拥有同一种公司愿景。 Li & Fung’s approach addresses a fundamental talent man- “人才管理是其商业模式的核心，”宾夕法尼 agement challenge: How do you cultivate individual initiative 亚沃顿商学院的温德（Yoram (Jerry) Wind）教授指 among managers while keeping them aligned with established 出。在温德教授与冯氏兄弟合著的《在平的世界中竞 corporate goals? Li & Fung seems to have found a successful 争》（“Competing in a Flat World”，沃顿商学院出 model for fostering in its managers both a dynamic entrepreneurial spirit and a shared commitment to the organization. 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 “People management is critical to their business model,” says Yoram (Jerry) Wind, a professor at the University of Penn- 突，但两者在利丰却相得益彰。 sylvania’s Wharton School and a co-author with Victor and 温德还说，赋予个业务单元的经理们充分的权 170 William Fung of “Competing in a Flat World” (Wharton School 责，让大家朝着公司的三年目标共同前进，总部不对 Publishing, 2007), which explains the principles of network 其进行监控和频繁的目标回顾，这种方式有助于建立 orchestration. Wind says that although entrepreneurial initia- 公司和管理人员之间的信任，并提高他们的忠诚度。 tive and organizational cohesion might seem in conflict, they 而同样有效的做法是对目标达成给予经济奖励，同时 complement each other at Li & Fung. 不对目标未能达成进行惩罚。这样做可鼓励管理人员 Empowering the managers of the 170 business units to 敢于接受极具挑战性的目标，并勇于为此承担风险。 work toward ambitious three-year company goals and avoiding invasive corporate oversight and frequent revision of targets 加拿大人是现任利丰总裁，同时 Bruce Rockowitz build trust and engender loyalty to the company, Wind says. 也是董事总经理冯国伦的候选继任者，早在年， 2000 So do the generous financial rewards managers receive when 其公司被利丰收购时，他就初尝了利丰独特的管理模 those goals are met and the absence of punishment when they 式。他说，冯氏兄弟始终坚持在业务单元独立性和公 are not. The latter encourages managers to embrace challeng- 司统一形象之间寻求平衡。早年间，这种平衡似乎过 ing goals and take risks to achieve them. 多强调了独立性。他仍记得当初在上海办公室看到的 Bruce Rockowitz, a Canadian who is now the group 现象，两个事业部虽然身处同一楼层，内部装饰却完 president of Li & Fung and in line to succeed William Fung as managing director, first got a taste of this management envi- 全不同。 “感觉完全是从一家公司走到了另一家公 ronment when his own company was acquired by Li & Fung 司，”他说。 in 2000. He says the Fung brothers have continually worked to Rockowitz指出，各业务单元出现不同的标识可 get the right balance between business-unit independence and 能并不完全不合逻辑，但这说明了事业部之间缺乏共 corporate citizenship. In the early years, the balance probably 同的目标使命。员工办公桌的和谐统一在保证各部门 tipped too much in favor of independence, Rockowitz says. He 独立运作的同时，可以提醒员工与其他部门之间的联 recalls that as he walked from one division location to another 系。“想在一个大型机构中保持大家的事业心高涨， on the same floor of the company’s Shanghai offices, he was struck that each space was decorated differently. “It felt like you 就必须全力关注那些真正重要的东西。”Rockowitz提 were moving from one company to another,” he says. 到。 This display of individual business-unit identity, while 公司不轻易裁员是培养忠诚度的重要组成部 arguably inconsequential, symbolized the divisions’ lack of 分。“其根本的理念是不要总想着怎么摆脱某些员 a strong shared mission, Rockowitz says. Harmonizing the 工，”Rockowitz说，“其实我刚加入利丰时，没有冯 look of their work spaces reminded employees of their inter- B r i e f i n g s o n T a l e n t & L e a d e r s h i p 2 0 0 9 . 1 27 connectedness without undermining the individual units’ 国伦先生的批准，谁都解雇不了。”公司希望为每个人 operational freedom. “You have to home in on what is truly 都找到合适他们的位置。“如果一个员工在某一职位的 important in keeping an entrepreneurial spirit alive in a large 表现不好，可能在另一个职位上他能做的更好。这是管 organization,” says Rockowitz. 理人员所要承担的责任。” The company’s reluctance to fire or lay off employees plays 这并非简单的心软，Rockowitz说道。“我们没有 a big part in nurturing loyalty. “The underlying philosophy is 工厂，”他说，“正是员工保证了我们的业务持续前 that you don’t get rid of people,” Rockowitz says. “In fact, when 进。” 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 本访问收录了冯国伦先生对利丰人才管理实践的阐 well. “If someone isn’t working out in one place, the assump- 述及对其他公司的评论，《哈佛商业评论》前高级编 tion is that there’s another place where he’ll do better. That puts 辑、《光辉国际研究中心人才和领导力简报》特约编辑 a big onus on managers.” Paul Hemp对本访问进行了编辑。 This approach is not motivated simply by soft-heartedness, Rockowitz says. “We don’t own factories,” he says. “What keeps 利丰时常被大家称为是一家由企业家组成的公司，这是 our business going is people.” 什么原因？ William Fung describes Li & Fung’s talent management practices and critiques those of other firms in this edited 首先你需要了解我们公司的历史和所处的行业。在 interview by Paul Hemp, a former senior editor for the Harvard 香港大约有四万家贸易公司，既包括只有两三个人，握 Business Review and a contributing editor for The Korn/Ferry 有几份和纽约某公司签署的合同的公司，也有像利丰这 Institute’s Briefings on Talent and Leadership. 样的企业，早在1906年便成立，目前在40个国家拥有 Why is Li & Fung sometimes referred to as a company of 14000名员工。大部分贸易公司都是由企业所有人亲自 entrepreneurs? 经营的，他们强烈渴望争取到新业务，他们会亲自到机场去接送客户，他们记得客户家人的名字，甚至知道他 FuNG: You have to know the history of our company and our 们的孩子在哪里上学。 industry. There are an estimated 40,000 trading companies in Hong Kong, everything from two guys with a few contacts 70年代初，我和哥哥从美国回到香港。当时的利丰 in New York to Li & Fung, which was founded in 1906 and has 规模比现在小得多，而我们希望将它打造成一家专业的 14,000 employees in 40 countries. Most of these companies are 企业。但是我们知道如果想要和那些家族式企业竞争， owner operated. They’re run by people who hustle for business, 就必须保持进取的企业家精神。一个沃尔玛的采购人员 who meet their customers at the airport, who know the names 肯定不希望和带有官僚作风的公司打交道，他希望看到 of their customers’ wives and where their children go to school. 的是供应商愿意为沃尔玛尽心尽力，提供最好的价格和 When my brother and I first came back to Hong Kong 最快的交货速度。 from the U.S. in the early ‘70s, we wanted to build Li & Fung, which was much smaller then, into a professionally run orga- 你如何培养——或者对你来说——如何保持这种企业家 nization. But we knew that if we were to compete with all of these owner-operated rivals, we had to maintain an entrepre- 精神？ neurial character. A buyer at Wal-Mart doesn’t want to deal 首先，我们尽可能地保持家族企业的特色。我们的 with a big bureaucracy. The buyer wants to deal with someone 组织机构相当扁平，150个运营机构中的大部分都是独 who will kill for Wal-Mart, who will die for Wal-Mart, get it 立的利润核算中心，对其运作我们并不给予详细指导。 the best prices, get it the fastest delivery. 公司每天需要通过成千上万个大小决策，总部不可能对 How do you inculcate – or in your case, preserve – this 所有决策进行控制。 entrepreneurial spirit? 然后我们对这些利润中心的负责人进行激励，希望 FuNG: First, we’ve tried to retain the characteristics of an 他们把自己当作这个机构的所有者。我们强调利润分 owner-operated company in our business units. We have a very 享。作为一个企业家，你不能享受朝九晚五的正常工作 flat organization. Many of the 150 operating units are self-con- 时间。这些人拼尽全力工作，同时也得到相应的报酬。 tained profit centers. We don’t give them detailed guidance on 事实上，不同于其他很多公司，我们的运作模式更像是 how to work. Thousands of small decisions are made through- 律师事务所或会计师事务所的合伙人制度，业务单元经 out the company every day, and there’s no way you can control 理们的收入并不设上限。 that from the center. Then we incentivize the folks who run those individual profit centers as if they were owner-operators of those busi- 如果不考虑管理自由度和激励政策，这些充满事业心的 nesses. There’s a big emphasis on profit sharing. Being an en- 经理人在这样一个庞大的组织中是否会感到烦躁呢？ 28 2 0 0 9 . 1 T h e K o r n / F e r r y I n s t i t u t e 其实为利丰工作有助于他们成为更好的企业家。这些管 trepreneur isn’t a 9-to-5 job. These people work their guts out, 理人员对他们的市场、产品和客户都十分了解。我们不 and we pay them accordingly. In fact, unlike most companies, 希望他们在行政或其他工作上浪费时间，而在小型家族 but similar to law or accounting partnerships, there’s no cap on upside earnings that a business unit manager can make. 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 Despite the autonomy and the incentives, don’t your en- 业务并不产生直接影响。 trepreneurially minded managers chafe at working within a 通过为他们提供完善的办公室支持系统，他们得以 big corporation? 有更多时间投入业务中，而这些完善的系统对小型家族 FuNG: Actually, being part of Li & Fung allows them to be bet- 企业而言，即使采用外包手段也很难企及。相对于经营 ter entrepreneurs. Most of these guys, they know the market, 自家的贸易公司，利丰的经理们在盈利方面更加成功。 they know the products, they know their customers. What you don’t want them to do is to spend any time on administrative 作为具有事业心的企业家，他们从这个大型的组织中得 or other work — work that normally takes up to 40 percent to 益。但是，相对于他们自身的利益，你如何保证他们会 50 percent of an owner-operator’s time. Things like IT, finance 更看重利丰的利益呢？ and accounting, HR — all of the back-office functions that don’t have a direct impact on their businesses. 是的，我们并不仅仅是一家为150个成功单位提供 By providing them with very sophisticated back-office 后端支持的控股公司，这点很重要。这些共享的系统除 systems — systems they’d never have access to, even on an 了提供强大的营运支持外，更是利丰价值观的体现。管 outsourced basis, as the owner-operators of a small company — 理企业家就如同对猫进行放牧一样并非易事，但是只要 we free them up to be more entrepreneurial. They can be more 你有能力让他们朝着同一个方向前进，就能成就非常出 financially successful than if they were running their own 色的业绩。 trading company. 所以，我们建立了一个基本的经营理念——如何管 As entrepreneurs, they benefit from being part of a large 理员工，如何服务客户，如何与供应商合作——这是每 organization. But how do you get them to further Li & Fung’s interests as well as their own? 一个员工所拥护的理念。我们每年两次将300多名高层管理人员聚集在一起，讨论业务计划和表现。但是最重 FuNG: Yes, it’s important to realize we’re much more than sim- 要的是，在此过程中我们将公司的理念传递给这些管理 ply a financial holding company providing back-office systems 人员，在他们回到自己的岗位时，即使我们不进行微观 for 150 successful independent businesses. Those shared sys- 管理，他们也知道如何精诚合作。 tems, besides offering tremendous operational support, are an outward sign of the shared values and culture that define Li & 和我们谈谈这些理念吧。 Fung. Herding cats — herding entrepreneurs — isn’t easy. But if you can get them moving in the same direction, you will have a 同时关注长期和短期利益是其中的重要元素。和美国以 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

