How Top-Ranked Companies Develop Leaders

Today’s business environment requires dramatically different capabilities than traditional disciplines. Quality, service and innovation are no longer competitive advantages, they are minimum requirements. Unpredictable, globalized competitive forces, game-changing technology innovations and the speed of change itself create powerful and often conflicting pressures for business and its leaders. But it is the CEO who bears the ultimate responsibility for guiding an organization to long-term success.

The fourth annual Global Leadership Research Project — a study of some 300 CEOs and senior HR leaders globally from Chally Group Worldwide, where this article’s author works — spans companies from less than $25 million in revenue to more than $10 billion, and from fewer than 50 employees to more than 100,000. The results produced a ranking of the best companies for leaders.

Long-term Goals, Short-term Needs
Developing leaders isn’t easy. More than one-fifth of study respondents rate their companies as “poor” or “average” at doing so. When asked what challenges stand in the way, the top response was “difficulty balancing long-term and short-term business requirements.” This is followed by “rapidly changing business requirements.”

Both responses could be seen as variations on a theme to keep a long-term focus in the face of short-term change. It is therefore unsurprising that these companies rank “adaptability to change” as the most important quality in a leader. The proportion of firms reporting this as their top priority rose from 54 percent in 2013 to 60 percent — ahead of talents such as communication, vision or strategic thinking.

The pressures on leadership come from every direction. VirtualInstruments CEO and chairman of the board of directors for Microsoft Corp. John Thompson frames the challenge this way: “The real issue for any company is finding a leader who has a view of what optimizes the combination of shareholder returns, employee excitement and long-term competitive sustainability … that is going to require investors to be more patient than they have demonstrated over the last five to 10 years in the U.S.”

On the other hand, responsiveness to shorter-term issues is more critical than ever. Thompson said when leaders think about the real-time nature of the communications between the senior team, employees and customers, the pressure to perform is magnified.

How, then, do leading companies identify and develop leaders with the right qualities? The most widespread practice, favored by 56 percent of companies, continues to be hands-on, high-touch coaching/mentoring. This has been true for all four years in which the research has been conducted. It can range from informal or formal mentoring, to more elaborate peer-to-peer coaching programs, to the use of professional executive coaches.

What all these have in common is the creation of a trust-based relationship committed to supporting others’ efforts to achieve their developmental objectives. The flexibility of the concept may help explain its relatively consistent use among large and small companies surveyed.

A Critical Partnership
By contrast, the next most-favored types of development programs are action learning and developmental assignments (49 percent) and assessment and feedback (45 percent), both of which show a spread of 20 percent or more between large and small firms. Other approaches larger organizations favor include formal exposure to senior executives and high potential programs.

Enterprise-scale companies are more likely to have a formal leadership development organization in place, which can more easily build a robust assessment program or gain support to rotate candidates through developmental roles. Among smaller firms, programs such as cross-functional team projects, external learning opportunities and tuition remission have stronger levels of adoption.

Another finding reveals that one key to business success resides in a single relationship: that between the CEO and the business partner responsible for HR. However, this relationship isn’t always a strong one. Only 66 percent of CEOs believe HR is an effective partner in leadership development.

Some of the variation may come down to individual personalities and working styles. Plus, HR organizations vary a great deal. Perhaps more than other corporate support roles, HR has been notably late to adopt data-driven management methodologies and to run the function like a business within the enterprise. The most modern HR organizations can bring a range of expertise, tools and techniques to the table and make a strong business case for their application. Others are not so sophisticated and have less to offer.

Much also depends on the CEO’s attitude. The survey reveals the more time chief executives commit to leadership development, the higher their level of satisfaction with the partnership will be.

This and other data show the importance of CEO participation in development work. Large-company CEOs spend an average of 29 percent of their time on employee development and 18 percent on their own development, while small-company heads spend 35 percent and 24 percent respectively. Taken together, CEOs spend approximately half their time on development activities — and those from higher-ranked companies spend even more.

The majority of organizations consider attracting, developing and retaining millennials to be either “very important” or “critical.” The ways they choose to focus on this goal vary from conceptual to specific, as the following responses show:

• “Educating ourselves on how to reach this generation.”
• “Developing a more formal career path with advancement opportunities.”
• “Reviewing our policies, benefits and cultural practices to support this age group.”
• “We have bolstered our mentoring program and offer flex and job sharing.”

Deloitte, the No. 1 private firm in the aforementioned ranking, shows the level of commitment and complexity required for a best-practice approach. The company’s efforts begin with millennial-specific recruiting strategies and branding, and continue with a yearlong “Welcome to Deloitte” program.

The program teaches client-management skills, team-building and professional development, largely delivered through a social media environment. According to Jennifer Steinmann, Deloitte’s chief talent officer, “the emphasis is on interactive experiences, including simulations, role-plays, small-group teams — even videogames — and an online New Hire Center with a custom dashboard to track first-year tasks.” Metrics indicate Deloitte’s efforts have been successful. Some 97 percentof new hires feel welcome to the company, and 96 percent report they understood its culture.

Creating Tangible Value
Good feelings matter, but does investing in leadership development really pay off? Apart from their human impact on professional and personal growth, all of the aforementioned programs share the ultimate goal of every business function: to help the business succeed.

One would expect the effects of better leadership to be broad-based and long-term. To measure them, the research looks at the shareholder value created by the companies surveyed. Tracking market capitalization during the 10 years ending in 2013 minimizes the effect of short-term fluctuations. Data showed the Best Companies for Leaders generated far greater market value over that period. While the bottom 15 percent grew by an average of84 percent, reflecting growth in the economy overall, the top 15 percent grew by 200 percent.

Average tenure of CEOs offers another potential measure of success. Best Companies for Leaders winners report a longer CEO tenure on average compared to nonwinners, 4.1 years vs. 3.5. More stable leadership at the top certainly contributes to business results. This is particularly true in light of the disruptions often caused by disorderly CEO turnover: Almost 41 percent of CEOs departing from Fortune 1000 companies leave to “pursue other interests” while 13 percent are described as “terminations and replacements.”

These results also underscore qualities shared by many of the most-admired companies worldwide: a thoughtful focus on the long view and a willingness to make tangible investments in initiatives whose potential benefits are long-term, and whose outcomes may be difficult to gauge using typical business metrics.

The best of the best don’t depend on home-run strategies and silver bullets. Leaders in these companies accept that no one can accurately predict the challenges the future may bring. But they can prepare their successors with the competencies, experiences and resources to drive continued growth and profitability and to embrace whatever the future holds in a constantly changing world.