The Top 20 Companies for Leaders: CEOs explain how they got on the list — and why they're likely to stay there - Cover Story

Chief Executive, The, June, 2002 by Catherine Fredman, Paul Rogers

"I have always believed that investing in people is the strongest investment you can make," declares Home Depot Chairman and CEO Bob Nardelli, wrapping up a 100-word-a-minute oration about leadership development. It's one of his favorite topics, and the passion he brings to it is one reason that The Home Depot nailed the No. 4 slot on our list of the Top 20 Companies for Leaders. "As we create aggressive strategy and operationalize it, we have people who possess or [can] acquire the skills to implement it. That's the differentiator for us."

Once viewed as a touchy-feely topic relegated to the human resources department, leadership development is now seen as a business tool that gives companies a competitive advantage. To find the companies where it matters most, Chief Executive teamed with global human resources consulting firm Hewitt Associates to identify the Top 20 Companies for Leaders. A panel of judges selected those who made the list, choosing from CE and Hewitt's survey of 240 major companies (see "How the Project Was Put Together").

The Top 20 are recognized for what some call "the leadership brand." Marc Effron, who co-directed the project and heads Hewitt's leadership practice area, defines the term: "Are you known as a company that will develop and produce great leaders? Will you be able to attract the best? If you have a great brand, people will be banging on the door to work [for you] because they know they will have a great experience.

To build a leadership brand, companies follow several key principles. Above all, they're committed to the cause. Often that requires a sizeable investment of time if not money, and constant, informal coaching as well as formal training programs and annual leadership forums. These companies clearly define what they're looking for in up-and-corning leaders and generously reward those who measure up. And they recognize that leadership development must be tailored to individual companies; one size doesn't fit all.

Companies that spawn leaders boast alumni who run other successful firms. The leadership brand is the reason that General Electric, for instance, is pure catnip to executive recruiters: At least 10 sitting CEOs of public companies, including Nardelli and Honeywell's David Cote, are graduates of its Croton-on-Hudson training center. Peter Crist, vice chairman of executive search firm Korn/Ferry International and one of the deciding judges for this list of 20, ticks off other companies with bench strength to spare: Kraft (a division of Philip Morris) alumni now occupy the corner offices at Gillette, Hershey Foods, Sears and Mattel; AlliedSignal, now Honeywell, peopled the top slots at PerkinElmer, Raytheon, Great Lakes Chemical, American Standard and Thermal Electron. IBM and Citigroup are also plentiful providers.

Microsoft is an equally powerful talent magnet, celebrated for attracting smart people, throwing them at tough challenges and rewarding them for their achievements. Microsoft alumni may not be seeding the executive suites of Fortune 500 companies, but that only proves Microsoft isn't developing corporate leaders in the traditional mold. "If there were a list of the 500 best entrepreneurial firms out there, you would probably see a lot of Microsoft alumni," says Effron.

Whether they're funneling talent to start-up firms or the country's largest corporations, companies known for incubating tomorrow's CEOs maintain a virtuous circle composed of four equally crucial and interrelated steps. They hire great talent; make sure that talent is aligned with the company's culture, objectives and strategy; develop that talent aggressively; and reward the talent significantly.

The engine is the company's degree of commitment. Consider the statistics that came out of the CE/Hewitt leadership study: 91 percent of the top 20 companies have a process for early identification of leaders, compared with 61 percent of the overall group; 82 percent of the top companies have formal mentoring programs, compared with barely half of the firms in general; 73 percent of the best sponsor coaching relationships, compared with 41 percent of the rest. "You start to see a more consistent use of best practices," Effron comments.

The CEO, meanwhile, provides the high-octane fuel. "The written process exists in just about every company, admits Honeywell's Cote. "How robust your process is, is a function of that starting at the top."

Here's how he--and other chief executives--won their place in the Top 20.

Hire right from the start

It's been said that leadership development takes more time than money, and no one would agree more than Southwest Airlines President Colleen Barrett. "We have always spent a disproportionate amount of time on initial hiring decisions," she says. It takes a minimum of three interviews to land even an entry-level position at the company. People skills trump technical experience whenever practical, and it's up to the manager to decide whether the candidate has the right attitude. Bringing on the right people in the first place helps Southwest avoid corrective measures later on.