B r i e f i n g s o n T a l e n t & L e a d e r s h i p 2 0 0 9 . 1 29 So we’ve established a general business philosophy — how 定性可以保证他们有稳固的客户关系，同时不偏离公司 we handle people, how we serve customers, how we work with 目标。 suppliers — that everyone embraces. Twice a year, we bring 当然，我们的流程包括年度预算和财务目标，用以 together all of our top managers, up to 300 of them. We talk 考核业务单元及其管理层的表现。但是，流程中还包括 about our business plan and how we’re doing. But mostly we 极具挑战性的三年目标，和业务单元的管理层一起建立 try to inculcate our philosophy with this group, so that when 这些目标时，给了下属单位和总部一个重新审视业务的 they go back out into the field, they know how to work in uni- 重要机会。与很多其他公司常见的滚动目标不同，这些 son, without us micromanaging them. 极具挑战性的目标是不予调整的。 Talk a little about that philosophy. 极具挑战性的三年目标的另一个不同点在于：未能 FuNG: Taking a long-term as well as a short-term view of the 完成该目标并不会受到惩罚。只要达到当年的财务增长 business is a big element of it. Consider our three-year plan- 目标，业务单元的负责人仍然能够获得应有的奖励。这 ning process, which is different from the business plans you 样，大家更乐意去设立真正富有挑战性的目标而不是那 normally encounter in the American or Western context. The 些明知自己能够完成的目标。但是我还要补充的一点是 aim is to combine flexibility and stability— flexibility so that 在年中会议上，大概不会有业务单元的负责人愿意向他 our business units can respond rapidly to changes in customer needs and the business environment, stability so that they can 的同僚们解释自己为什么未能达成挑战性目标的吧。 maintain strong customer relationships and not lose sight of ambitious company goals. 短期和长期目标相结合又是如何促进你的管理层将企业 Our process obviously includes annual budgets and finan- 家精神和协同公司目标这两者巧妙融合的呢？ cial goals, which business units and their leaders are measured 这不仅是以长期的眼光来对待业务，更反应在对待 against. But it also includes three-year stretch goals, created 人上。 in conjunction with the business-unit leaders and designed 我们很多管理人员自从踏入社会就在利丰工作。如 to force a significant rethinking of the business, at either the 果说丰厚的利润分享是关键动力，可能听起来很短视， operating unit or the company level. Unlike the rolling targets common in many companies, these stretch goals don’t change. 但是它其实是一个长期的理念。员工分享业务的成功， The stretch goals are unusual in another way: Falling short 加之我们为各业务单元提供的巨大支持功能和系统，大 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! 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? 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. Are you saying that their loyalty to the company is based primarily on the likelihood that they’ll become rich?

30 2 0 0 9 . 1 家知道如果自己整个职业生涯都在利丰度过，那么他所赚到的钱足以让他在退休之后衣食无忧。

那你的意思是他们对公司的忠诚度基本上是取决于他们变得富有的可能性？不是，这正是我要解释的。到现在我们只谈到硬性激励，即金钱的奖励。但是还有一种软性激励，那就是价值观。你甚至可以说是家庭价值观。让我通过一个故事来和你解释。23岁时我从哈佛商学院毕业回到香港，为我的父亲工作，当时我觉得自己什么都懂。父亲放手让我工作，有一天我对他说：“ 爸爸，你手下有很多老人家，很多人都已经干不大动了。他们年纪大了不中用了。”当时，我觉得年龄是很重要的因素。我的父亲是这样回答我的：“你觉得这个人已经是老朽之辈了吗？你知道吗，四年前就是他做成了公司有史以来最大一笔生意？那边那个人，他曾经做了这个，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一段艰难的时间，比如离婚，或者家人生病等等。你必须以长远的眼光来评估人才，不仅是看过去， FuNG: No, I’m getting to that. We’ve only talked so far about the 更要着眼未来。如果在困难时期你帮助了他们，之后他 hard piece of the motivation: monetary rewards. But there’s 们会加倍报答你。 also the soft piece of the motivation: values. You might even say 我的父亲教会了我一点，那就是员工对待公司的态 family values. 度同时反映出公司对待员工的方式。它是一面镜子。可 Let me tell you a story to explain what I mean by this. I 能你的公司会说：“这个人没有全力工作，应该解雇 came back to Hong Kong from Harvard Business School at the 他。”之后，保安就马上出现在他身后，看着他清理自 age of 23, thinking I knew everything, and went to work for my 己的办公桌并离开公司。如果是这样的话，你的员工也 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 会这样对你。一旦在别处找到机会，他们一定会马上离 of these guys aren’t pulling their weight. They’re old, they’re not 开公司。至少，在中国社会里情况就是这样。 efficient anymore.” You know, age was a big thing with me then. 另一点是，即使刚才的情况是解雇了一位年长的员 And here’s what my father said to me: “You think this guy 工，结果也同样如此。我父亲说过：“你如何对待年长 is deadwood? Do you know that four years ago, he pulled off 的员工，年轻的员工都看在眼里。”可能在美国，年轻 the biggest deal in the company’s history? And that guy there, 人看到年纪大的员工离开会很开心，因为这预示着他们 he did this and this in the past.” What he was saying was, you 机会的来临。但是在中国人的眼里完全不同。年轻人会 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 想：“我现在30岁，但是等我到50岁的时候，公司也会 personal life — a divorce, an illness in the family. 这样对我。我最好早作打算。” You have to take a long-term view in evaluating people — not just in the past, but in the future. If you nurture them 年轻人看着年长的员工被保安护送出门，这一场景非常 through a difficult period, they’ll come back and make incred- 令人震撼。 ible contributions for you. 我觉得这可能就是中国人和美国人不同之处之一。 My father taught me that how employees treat the compa- 美国人可能更关注短期，这么说并没有恶意。我并不完 ny reflects how the company treats them. It’s a mirror. You may 全推崇日本的终生雇佣制度，但是对待员工你必须有一 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 种适度的尊重和忠诚度。忠诚是双向的。 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 看来似乎只有利丰这样的中国公司才能培养出企业家精 an offer comes along from the outside, they’re out of there. At 神和公司忠诚并存的管理人员。 least, that’s the way Chinese society works. B r i e f i n g s o n T a l e n t & L e a d e r s h i p 2 0 0 9 . 1 31 One other thing: What I’ve said is true even if the guy 的确，这种家庭式的忠诚和企业家精神的相结合通常都 being escorted out the door is an older employee. My father 和中国文化有关。 said, “What you’re doing to the older people, well, the younger 还有一个故事。从美国的商学院回来时，我抱有 people are watching.” I think the Americans have the idea that 的完全是西方理念，觉得一家企业应该具有自己的生 younger people are happy when older workers are let go be- 命，由最优秀的人才来经营。我有一位叔伯曾经问 cause it allows them to advance. But the Chinese view is differ- 我：“ ，你为什么总是在说‘公司’？你说的 ent. The young people are thinking, “I’m 30 years old. But what William 是‘家’，公司只是家的延伸——只是我们用来维系 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.” 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。 That’s a powerful image, those young people anxiously 公司是通往一个终点的途径，而不是终点本身。 watching the older guy getting escorted out the door. 同时，中国人是非常具有企业家精神的民族，这也 FuNG: I think it’s one way the Chinese and the Americans are 是为什么共产主义的哲学如今在中国只是徒有其名而 different. Americans— no offense meant here— are much 已。每个人都想成为自己的“老板”，我们也基于这 more short-term in their thinking. I don’t advocate the Japa- 一点，鼓励大家组建自己的团队，并鼓励这种企业家精 nese system in which employment is a guaranteed lifetime thing. But you have to have an intermediate kind of decency 神。 and loyalty toward your employees. Loyalty is a two-way street. 你所说的这些方法中是否有西方企业可借鉴之处？ It sounds like fostering both entrepreneurial drive and 其实我们和西方企业有很多共同之处，这一点可以 company loyalty among managers can occur only at a Chinese company like Li & Fung. 从我们整合几家被收购企业的成功案例中反应出来。成功的原因之一并非关乎文化。我们的后台支持系 FuNG: It’s true that this combination of family loyalty and en- 统即插即用，因此任何被收购公司的运营都可以立即和 trepreneurial spirit is often associated with Chinese culture. 我们现有业务对接。在收购世界其他地方的公司时，我 Here’s another story. I came back from business school in the U.S. with the typical Western idea that a corporation should 们偶尔也会刻意弱化我们自身的文化。我们希望成为变 have a life of its own, that it deserves the best people to run it. 色龙，吸收一些当地社会的特色、价值观和实践方式。 And one of my uncles said to me: “William, why do you always 我们觉得从香港派一个中国人去管理一家在捷克的公司 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 accus- tomed!” 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. Is there anything in your approach that Western companies can adopt?

