Toward more rational CEO succession - Thought Leader - business leaders must have business skills not just charisma

Chief Executive, The,  April, 2003  by Rakesh Khurana

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The rash of business scandals has raised the question of whether the malfeasance is the work of "a few bad apples" or symptomatic of widespread institutional breakdown. In other words, does the problem lie in the personal character of a handful of dishonest corporate leaders? Or rather in the system of norms, laws, regulations and enforcement mechanisms that should have held crooked chiefs in check?

But this formulation overlooks a crucial area--the institutional mechanisms we use for choosing our corporate leaders. These mechanisms are deeply flawed and may be the real explanation we seek.

Despite the near-obsession with "leadership" in the pages of business publications, our current system of CEO selection is designed to produce chief executives who are leaders in only a very limited sense. The CEOs of many of today's publicly owned companies are chosen not for their possession of business skills and experience relevant to a particular firm or industry, nor for their ability to act as responsible fiduciaries on behalf of shareholders.

For the past two decades, and particularly the most recent one, CEOs increasingly have been chosen for their ability to articulate messianic "visions" for their companies; inspire employees to do whatever it takes to realize these grand designs; and imbue investors with faith in their own talents. Charisma--a quality once associated with religious and political leadership--has become the primary qualification for the CEO's job. Lee Iacocca of Chrysler was the first charismatic figure of the current era in corporate leadership. A list of more recent examples would include Jack Welch of GE and Lou Gerstner of IBM as well as such now-reviled ones as Enron's Jeff Skilling and Tyco's Dennis Kozlowski.

While charismatic leadership has proven useful in the religious and political spheres, it is of questionable value in large, complex, publicly owned corporations. Illegal or unethical behavior aside, faith in the vision of a charismatic leader is a poor organizing principle for contemporary firms, which depend on the sharing of intelligence and the dispersal of decision-making authority across all levels.

Charismatic leadership, by its very nature, discourages questioning and criticism from subordinates while undervaluing their contributions to the organization's success. Moreover, the quest for charismatic leaders is directly linked to phenomena such as exorbitant CEO pay and undue deference to the CEO from board directors.

The scandals of the past year highlight some other major drawbacks of importing the charismatic leadership model into corporations. For example, the preference for image over substance that many boards now exhibit actually favors corporate leaders who, owing their ascendancy more to their reputations than to demonstrable achievements, may be willing to go to great lengths to maintain the appearance of success. At the same time, investors' faith in CEOs chosen specifically for their power to elicit it has helped create a climate of credulity highly conducive to fraud.

In response to the antics of CEOs like Skilling, Kozlowski, Adelphia's John Rigas and others, corporate directors are now saying that "integrity" will henceforth rank high on the list of qualifications for the CEO position. No one is against integrity, of course. But if "integrity" becomes--like "charisma"--just another shibboleth for directors focused more on the candidates' individual traits than on concrete skills, the quality of corporate leadership will not improve. Investors and the public at large will be best served not by vision, inspiration or auras of integrity but by level-headed, responsible action.

Well-managed boards will increasingly view the CEO succession process as a matter of defining the skills and experience that a new CEO must have to carry out the firm's strategy, then finding the person who possesses them. For such boards, succession planning will be integrated into a broader process of regularly thinking about the firm's evolving strategy and determining the skills that all top executives need in order to execute the strategy and deliver superior results.

Rakesh Khurana, an assistant professor of organizational behavior at Harvard Business School, is the author of Searching for a Corporate Savior: The Irrational Quest for Charismatic CEOs.

COPYRIGHT 2003 Chief Executive Publishing
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