FuNG: Actually, I believe we have a lot in common with West- ern 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 plug- and-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 32 2 0 0 9 . 1 T h e K o r n / F e r r y I n s t i t u t e 是行不通的，在这点上我们和很多跨国企业不同。 Kong to run something in the Czech Republic. In this, we’re 不过，我们收购一家公司之后，也会惊讶地发现 different from a lot of multinationals. 文化上的很多共同之处。以我们在1996年进行的第一桩 Still, you’d be surprised at some of the cultural similari- ties that have emerged after we’ve acquired another company. 大型收购为例，当时我们收购了英之杰集团（Inchcape Take our first big acquisition, in 1996, of Dodwell, part of Group）旗下的Dodwell公司。和我们的很多竞争对手 the Inchcape Group. Like many of our bigger competitors, 一样，以“商行”形式起步，是一家典型的英 Dodwell Dodwell began as a “hong,” one of the English trading compa- 式贸易公司，世纪建立并从亚洲向英国出口货物。 17 nies set up in the 1800’s to export Asian goods to England. 尽管此项收购在所有的商业衡量标准上都完美契 Although the business parameters for the acquisition 合，但是我们的客户绝大部分是美国人；而Dodwell的 created a perfect fit— for one thing, our customers were 客户主要为欧洲人。当时很多分析师认为我们在文化上 mostly American; Dodwell’s were primarily European — most 不可能完全融合。我们是一家充满中式家庭文化，在实 analysts said that we could never absorb them culturally. We 务上又略带“美国商学院派”的公司，而他们是典型的 were the Chinese family company with the American business 英国商行。利丰看重利润分享，如果经理得到足够的奖 school bent; they were the quintessentially British hong. We were big on profit sharing, and if a manager made enough 励，他可以给自己买一辆保时捷。而他们看重的是给予 money, he could buy a Porsche. They were big on corporate 外派经理人的福利，比如为他们提供香港山顶的豪宅， perquisites for their expatriate managers — houses on the 轿车和司机。 Peak in Hong Kong, chauffeur-driven cars. 但是结果却出乎分析师所料。我们发现如果深入 But we surprised the analysts. We found that if you went Dodwell公司外派经理人的内心，他们的想法和那些希 beneath the surface with Dodwell’s expat managers, their 望成为老板的中国员工并没什么不同。也许等他们退休 aspirations were not that different from the Chinese guys who want to be their own boss. The English expat may want to re- 之后，他们希望在Surrey安享晚年。但是当他们身处亚 tire and die in Surrey, but while they’re out in Asia, they want 洲时，他们希望和中国同事一样尽力赚取报酬。 to make as much money as their Chinese counterparts. 所以，我们并没有为他们提供山顶豪宅，而是发放 Instead of giving them a company house on the Peak, we 住房津贴，这样他们可以选择和决定自己的居住条件。 give them a housing allowance, and if they want to live more 我们也没有为达到一定级别的经理人提供轿车和司机， cheaply, then they can do that. Instead of being given the 而是让他们自行选择是购买法拉利还是大众。 obligatory car and driver when they reach a certain rank, they 我们发现，无论文化背景如何，每个人都具备成为 can buy a Ferrari, or a VW. It’s their choice. 企业家的能力。 We found that there’s the ability to be an entrepreneur in people who seemed culturally anything but that. 所以西方企业也许可以从他们的管理层之中发掘以前从 So Western companies may be able to tap an entrepre- 未意识到的企业家精神？但是你刚才提到的互相忠诚又 neurial streak in their managers that they didn’t know 是什么意思呢？ existed. But what about the sense of mutual loyalty you 我承认这点可能很难做到。在美国，许多公司只是 describe? 说说而已，但是并不身体力行。他们会说：“是啊，人 FuNG: I admit, that may be harder to achieve. In America, a lot 力资源是我们最宝贵的资产。”但是，接下来又怎么样 of companies talk the talk but they don’t walk the walk. They 呢？一旦经济情况出现任何问题，员工就可能被遣散。 say, “Yeah, human resources are our greatest asset,” but guess what happens. Any small downturn comes along and people 这是因为公司只关注短期利益和季度业绩。 are out of there. That’s because the company is focused on the 对一个家族生意而言，我们考虑的是好几代人。我 short-term, quarterly results. 已经是公司的第三代管理者了，而第四代接班人也已经 In a family business, we think in terms of generations. 在这里工作。我们考虑的并不是下个季度，而是下一代 I’m the third generation of our family in the company, and the 的问题，能让下一代经营并仍能获利的战略。 fourth generation is already working here. We’re not thinking 另外，因为我们不过分强调短期利润，所以就和我 about the next quarter; we’re thinking about the next genera- 刚才说的一样，我们在对待员工时更为大度和宽容。我 tion. What’s the best strategy so that the next generation can 们给予的一点点包容，就可以让员工有时间解决自己的 have a profitable business? Also, because we don’t emphasize short-term profits, 问题，而并不要求他们每时每刻都保持最高效的状态。 we’re able, as I said earlier, to be more generous and forgiv- ing in dealing with people. We can show a little tolerance, let 这是不是一个不可逾越的文化鸿沟呢？ people work through their problems, not require that they be 到最后，我其实不敢肯定究竟是不是文化的原因。 at peak efficiency all the time. B r i e f i n g s o n T a l e n t & L e a d e r s h i p 2 0 0 9 . 1 33 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 因为我们是利丰，不是因为我们的中式家庭根基，也 some mutual trust and loyalty with our employees. But it’s not 不是因为我们是一家亚洲公司。 because we’re Li & Fung, not because we have Chinese family 归根结底，我认为这是一种主人翁精神，而不是 roots, not because we’re an Asian company. 文化。公司的表现是由公司的所有者所决定的。如 In the end, I think it’s about ownership, not culture. Ulti- 果公司的所有者目光短浅——好比一个基金经理通 mately, a company responds to the owners. And if the owners 常只持有某一个公司的股票六个月而不是五年或十 are short-term — fund managers who hold a company’s shares 年，那么他所关注的是在下一季度获得最大收益而套 an average of six months rather than five years or even three years and are only interested in maximizing profits in the next 现，——那么即使是出于公司的最大利益考虑，你也 quarter so they can sell out — you can’t expect a company to 不可能指望这个公司具有长远规划。 think long-term, even if it’s in the best interests of the company. 这种短期思维的方式，不仅会影响公司对待员工 That short-term thinking affects not only how a company 的态度，也会影响员工对待工作的态度。很多银行家 treats its people but how people view their work. A lot of 告诉他们的雇员：“我们只需要你们在这里工作两到 bankers tell their employees: “We just want you here for two 三年。把银行看作你简历上的一部分。尽可能抓住机 or three years. Consider us part of your CV. Maximize your op- 遇，在这两到三年里尽情表现。之后你们就可以离 portunity and do what you can in two or three years. Then you 开，我们也会再招收新鲜血液。” should be out of here so we can bring in some young blood.” That is a totally different philosophy from ours. 而这，是和利丰完全不同的理念。

34 2 0 0 9 . 1 T h e K o r n / F e r r y I n s t i t u t e d o w n t im e

the fairer, and more employed, sex?

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

our naughty secret

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

B r i e f i n g s o n T a l e n t & L e a d e r s h i p 2 0 0 9 . 1 35 governance

As the world emerges from recession,

policy makers, regulators, investors

and analysts are taking a new look at HOW corporate governance. What approaches TO make most sense? GOVERN THE GOVERNORS

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 television talk shows. Concentrated public scrutiny is placing corporate 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- Ttions 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 very specific, for the first time there are people at the federal level who want to legislate corporate governance,” said Jay W. Lorsch, a professor at Harvard Business School and author of books on the

36 2 0 0 9 . 1 B r i e f i n g s o n T a l e n t & L e a d e r s h i p 2 0 0 9 . 1 37 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- assess what are perceived as “best practices.” It’s important for directors to maintain a firm sense of purpose. In the midst of the tumult, a consensus is beginning to form on how boards can maintain and improve performance. Here are a few hard and fast rules boards can live by:

Don’t let compliance When regulations become more stringent, there’s a tendency to focus on dotting i’s and issues get in the way crossing t’s. But it’s a mistake to lose sight of the forest for the trees. Professor Charles Elson, of strategic thinking. who is chairman of the John L. Weinberg Center for Corporate Governance at the Lerner College of Business & Economics at the University of Delaware, warns of the dangers of a checklist mentality. “Sarbanes-Oxley, although it was well-intentioned, ended up causing more problems, because a lot of boards thought that as long as they were complying with that, their job was done,” he said. New rules could worsen the problem. Robert Hallagan, a corporate governance expert at 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,” Hallagan said.

Remember the board’s Regardless of what happens legislatively, certain constants remain. One is the definition main role: picking the of a board of directors’ central role: finding a good CEO, or getting rid of a bad one. “Without an right CEO. appropriate and effective CEO in place, no amount of hard work will protect shareholders from disappointment,” said William F. Pounds, the former dean of the Sloan School of Management at 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 to attract talent. A 2007 report by the consultancy Watson Wyatt (admittedly, it was conducted before the 2008 stock market collapse) concluded that the link between CEO compensation and corporate performance is strong. For many executives, it seems, money still talks. And, because get a job! hiring competition for high-level operating talent has also been coming from deep-pocketed pri- vate equity, venture and hedge funds, CEO pay has been rising. Yet, others see this reasoning as flawed. Not all CEOs appear to be motivated by pay alone. Eric Schmidt of Google, Larry Ellison of Oracle and Vikram Pandit of Citigroup are just a few of the American CEOs who this year accepted an annual salary of $1. Skeptics argue that $1 salaries 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. In fact, it may not be absolute pay, but pay relative to other CEOs in the same industry that The country with the matters most. Sarbanes-Oxley requires corpo- highest percentage of the population in work rate boards to justify CEO salaries, and most do is the Cayman Islands, so in part by benchmarking those salaries against at 68 percent. The West Bank and Gaza have the others in the industry. The rule has had some lowest percentage, with unintended consequences. The financial econo- just 22 percent of the population employed. mists Jun Yang and Michael W. Faulkender noted in a study this year that benchmarking tends to encourage CEO salaries to rise in “leap- frog” fashion, as no company wants to be seen as paying their top gun less than its competitors. 38 2 0 0 9 . 1 T h e K o r n / F e r r y I n s t i t u t e ENTER THE LEAD DIRECTOR

More than half of the companies in the Fortune corporation,” Hallagan said. 500 combine the roles of chief executive officer and The real challenge for American companies may chairman, and so a Securities and Exchange Com- be to separate not the chairman and CEO, but the mission proposal to prohibit the practice could have executive and nonexecutive leadership roles. The far-reaching consequences for corporate governance appointment of a lead director of the board is an in the United States. increasingly popular model at many corporations. “It The proposed move risks oversimplifying a key creates a nonoperational, nonmanagement office issue of corporate governance in the United States. that still has the weight of the independent directors “There’s no proof that splitting the two is a better behind it,” said Chris Andersen, who himself acts as practice,” said Robert Hallagan, a corporate gover- the lead director for Terex, the construction equip- nance expert with Korn/Ferry International. “General ment company. Motors was one of the first big companies to officially 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 Having two different people at the helm of a do: call board meetings and set the agenda of those corporation often makes sense. In the interest of suc- meetings. cession planning, for instance, a long-term CEO may Still, lead directors have real power. “The main assume the chairmanship role for a limited time while thing is that when I talk to management as a lead the new CEO learns the ropes. It can also be a way for director, they know I represent the views not just of a highly successful executive to maintain a hand in a one board member, but of all the board members,” company’s operations. Bill Gates, for instance, ceded Andersen said. “I have the right — and I’ve used it, 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 instance, if the board feels it wants more information very separate and well-defined roles. In 2004, for on a specific issue.” instance, the software company Computer Associates Britain and Canada follow a model of nonexecu- appointed Lewis Ranieri to serve as its chairman. His tive chairmanship. Often they have staffed offices main job was to deal with a federal investigation of within a corporation and so have a useful familiarity 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 having two top executives can lead to confu- 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 explicitly spelled out, they can also be difficult to get rid of. Because corporations have different needs, corporate governance experts say, it may be wise to allow them to choose a solution for themselves. “One size doesn’t fit all,” said Jay W. Lorsch, a professor at Har- vard Business School. “One company may thrive with a CEO who’s also a chairman; for another, it could be a big mistake.”

B r i e f i n g s o n T a l e n t & L e a d e r s h i p 2 0 0 9 . 1 39 Don’t disregard One excellent, and often disregarded, way to limit CEO compensation is through effec- succession planning. tive 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 reasons. First, corporations have a tendency to offer more when they recruit their top guns from the outside. Second, if another manager is poised to take over, the board is likely to be less beholden to the CEO. So if the top person makes unreasonable demands or fails to perform, directors can transition smoothly to their second in line. Most boards in the United States fail miserably in this area, Professor Lorsch says. “Corpo- rate directors will talk a good game when it comes to succession, but in reality it’s too easy to put it off to the next meeting,” he said. Succession planning is impossible to regulate and difficult to assess. It entails important but “soft” human resource skills, like accurately evaluating second- and third-tier managers, and ensuring that promising executives get the right assignments to develop their skills. Hewlett-Packard has been much maligned for its succession planning, which many said left the company wed to Carly Fiorina for too many years. When the board dismissed her in 2005, it had to scramble for a replacement. McDonald’s, on the other hand, benefited from its strong bench when its CEO, Jim Canta- lupo, died unexpectedly in 2004. A few weeks later, the man chosen to replace him, Charlie Bell, learned he had cancer, and the board was able to make another orderly replacement (See “How McDonald’s Plans Ahead,” by Deborah Jacobs, also in this issue).

Look for ways to Compensation is not just about salary. In the 1990s, corporate boards thought they had stum- align CEO pay with bled upon an almost foolproof method for aligning the CEO’s interests with those of the corpora- long-term corporate tion: stock options. It makes sense, the theory goes, to make the CEO a substantial owner. If the performance. company performed well, its value would rise, thereby benefiting top management. Corporate (See opposite page) America passionately embraced this new philosophy. 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 often “the incentives for short-term gains overwhelmed the checks and balances meant to mitigate against the risk of excess leverage.” In other words, stock options may encourage executives to manipulate short-term stock prices by taking unnecessary and ill-advised long-term risks. Over the next few years, greater attention is likely to be paid to the type of compensation being 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 will be under pressure to make sure that a CEO’s interests align with those of the corporation, not just in the short term but in the long term as well. One option is to build greater flexibility into compensation packages, creating bonuses that would be at risk. If earnings flag, for instance, bonuses would be reduced. Gene Sperling, a counselor to Mr. Geithner, recommends linking pay to relative performance in a given sector. By this measure, CEOs would be compared with competitors in the same industry, thereby avoiding giving an executive too much credit when a bull market was helping almost all stocks.

Ensure that the board There’s no doubt that some corporate boards have neglected their main task, which is to is truly independent. ensure that CEOs behave responsibly. At times, this may be the result of an overly cozy relationship with top management. 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. 40 2 0 0 9 . 1 T h e K o r n / F e r r y I n s t i t u t e HOW TO PAY YOUR CEO The biggest trends in CEO pay guidelines, according to the Center on Executive Compensation

Corporate boards are increasingly likely to include the following stipulations in their compensation contracts with top managers: • A requirement that CEOs own shares in the company equivalent to at least six times their salary. • Claw-back clauses that make it possible to recover a portion of compensation if performance is poor. • Stock awards linked to performance measures like cash flow, earnings per share and return to shareholders, generally over a period of three years (though many believe a longer time frame would be even better). • Retention clauses that require CEOs to stay on the job for five years or more in order to qualify for stock awards. • Limits on golden parachute payouts to three times or even two times the CEO’s annual salary.

The federal judge Richard Posner probably reflected the views of many when he wrote in an opinion last year that CEO pay is “excessive because of the feeble incentives of boards of directors to police compensation. Directors are often CEOs of other companies and naturally think that CEOs should be well paid.” There is a general fear that corporate boards are overly cozy with top managers and part of a culture of “I’ll scratch your back if you scratch mine.” It’s essential that the independent board of directors is just that — completely independent.

One new proposal for the United States by the Securities and Exchange Commission Consider splitting would be nothing less than an earthquake for corporate management: the mandatory the CEO role from separation of the roles of CEO and chairman of the board. Although common in other coun- the chairman’s, tries, like Britain and Canada, both of which are highly rated with regard to their corporate gov- or alternatively, ernance practices, separating the CEO and chairman roles is not mainstream in the United States. appointing a lead According to the Millstein Center for Corporate Governance and Performance at the Yale School director. of Management, 60 percent of Fortune 500 companies have CEOs who also serve as chairmen of (See page 23) the board. The Millstein Center calls the shared role of CEO and chairman a mistake in most cases. “Too many boards are still led by the CEO — the person who is obviously conflicted in fulfilling the essential duty of providing oversight and monitoring the CEO and senior management team,” said Gary Wilson, a former chairman of Northwest Airlines and a current director at Yahoo. A growing number of American corporations are trying to address any possible conflict of interest by appointing a “lead director” to preside at executive sessions and evaluate management. 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. B r i e f i n g s o n T a l e n t & L e a d e r s h i p 2 0 0 9 . 1 41 Be aware that boards “Twenty years ago, board members would meet for an hour, then go play a round of golf,” are under increasing Hallagan said. “Those days are over. They’re more professional. They go to training sessions and time pressures, so be are constantly trying to improve performance.” prepared to pay more Board members are working longer hours. Directors in North America, for instance, reported and work harder to spending 16 hours per month on the work of each board they serve on, according to a Korn/Ferry recruit them. International study; 20 years ago, the figure was 9.5 hours. Because of the longer hours and a perceived increase in legal liability — highlighted by the Enron scandal and ensuing shareholder law- suits against board members — some are becoming more reluctant to serve. “I’ve heard people say serving on a board is just not worth the time and the liability any more,” said Ralph Walkling, head of the Center for Corporate Governance at LeBow College of Business at Drexel University. As a result, directors are being paid significantly more than they were just a few years ago. According to Korn/Ferry International, the average cash payment to directors rose 45 percent from 2002 to 2007, to about $62,000. 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 audit and compensation committees. 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 legislation of 2002, which required that audit committees have at least one member who is an expert in finance. That rule led to what Professor Pounds calls a “bonanza for retired CPAs.” 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 greater use of consultants gives boards access to important expertise, but it also puts the onus on boards to make sure those consultants are truly independent and do not have conflicts of interest. Many observers see the rise in pay, commitment and responsibility of board members as a big positive for corporate governance. “Before, boards weren’t paid as much, but then they didn’t do 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.” 42 2 0 0 9 . 1 T h e K o r n / F e r r y I n s t i t u t e Boards are paying increasing attention to shareholder demands. According to the con- Expect shareholders, sulting and research firm RiskMetrics Group, for example, almost two-thirds of the Standard & particularly institu- Poor’s 500 companies have adopted “majority voting” rules, which require a director to obtain at tional investors, to least 50 percent of the shareholder votes in an election. 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, Edi- son 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. Com- panies 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 Univer- sity 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 urge corporations in which it has a stake to put more women on their boards, citing a study that found the presence of female directors as a positive influence on financial performance. International investors, too, are expected to push for a bigger voice. In August, Singapore’s state-owned investment fund Temasek Holdings, which has stakes in Merrill Lynch and Bar- clays and once owned a large piece of Bank of America, updated its investment charter to pledge “sustainable returns by engaging with the boards and management of our portfolio companies.” Other groups are likely to follow suit.

An excess of caution can undermine the effectiveness of corporate governance. Boards Remember that must remember that successful organizations are built on taking sensible risks. “What one fears corporations are with increasing regulation is that boards just go through the motions — be forced into what’s meant to take risks. called the checklist mentality,” Mr. Walkling said. “We also don’t want them to avoid sensible risk, which is after all what builds corporate success.” Over the next few years, the pace of corporate governance reform is likely to accelerate. So far, big multinationals have been at the forefront of shifting standards. Their practices will begin to be absorbed by smaller groups. “Over the next couple years, we’ll see a cascading down of these practices to smaller companies,” Mr. Tharp predicted. For the most part, the overhaul will probably be a positive thing. But concern is growing Summer Babies Make Great that the pendulum may swing too far in favor of rules and regulations. According to Korn/Ferry Bosses International , directors say they have less time to strategize as they are forced to comply with new regulations and shareholder expectations. This could be a worrisome trend. What makes for the success of corporate boards is positive human interaction. Directors must be able to work together well, make sensible demands of management and think strategically. These qualities are worth striving for, since they could make the difference between corporate failure and corporate success.

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.

B r i e f i n g s o n T a l e n t & L e a d e r s h i p 2 0 0 9 . 1 43 leadership

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

44 2 0 0 9 . 1 The CEO Whisperer By Glenn Rifkin Photographs by Gary Moss

2 0 0 9 . 1 45 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. Al- Hughes admitted that he had not been taught how to handle though the “Mission Accomplished” banner had already been such a situation; it was just an intuitive decision on his part. unfurled and President Bush had declared victory, the war in The article went on to describe the difficulty the army has in Iraq was just heating up and American soldiers were coming getting its officers “to do precisely what [Hughes] did: innovate to grips with the precarious situation into which they had been and think creatively.” deployed. Journalist Daniel Baum described a scene early in The story offered multiple lessons and yielded yet another the war. epiphany for the renowned 84-year-old scholar regarding his He had been watching CNN from his office in Baghdad signature subject — leadership. After spending nearly six de- as a small unit of American soldiers marched into Najaf, a city cades studying, teaching and writing about leadership, Bennis which was home to Iraq’s holiest mosque. As the squad entered retains a passion for discovery, fresh insights and new learn- the city on foot, hundreds of angry Iraqis began to pour out ing. of buildings and surround the soldiers. Screaming and shak- For his class, Bennis finishes his story by playing Aretha ing fists, the mob grew ever larger and more threatening as the Franklin’s hit song “Respect” and, while the students sway to soldiers, confused and terrified, stood their ground. Watching the contagious rhythm, he points out the increasing impor- on television, Baum was certain he was about to witness “the tance of this attribute in today’s leaders. Iraq war’s version of My Lai.” A shot would ring out, the soldiers would open fire with automatic weapons and a bloodbath Wisdom’s realm would ensue. But then, a young American officer wearing dark sun- In his soft-spoken, thoughtful manner, with his shock of white glasses moved into the picture. He held his rifle high above his hair, deeply tanned face and dapper, understated style of dress, head and pointed the muzzle downward toward the ground. Bennis brings his students into the inner realm of his accumu- “Against the backdrop of the seething crowd, it was a striking lated wisdom. Just 42 lucky juniors and seniors make it into gesture — almost biblical,” wrote Baum. He ordered his squad the class “The Art and Adventure of Leadership” while 300 are to do the same. Then he barked, “Take a knee!” and the soldiers turned away. Bennis is legendary and his class is perennially sank to the ground in a nonthreatening posture. Startled by the among the most popular on campus. Bennis suggests that the action, the crowd grew quieter and then started to move away. Iraq story illustrates a defining moment in the emergence of The officer ordered his soldiers to withdraw and the standoff young military officers. ended without a shot being fired. Hughes’s quick and decisive action flew in the face of what Intrigued by this signal act of leadership under such ex- an outside observer might have expected from an ill-prepared treme circumstances, Baum spent two months tracking down army entering into a questionably tenable conflict. Unable to the young officer. Eventually, he found Lt. Col. Chris Hughes adequately train its officers for this unique landscape, seething back home in Iowa on leave. In a phone conversation, Baum population and unanticipated style of engagement, the army asked him what he had been thinking about and why he acted had deployed them with little more than crossed fingers. But as he had. Baum wondered: How had Hughes been schooled something unexpected and welcome happened. Hughes came to handle the potential disaster with such calm and decisive to exemplify a generation of young officers who would do bat- command? Hughes responded with mild surprise at the ques- tle in Iraq and demonstrate out of pure necessity an intuitive tion. He did not see his actions as particularly special. Hughes ability to adapt and thrive in a menacing conflict. His response had learned before entering Najaf about the Iraqi culture and was rich with learning opportunities. the holiness of the mosque and realized immediately that Bennis considers his current crop of students part of the Iraqis saw the soldiers’ presence as a grievous sign of dis- what he calls “The Crucible Generation” and he believes that respect. By turning their weapons downward and kneeling, it “longs to grant and be granted respect.” In the face of daunt- the soldiers would offer “a gesture of respect.” When pressed, ing economic and social problems, these young people will rise, 46 2 0 0 9 . 1 T h e K o r n / F e r r y I n s t i t u t e like Hughes, to the leadership challenge in surprising ways, self, to try out new ideas, and, indeed, to recreate himself.” At a Bennis predicts. time in life when most people have long since retired, Bennis “To respect someone is to pay attention, to view somebody, remains an energetic force and an inspirational voice in a dis- to really see that person,” Bennis explains. “When you think cipline that is as relevant today as when he began his career af- about leadership in the current global environment, you need ter World War II. respect, not just tolerance. One must also get to know the territory. I call it contextual intelligence. I would guess that Chris Leaders are made Hughes was a brave and competent officer, but he was probably like a lot of other ordinary leaders who do extraordinary things. Over the decades, he has articulated countless insights about He wasn’t being overly modest. He had just gotten to know the leadership that have become core tenets of the discipline. For territory and it informed his actions.” example: Great leaders are not born, they are made; leaders are Underlying the impact of Bennis’s insights, including his people who do the right thing, managers are people who do latest — he is already contemplating a book on respect — is his things right; the era of the Great Man, that one John Wayne- thirst for knowledge and his insatiable curiosity. James O’Toole, type leader around whom the troops rally, has ended and has a professor of business ethics at the University of Denver’s been replaced by leadership teams; and, successful leaders need business school and Bennis’s colleague for more than 30 years, to support transparency and a culture of candor within their said of him, “I believe this ability to change how others think organizations or they will fail. begins with his own manifest willingness to challenge him- In his seminal 1989 book, “On Becoming a Leader,” Bennis B r i e f i n g s o n T a l e n t & L e a d e r s h i p 2 0 0 9 . 1 47 chasing short-term results.” Bennis’s words ring as true today as 20 years ago but Ben- nis 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” (Jossey- Bass, 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 adviser for 20 years. “He has wisdom and understand- ing 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 understand- able 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 fu- startled a complacent generation of executives by illuminat- ture? Though he is an academician by trade, his laboratory is ing the slippery slope to failed leadership. “We are at least half- the real world of organizations — corporate, governmental and way through the looking glass, on our way to utter chaos,” he academic — experiencing traumatic change. “Theory sheds no wrote. “When the very model of a modern manager becomes blood,” Bennis writes in his new book. “When you fail in the CEO, he does not become a leader, he becomes a boss, and it is real world, the pain is palpable and often widespread.” the bosses who have gotten America into its current fix.” Bennis’s fascination with leadership began when he was For Bill George, who was moving from Honeywell into the a child growing up in an unsettled Jewish home in northern CEO’s chair at Medtronic, the medical technology giant based New Jersey. He was impressed by the ability of one of his older in Minneapolis, Bennis’s book was cathartic. “It had a big im- twin brothers to effortlessly organize the neighborhood chil- pact on me,” said George, now a professor of management dren into activities while the other “couldn’t influence his way practices at Harvard Business School. “He spoke of leadership into a stickball game.” Why, he wondered, was one twin a nat- as character and the importance of finding empathy and mean- ural leader while the other was not? Midway through World ing through work. It was one of the reasons I made the switch War II, Bennis enlisted and completed officers and infantry to Medtronic. But it really spoke to me about how you become training at Fort. Benning, Ga. In 1944, Bennis, a 19-year-old a leader by becoming deeply engaged with the people in the newly commissioned lieutenant, was sent overseas and be- business, whether they are customers, recipients of our prod- came the youngest infantry officer to serve in the European ucts or employees, as opposed to focusing on the numbers and theater.

48 2 0 0 9 . 1 T h e K o r n / F e r r y I n s t i t u t e He served as a platoon commander and later a company ate the study of the human aspect of business. commander during the chaotic end of the war against Ger- Every stop in his journey brought energizing new many. As a teenager leading battle-weary soldiers who had sur- thoughts, techniques and inspiration. He spent time in Bethel, vived the Battle of the Bulge, Bennis relied heavily on his com- Me., at Lewin’s famed National Training Laboratories where he manding officer, a Captain Bessinger, whom he credits with encountered the T-groups and the investigation of group be- keeping him alive. Among the skills he quickly acquired was havior, an experience that had a profound impact on his think- the ability “to know when and how to duck.” ing about leadership. A four-year stint at the State University of With bombs bursting and rifles blazing, Bennis learned New York at Buffalo in the late 1960’s as part of a new adminis- how to differentiate between the sounds of particular kinds of trative team striving to remake the university left Bennis hum- shells. There were just seconds to identify an incoming mor- bled by the failed experiment. Organizations will not change tar or rifle fire and to find cover. “It was about being able to an- unless they want to change, he realized. ticipate what was going to happen,” Bennis recalls, suggesting From 1971 until 1978, Bennis shed his theoretician’s robes that the skills he acquired are pertinent in today’s global busi- to try his hand at actual leadership. His tenure as president of ness environment. In addition, the war gave rise to the practice 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 mility. Spending 14-hour days buried under a bureaucratic ava- happened and what lessons could be learned. lanche left him stressed, frustrated and disappointed. In “The “One of the things lacking in most if not all of today’s orga- Essential Bennis,” he writes, “Routine work drives out nonrou- nizations is time given to reflect and to see what went wrong tine work and smothers to death all creative planning, all fun- and why,” he says. “When you are moving at such a rapid pace, damental changes in the university — or any institution, for how do you find those interludes to learn to take a look at that matter.” where you are going and what you are doing? I honestly don’t A year after leaving Cincinnati, Bennis suffered a severe know of any organization that gets its executive team together heart attack while attending a gathering of scholars at Windsor to really analyze why something went wrong or something Castle in England. He spent three months recuperating in went right. It’s all part of knowing how and when to duck.” Middlesex Hospital, the same hospital, Bennis likes to tell people, where Rudyard Kipling was taken with a perforated Intellectual development duodenum. Kipling died a week after he was admitted, but fortunately, Bennis left the hospital weakened but alive. He re- After the war, taking advantage of the G.I. Bill of Rights, Ben- cuperated for three months in England before returning to nis went to Antioch College in Yellow Springs, Ohio, where the United States restored and healthy. He landed back in aca- his formal introduction to academia and the study of organi- demia but this time as a university professor at the University zations began. He made postgraduate stops at the Massachu- of Southern California, where he has spent 30 contented and setts Institute of Technology, Boston University and Harvard productive years. and found himself in the company of a large cohort of seminal From his academic perch, Bennis has advised presidents thinkers who developed the study of organizational dynamics and chief executives through tumultuous times. He has seen and leadership. From Douglas McGregor, Antioch’s pioneering play out many of the trends he predicted. Together, the flat- president whom Bennis credits for shaping his life, to famed tened organization, the demise of the Great Leader and the psychologist Kurt Lewin, Bennis was exposed to many of the powerful forces of globalization have produced what he calls leading minds of an era of intellectual ferment. He was swept “a leadership vacuum.” This vacuum “reveals that even the best up by the postwar thinking about the United States as the bur- business schools have not done their finest at teaching some geoning new economic powerhouse. At MIT, he earned a doc- core aspects of leadership,” he wrote in a Forbes magazine es- torate in economics while studying under Nobel laureates such say. He compares the next generation, the Crucible Genera- as Paul Samuelson, Franco Modigliani and Robert Solow and tion, to his own “Greatest Generation,” and writes, “The truth was surrounded by a group of young scholars who would cre- may be that history, in its kindness, gave this new generation a B r i e f i n g s o n T a l e n t & L e a d e r s h i p 2 0 0 9 . 1 49 “It’s all part of knowing how and when to duck.”

grand crucible challenge, as it did my own. The young of today ronment present. When asked what he would tell Obama now, have been summoned to receive that same kindness through Bennis says, “I wouldn’t tell him anything. I’d ask him a ques- the collective failures of their elders.” tion, `What is your top priority right now?’ I would suggest he has to show the steel that I know is in him. His natural ten- Advisor to CEOs dency is to bring people together, but he’s going to have to lay down clear parameters about what is acceptable.” Although Bennis stopped formally consulting four years ago, Among Bennis’s strengths is his broad knowledge and he continues to advise CEOs on an informal basis and he re- command of metaphor. He draws from “King Lear” and Nor- mains in demand. “He’s still got it,” said O’Toole. “So many man Lear. A consummate storyteller, Bennis calls up relevant times I have seen people either individually or in groups strug- anecdotes from a seemingly bottomless well. When think- gling with an issue, trying to come to terms with a problem. ing about Obama and current leadership pressures, he recalls Warren will come in, cut through the clutter, get right to the a story about Franklin D. Roosevelt. When Roosevelt died in nub of the issue, define it and put a name on it. He gets to the April 1945, the nation was devastated, Bennis recounts. When big `aha.’ ” the funeral cortege made its way along Constitution Avenue in Bennis’s genuine warmth and compassion make it diffi- Washington, the route was lined with citizens mourning the cult for him to say no when he is asked for advice. He hopes his president. As the hearse passed, one middle-aged man broke teaching and writing help people understand their own lives down sobbing and was so overcome with grief he almost fell to better and perhaps “feel less lonely.” When asked by politi- his knees. “After the hearse passed, he regained whatever dig- cal pundit David Gergen, one of Bennis’s many leadership stu- nity he thought he’d lost and pulled himself together,” Bennis dents, what he would like to have written as his epitaph, Ben- says. “A guy next to him, a stranger, leans over and says, `You nis replied, “I want to be known as generous company.” He will were so overcome. Did you know the president?’ And the man get no argument about that. responded, ‘No, no. I never met him. But he knew me.’ ” “He just connects with people,” says Ira W. Krinsky, a se- For Bennis, this is a profound lesson for prospective lead- nior client partner at Korn/Ferry International. “Most people ers. The ability to make people feel known and to soothe peo- of his standing get caught up in their own importance. Around ple’s fears, exemplified by Roosevelt’s fireside chats, is a power- Warren, he makes you feel important. He’s just very comfort- ful tool. He suggests that Obama has that capacity, as evidenced able with who he is.” by his stirring address to the Muslim world in Cairo. “A Hamas Bennis also has the enduring ability to train his focus leader in Syria said, `Finally, a Western leader spoke in a way on the future without being encumbered by his past. He wel- that made me think he understood us,’ ” Bennis recounts. “Peo- comes new insight with the relish of a hungry man anticipat- ple felt he knew them. This is extremely difficult in large orga- ing a fine meal. Indeed, his memoir, scheduled to be published nizations, but it is possible.” in 2010, is called “Still Surprised.” Bennis says that the qualities For Bennis, the chaotic swirl of current events is a “global of leadership that will be significant in the next 10 to 15 years arrhythmia” and young leaders are on the verge of experienc- will differ from those required in the past. “In my lifetime, I ing a “very exciting, scary, adventurous, unprecedented period don’t think I’ve experienced a world with so many unknowns, of unknowns and possibilities.” He mentions a tag line that so many issues, so many possibilities and so many options,” Hillary Clinton used while still campaigning against Obama in Bennis says. the primary, “Will he be ready on day one?” In 2007, when Hillary Clinton was heavily favored as the “The truth is, there is no Day 1,” Bennis says. “Every Day 1 Democratic presidential nominee, Bennis announced his pref- is a surprise, which is why adaptive capacity and openness are erence for Barack Obama in a Wall Street Journal essay that as much a part of the executive’s repertoire as doubt and uncer- he wrote with Noel Tichy. After a five-year study of leadership, tainty. The legitimacy of doubt, of really not knowing but want- Bennis and Tichy concluded that judgment trumps experience. ing to discover as much as one can about what one needs to “Our central finding is that judgment is the core, the nucleus of know, that is what great leaders must now embrace.” exemplary leadership,” they wrote. It was a powerful endorse- ment, which drew a call of appreciation from Obama. Glenn Rifkin has written for The New York Times, Fast Company, Strategy + Today, nearly a year into Obama’s presidency, Bennis has Business, and many other publications. He is co-author of “MBA in a Box: further thoughts on the challenges the current divisive envi- Practical Ideas from the Best Brains in Business,” and other books. 50 2 0 0 9 . 1 T h e K o r n / F e r r y I n s t i t u t e B r i e f i n g s o n T a l e n t & L e a d e r s h i p 2 0 0 9 . 1 51 interview leading An Interview With Kenneth I. Chenault in a Chairman and CEO, American Express time of crisis

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 directly across the street from American Express’s Manhattan headquarters. The collapse of the twin towers damaged the company’s headquarters, forced it to shut down for nearly a year and

52 2 0 0 9 . 1 T h e K o r n / F e r r y I n s t i t u t e B r i e f i n g s o n T a l e n t & L e a d e r s h i p 2 0 0 9 . 1 53 required the emergency relocation of 4,000 people who that there are good reasons why they should also feel confident. worked in the building. It was during this time that Chenault You have to explain that our company has been around for 159 realized a leader’s reputation is made in times of crisis. years and that we’ve been through a range of crises during that When Lehman Brothers shut its doors in 2008 and the time. And you have to remind them that we have a very strong global financial crisis began in earnest, Chenault’s leadership commitment to the hallmark of our company, which is service. principles were tested once again. Building on what he had When you’re in the people business, like we are, you’ve got to learned from the turmoil of 9/11, Chenault immediately have people motivated, you’ve got to have people engaged and reached out to people in the company and to clients, customers you’ve got to have people composed, because if you think about and shareholders. He worked hard to build confidence and al- all of the issues during 9/11, and about the financial crisis, our lay fears. He held televised town-hall meetings, served as host people have to be a solid force for our customers and our cli- of smaller local sessions, engaged his leadership team and vis- ents. We have to be a reassuring voice for them. ited sites around the world. Chenault connected. Now this is a very important point. Prior to any crisis, you He also set clear goals — stay liquid, stay profitable and in- have to have built integrity, which I think is the foundation of vest for market share — all of which the company met. leadership. I say that because I can give you the most rational One page from Chenault’s leadership playbook is borrowed strategy and you might say, “Well, wait a minute, 9/11, the directly from Napoleon: define reality, give hope. Another is downturn, and you’re telling me we’re going to be fine?” In a common sense: when people are fearful, get them focused. Yet crisis, with even the most rational strategy, there has to be a another is derived from his ethical approach: leadership begins trust. It has to be there because how else can people believe in with integrity. the strategy or in leadership unless they’ve seen consistency? Chenault grew up on Long Island, N.Y., studied history at So, to lead in a crisis, you have to have built up your repu- Bowdoin College, trained as a lawyer at the Harvard Law School tation for integrity in advance of the crisis. Do I have that and worked as a consultant and lawyer before joining Ameri- right? can Express in 1981. In this interview with Joel Kurtzman, editor in chief of chenault: Yes. People have to believe in your leadership. They The Korn/Ferry Institute’s Briefings on Talent and Leadership, have to see consistency and values. That’s why I talk about in- Mr. Chenault discusses what leadership means in times of cri- tegrity so much. But, in addition, people are also looking for sis and what a company needs to do to prepare. courage. I define courage in this context as a willingness to make tough calls, to speak up about issues. And they also look Briefings: You led American Express through two major cri- for compassion. Real compassion. “Does the leader care about ses — 9/11, when you were a new CEO, and the global fi- me?” “Do the leaders care about the company or do they just nancial and economic crisis. What have these crises taught care about themselves?” you about leadership? What other traits does a leader have to exhibit in a crisis? 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 chenault: Decisiveness. You have to be absolutely decisive. that leadership reputations are made or lost during times of And that means you may bruise some feelings. But you’ve got crises. What’s important about that are the following: to reaf- to risk people being upset with you, because you have to take firm and reinforce the privilege and responsibility of leader- action. So, what was important both in 9/11 and in the financial ship. At the end of the day your responsibility is to the insti- crisis was that very early on I asserted what were the key prior- tution, to the people, to your customers, to your shareholders ities that we needed to focus on as a company. In the financial and to society at large. That’s where your responsibilities lie crisis I came up with what I called the mantra, which were our and if you don’t make good on those, then that’s where you lose three priorities. They were based on my assessment of the en- the privilege to lead. But I also learned another important les- vironment and what I thought was important to motivate and son from 9/11 that’s been of critical help to me in this finan- galvanize the organization, because part of what I think a cial crisis. That is, it’s important to connect to people and to un- leader has to do is motivate followership around a vision. derstand the anxieties and issues they are dealing with in their What are the three principles you used to motivate people business and personal lives. during the financial crisis? How do you do that? chenault: First, stay liquid. Now, one might say, “Gosh, Ken, chenault: You have to understand the feelings people have in a what’s inspiring about that?” Well, let’s face it, for financial ser- crisis. The uncertainty they feel, the anxiety they have when the vices companies in the midst of a financial crisis, that was a big markets collapse. And you have to acknowledge to them that concern. In addition, I wanted the organization to understand “this is indeed frightening.” You have to acknowledge that what that I’m realistic. Survival is critical, and to do that we have to is happening is a cause for anxiety. But you also have to explain stay liquid. So we needed to orient and align our actions 54 2 0 0 9 . 1 T h e K o r n / F e r r y I n s t i t u t e against that principle. ting through during the financial crisis because the organiza- The second principle was to stay profitable. That was im- tion didn’t freeze and the organization didn’t panic. Let’s be portant because what I was then able to say — even in the clear, people were anxious, they were nervous, they were midst of chaos — was that there’s a way we can differentiate scared, they were concerned. But they just didn’t come to work ourselves from other financial-services companies, by staying and sit at their desk. They were focused against the objectives I profitable. And, I actually believed we could stay profitable. mentioned. That’s important for the future of our company, that’s impor- Now, one of our overriding priorities is that we’re in the tant for our employees, that’s important for our shareholders, service business, so we have to serve our people. Our front-line that’s important for our customers. employees and our entire management team really galvanized Our third principle was to selectively invest in growth. behind that notion of service. Now, we live in uncertain times, and if our customers can trust American Express in these times Growth? In a time of crisis? to deliver service, we can gain an advantage. And what we talked chenault: Yes. Now, that takes me back to the leadership about was “don’t just think in the short term.” Don’t let your self- maxim that I’ve used for probably the last 20 years of my career. worth be defined by the daily fluctuations of our stock price when, It is something I’ve paraphrased from Napoleon, that I used in in fact, we are operating in the worst economic environment 9/11, and that I used in the financial crisis. In fact, I start off since the 1930s. So, I reminded people to look for some signs probably 80 percent of my leadership speeches by talking of progress. One was, we have remained profitable, which was about it. To me it is the essence of the definition of leadership. a goal. We’ve made major reductions in our expenses. While It is that the role of a leader is to define reality and give hope. So, difficult, we eliminated 17 percent of our work force to align you can see in my mantra that while I laid out some very practi- with the current economic environment. We did these things. cal objectives, what I really was doing was reflecting back and What was the reaction of people in the organization to fol- saying, “How do I define reality for the organization and how lowing the objectives you set out? do I define hope?” Now, I emphasize with regard to reality that there’s nothing more real than saying, “We’re going to stay liq- chenault: An interesting thing happened. We do an employee uid.” And the hope was that we could actually grow in this envi- survey every year. The employee survey was administered close ronment. We could invest, we could plan for the future. It’s critical that we do that even in this time of financial crisis. the role of a leader How did you know whether your messages were getting through to the thousands of peo- is to define reality ple in the organization? chenault: I knew that those messages were get- and give hope.

B r i e f i n g s o n T a l e n t & L e a d e r s h i p 2 0 0 9 . 1 55 to the low point of the downturn, and we received an overall accountability for making things happen. And one of the rating of 1 on our survey, which means best, which means trust, points I’ve made to the organization, and I also use this in my which means confidence in the leadership, and in our strate- approach to leadership, is that I believe leadership has to be ex- gies. So, there was alignment with my mantra, which meant hibited irrespective of title or level. So I’m not into hierarchical people understood what our priorities were. This meant the leadership. I would call our customer-care professionals and messages were getting through. By the way, during 9/11, we say: “You’re leaders. You need to focus on being leaders.” saw the same result. Some people back then even said not to It’s my belief that everyone should have a sense of com- administer the survey. But we did it and we got the same result. mon purpose and that everyone can play a leadership role. I of- We scored very high. And this time, there was the recognition ten talk about how do you know if someone’s a leader? I say that in these challenging times, I was not holding back on the look at their followership. And I say to a customer-care profes- issues we were dealing with. Not on the economy, or the rating sional: “You know how to know you’re a leader? When your agencies, and not with our customers, and our clients. colleagues come to you and ask you for advice and ask for your

everyone should have a sense of common purpose and everyone can play a leadership role.

What leadership techniques did you employ to produce judgment, and ask you for support. If they do that, you’re an those results? outstanding leader. So, you’ve got to focus on learning those chenault: We set priorities, we were decisive, we demon- leadership attributes.” And one of the things that has helped us strated compassion. And from a communications standpoint, is we’ve taken the training of our leaders very seriously at all we connected the dots. You have to be visible to the organiza- levels over the last 15 years. We have what we call our authentic tion. Now, I’m not just talking about me. I’m talking about my leadership program. entire leadership team at every level. They got out to see people What do you mean by authentic leadership? and talk to them about business issues they’re confronting, and about personal issues. chenault: There are people who are born leaders. But I think at I just came back from doing a visit to one of our largest the end of the day, as with any natural athlete, unless you work facilities in the country — Phoenix, Ariz. — and while I was at the skills and capabilities of leadership, it’s very hard to there we hosted a satellite town-hall meeting around the world. evolve in a sustainable way into an outstanding leader. So, the One of the purposes of that town hall was to acknowledge the authentic leadership program is all about educating and teach- progress we’ve made, but also to let people know that there are ing our people to be authentic, genuine leaders, and about how still major issues with the economy that we are dealing with. to engage with employees, how to set an agenda, how to galva- Another purpose was to recognize that a number of our people nize support around a vision and a mission, and how to put were personally impacted by the downturn. They were affected things in context. by unemployment in their families, the housing price crisis, How far does this program reach into the organization? and so on. And we wanted to acknowledge that and they were still coming to work and serving our customers incredibly well. chenault: It goes through the manager level of the organiza- We wanted to acknowledge that by doing that, they were rein- tion, which is what might be called middle management. We forcing the mission of the company. My point is, it is essential have some leadership training programs at the manager level, that you are visible, that you are communicating the context at the entry manager level, too. for the decisions you need to make and for the actions that you Everyone has a leadership development plan that is re- need to take. viewed through the hierarchy with the key elements checked by the individual and by their leaders to make sure there’s So you’ve conducted town-hall meetings. What are some progress against the plan. Let’s face it, a lot of people put to- of the other things you’ve done during the financial crisis gether plans that say, “I’ll do this or that.” But the check has to to keep the organization focused? be, well, what progress has been made against their leadership chenault: I’ve done a range of things. I really believe it’s im- plan? How are they performing against it? And, I think it goes portant to set the tone from the top. At the same time, you have back to reinforcing through your overall recognition and com- to have a leadership team that takes personal ownership and pensation system, that you take leadership very seriously. And 56 2 0 0 9 . 1 T h e K o r n / F e r r y I n s t i t u t e everyone should have a sense of common purpose How do you select people to become your future leaders? chenault: We’re very outcome driven, so we want to have peo- and everyone can play a leadership role. ple 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 situa- so if you look at our compensation system, what we’ve said is tions where someone could score a 1 on goals and a 3 or 4 on that since we’re in the service business, we obviously want to leadership, and then there would be an intervention. We’d say, perform for our shareholders, but our customers are para- “Here’s what you need to do on the leadership side,” because mount. So 50 percent of our weighting for compensation is what our analyses have shown is that someone who has that shareholder performance; 25 percent is based on our customer profile hits a wall. They move up to the vice president or senior evaluations and satisfaction scores; and 25 percent is based on vice president level — where leadership skills are even more im- the employee survey. portant — and all of a sudden their performance drops. 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 encour- So everyone has a stake in growing shareholder value, cus- age — and it’s part of our values — is constructive confrontation. tomer satisfaction and employee satisfaction? How do you define constructive confrontation? chenault: That’s absolutely right. Everyone has a stake in the customer no matter what they do in the organization because, chenault: It’s giving feedback on issues. You can do this in a re- at the end of the day, we’re a customer-driven organization. spectful and appropriate way without being personal. To have Now, in some cases, those customers may be internal, with an effective team, you need as much transparency as possible. some overlay of the external customer. So if I want to know where you stand on an issue, you should We also have a very comprehensive feedback program — feel comfortable giving me feedback on that issue, and you upward feedback, peer feedback, 360 feedback. My point is, I should be able to deliver that feedback in a direct way, without don’t care who you are, you can always learn from feedback, and being disrespectful. And if there are areas that I need to im- part of what we evaluate in the performance of our people is, prove in, or areas that I need to be focused on, or if there’s a obviously, we’re very focused on outcomes and results, but then business issue about which we disagree, you should be able to we are also very focused on how those results were achieved. tell me directly. So results are not enough. It’s how you get those results So, when you talk about leadership, you’re not just talking that counts? about leading in a crisis. You’re talking about how you run the company and about the traits you value throughout the Chenault: Yes. We want to know what were the leadership be- organization. Is that correct? haviors that you exhibited to get your results. Did you demonstrate integrity? Decisiveness? Did you demonstrate a level of chenault: Absolutely. Even our board is involved with it. Our concern for your employees? Are you providing continuous board regularly spends time going through talent issues in the feedback? Are you developing leaders? organization. As part of my regular update with the board, I B r i e f i n g s o n T a l e n t & L e a d e r s h i p 2 0 0 9 . 1 57 american express values ent. You want to have the majority of your leadership come up through the organization, but you also want to have some fresh • Customer Commitment We develop relationships that make a positive difference perspectives coming into the organization from outside. in our customers’ lives. How do you evaluate when to go outside for talent? • Quality We provide outstanding products and unsurpassed service chenault: We look at the competencies we think we need to that, together, deliver premium value to our customers. build the organization. We look at where we need people. For • Integrity example, a few years ago we said we needed to have a broader We uphold the highest standards of integrity in all of range of people with Internet and online experience in the our actions. company. We also needed people who had certain types of mar- • Teamwork keting experience and service-development experience, and We work together, across boundaries, to meet the needs we also wanted people with specific geographic expertise. We of our customers and to help the company win. then went through our lineup of internal talent, and we said • Respect for People We value our people, encourage their development and it’ll be useful to add certain skills and experiences. In addition, reward their performance. we also said, on a selected basis: “I think in this particular area, • Good Citizenship so and so is one of the best people in the world. Let’s see if we We are good citizens in the communities in which we can get that person to join us.” live and work. How do you do the analysis? • A Will to Win We exhibit a strong will to win in the marketplace and chenault: We’re constantly scanning. Part of what we do is in every aspect of our business. scan for senior jobs, and we do this periodically. We actually • Personal Accountability match our people up against people that we consider best-in- We are personally accountable for delivering on our class in different industries and different companies. So, we commitments. look at a particular finance role and ask, do we have the best finance person in that particular area? To find out, we bench- mark ourselves against companies that are reputed to have the take them through personnel issues and development issues, and best people, and then we compare ourselves to them. We con- I actually get individual board members involved. In fact, we stantly compare and contrast because we want to make sure spend close to a full day a year on these topics. In addition, in the we’re not totally internally focused. regular board meetings, we have a session with directors where I Do you compare your people to those in other organiza- go through these issues, where we discuss different people in the tions on a regular basis? 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 chenault: Yes. We would rank people inside our organization, ask board members who have certain experience to spend some from top to bottom, and then we do a peer ranking review, just time with some of our people. I’ll ask board members to share as you would on a business. I want to know, is my customer their business and leadership perspectives. I really think our peo- service the best? Fortunately, in the card business it is. But I ple can benefit from a board member’s feedback. want to constantly monitor that. I want to monitor and see where the talent is, how we compare, and where we see there Do you discuss succession and bench strength issues are gaps we need to fill from the outside, and where we need to as well? develop our people and put in programs to give our people the chenault: Absolutely. The key thing is that we go through this experiences they need to close those gaps and develop their regularly. People are constantly updating the succession and skills. bench strength list, so we have two or three successors for each It sounds as if you don’t draw a distinction between man- senior job. We go through that, we talk about rotating people in agement and leadership, the way some people do. and out of roles to make sure we have people that have a range of business experiences and a range of leadership experiences. chenault: That’s correct. We don’t draw a distinction between An important obligation and responsibility of leadership is the two because at the end of the day, we’re asking everyone to to make sure that you’re building a foundation that will continue be a leader. And it’s not up for negotiation. If you want to be in the success, and that means you’ve got to have that bench management in this company, you have to embrace the leader- strength. I believe it is important to develop bench strength in- ship principles of the company, and you have to be focused on ternally, but I also think we want to ask ourselves whether there becoming a good leader. are positions where we should bring in people from the outside. Thank you. In my view, you don’t want to have 100 percent home-grown tal- 58 2 0 0 9 . 1 T h e K o r n / F e r r y I n s t i t u t e QFinance_ad:Layout 1 10/13/09 11:25 AM Page 1

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curious.—Albert Einstein i n r e v i e w

Peter Drucker's Leadership Playbook

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

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

Just about anyone who reads this book will have read or been affected by the writings of Peter Drucker. He is the author of more than 35 books, many of them groundbreaking, including “The End of Economic Man” J(1939), “Concept of the Corporation” (1946), “The Age of Discontinuity” (1969) and “Management Challenges for the 21st Century” (1999). He was the first to 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 Austrian- born Jew who saw the disastrous effect of Hitler’s aura, Drucker especially distrusted

62 2 0 0 9 . 1 T h e K o r n / F e r r y I n s t i t u t e www.whartonsp.com Wharton School Publishing

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WSP_Ad-09-09.indd 1 10/15/09 1:46:03 PM charisma, which he thought could too easily values should not be fenced off from business be used to manipulate and as an instrument practices. Employees may forgive a leader for of what he called “misleadership.” many things, but if his integrity lapses, he Although strands of that philosophy re- quickly loses his claim to leadership, Drucker mained woven into his writings through- said. out his career, Drucker did conclude in his 3. The military offers the best lessons in later years that leadership was a capability dis- leadership development. Drucker admired the tinct from management and that it could be military as a model for developing business learned. While he did not address leadership, leadership. He believed that its emphasis per se, at length and never concisely defined on applied and practical training, early and the role, it can be argued that Drucker wrote continual talent development and evaluation, incessantly on the subject and had a coherent follow-through and a rational system of pro- concept of leadership. motion were highly effective. Drucker fre- Drucker did That is the premise of “Drucker on Lead- quently said, “The army trains and develops conclude ership: New Lessons from the Father of Mod- more leaders than do all other institutions ern Management,” and in it author William put together — and with a lower casualty in his later A. Cohen attempts to provide the orderly ex- rate.” years that position on the topic that Drucker never did. 4. Effective leadership depends upon knowing Cohen is well qualified for the job. He knew what motivates people. Drucker spent a good leadership Drucker for 30 years, first as his student, then deal of time pondering the motivational was a as his colleague and collaborator. He is also an levers of leadership. He felt that allowing accomplished executive, teacher, lecturer and employees to be self-directed and giving capability author in his own right. them responsibility — so-called Theory Y distinct from Cohen draws on Drucker’s extensive leadership — had merit. But, he said it could management writings, speeches, lectures, presentations never work without the imposition of some and even personal conversations to tease out authority and the provision of guidance. He and that it a unified philosophy of leadership attribut- thought that making employee satisfaction a could be able to Drucker. To make the theory hold to- primary objective was a recipe for mediocrity. gether, Cohen infers a good deal of connective In later years, as he increasingly focused on learned. tissue, for instance, by inventing a method- the nonprofit sector, he came to believe that ology for developing strategy that he assigns what motivated volunteers was similar to to Drucker. Despite taking such license, Co- what motivated employees: the desire to gain hen remains faithful to the spirit of Drucker’s experience and competency, to feel effective, thinking and teaching. to achieve balance, to be part of a social network and to give something back. Five Major Themes 5. Leadership is really marketing. Late in Cohen distilled from Drucker’s work five in- his career, Drucker began to explore the no- sights that form the basis for his philosophy tion that workers — especially knowledge of leadership: workers — are like customers or partners. 1. The leader’s main work is strategy. “The It is the organization’s job to figure out what difference between a manager and a leader is they want and need and then satisfy those that a manager focuses on doing things right, requirements, he suggested. Leadership, ac- while a leader focuses on doing the right cording to this notion, becomes a marketing things,” said Drucker. Figuring out the right job. When a leader is doing her job, motiva- things is the goal of strategy and devising tion is organic; neither customers nor em- strategy is a full-time job that should never ployees need to be sold. be delegated to committees, according to Drucker seems never to have resolved his Drucker. ambivalence about the nature of leadership 2. Abiding by business ethics and maintain- and as a result “Drucker on Leadership” con- ing personal integrity are prerequisites for leader- tains many inconsistencies. But, Drucker’s ship. It is clear from his earliest writings that deliberations on the subject, deftly described Drucker believed that leadership was estab- in this book, enrich ongoing debates about lished through character and that personal the substance and value of leadership. 64 2 0 0 9 . 1 T h e K o r n / F e r r y I n s t i t u t e B r i e f i n g s o n T a l e n t & L e a d e r s h i p 2 0 0 9 . 1 65 i n r e v i e w

This Way Out

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

Marshall Goldsmith charts the CEO psyche and describes the personal work that needs to be done by a CEO nearing the end of his tenure.

The issues of professional succession have been well chewed over. But much of that mastication has focused on strategic, technical and human resource issues. Relatively little attention has been paid to the personal, Temotional and existential aspects of the transition from the outgoing CEO’s point of view. In his new book, “Succession: Are You Ready,” Marshall Gold- smith takes a wise and wry look at the often-avoided issues of ego, relationships, 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 provoc- ative 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 what you want; maintain your dignity; help your successor and your organization 66 2 0 0 9 . 1 T h e K o r n / F e r r y I n s t i t u t e A GREEN GUIDE FOR SURVIVING THE RECESSION AND THRIVING IN THE UPTURN

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15649_Press_Winston_full_BoTL.indd 1 10/22/09 10:26:59 AM succeed; leave a positive legacy; and move on he says. External candidates do make sense in a healthy, productive way. if the organization is seeking a dramatic change in corporate culture, it is facing a sea Making the Decision to Leave change in market conditions or it does not An authority on how leaders can achieve posi- have the luxury of time to develop a new chief tive and lasting behavioral change, Goldsmith executive. clearly knows the CEO psyche and deals up- However, hiring a name-brand CEO front with the weighty issues of ego and moti- from outside who does not know the internal vation. He bluntly advises CEOs who are con- workings of a company, nor possibly its in- sidering their exit to confront any demons dustry, is risky, Goldsmith warns. Failure can they may harbor. be costly in terms of money, morale, the integ- “Being a ‘used-to-be’ CEO isn’t the same,” rity of internal operations and the company’s he warns. “To be honest, it isn’t even close.” reputation. Choosing and developing a suc- “If retiring Your sense of happiness and self-worth may cessor from within is more likely to produce and playing be much more wrapped up in wealth, perqui- continuity of vision and send the right mes- sites, status, power and work relationships sage throughout the company. golf were than you are willing to admit, he says. “If you “[It] shows that you, as CEO, have made really more cannot make peace with losing [these things], the same effort to develop internal talent that don’t retire!” you are asking from everyone else,” Gold- fun than Nor should CEOs be seduced by the smith says. being a CEO, mythical allures of rest, relaxation and more Goldsmith also underscores the impor- quality time with family, Goldsmith says. tance of the input of key stakeholders — the you would While these are necessary for a healthy life, board, peers, employees and major customers already be they are not enough to sustain a post-CEO life, — in choosing a successor. While acknowledg- he warns. ing that these stakeholders’ judgments may retired,” “If retiring and playing golf were really be based on incomplete information and their Goldsmith more fun than being a CEO, you would al- own agendas, Goldsmith cautions that their ready be retired,” Goldsmith writes. “You will lack of participation could derail a new CEO’s writes. probably have too much drive and ambition chances of success. to be a successful ‘retiree.’ ” Indeed, Goldsmith emphasizes the need While his experience is unquestionable, for any successful candidate to be highly at- Goldsmith is not entirely convincing on this tuned to the political aspects of assuming the point. He skirts the issue of what is to be val- CEO mantle. Carelessness about what they say ued in life, and correctly so; it is the subject of to whom and how they say it or about their a different book. demeanor in meetings can undermine other- This fundamental question aside, Gold- wise stellar performances. smith encourages CEOs to consider their “As the world has changed, the role of post-CEO options early and realistically, well the CEO has changed,” he says. “The bad news before they leave their current posts. is that you are under far more scrutiny and “Don’t get overly enamored with yourself pressure than ever before.” With the advent of when you start looking for the next great chal- the Internet, disaster is just a blog post or cell- lenge in life,” he writes. “[It] might not be as phone-camera upload away, he says. easy as you think. Get real offers— with real This highlights a potentially disturbing salaries, real job descriptions, real co-workers aspect of what it takes to become a top execu- and real board members.” Realistic decisions tive today. That is, sensitivity and deference to cannot be made based on vague, idealized sce- constituencies may be overemphasized such narios, he observes. that they trump ability and job performance. But, this concern too strays beyond the scope Choose a Successor From Within of Goldsmith’s book. While issues of succes- Goldsmith also gives some tactical advice on sion inevitably introduce questions about fu- the topic of choosing and developing a suc- ture leadership, the focus here is on how cessor. Frequently, but not always, a successor a CEO can step aside while protecting her should be chosen from within the company, own and her organization’s best interests. 68 2 0 0 9 . 1 T h e K o r n / F e r r y I n s t i t u t e AUDEMARS PIGUET BOUTIQUES 65 East 57th strEEt, NEw York, NY 888.214.6858 Bal harBour shops, Bal harBour, Fl 866.595.9700 www.audemarspiguet.com B r i e f i n g s o n T a l e n t & L e a d e r s h i p 2 0 0 9 . 1 3

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