Monday, August 18, 2014

Designed to Fail: Upper Management Leadership

Startling statistic: Depending on the source, the average CEO tenure is 4.6 - 7.6 years. I've not found what the standard deviation is, but let's assume is roughly 2 years. If the average truly is under 5 years, and a standard deviation of 2, with a normal distribution, then one out of six CEO's don't make it past 3 years of service. And only one out of six exceed 7 years of service.

Most leadership gurus describe good/great leadership as being transformational rather than transactional. Jim Collins describes level 5 leaders taking their companies from good to great because their identity is wrapped up with the organization rather than self-aggrandizement. Transformational leaders have a value or principal basis and rely on intrinsic motivation. “Transformational leaders initiate and sustain a process of partnership in and through which leaders and followers and the entire community experience increasing levels of congruity between the vision and values they espouse, and their character, capacities and conduct” according to another researcher M.W. McCloskey. Transformational leaders find ways to help their organizations or be less of a hindrance to the team’s success. As a subset of this leadership style is servant leadership. As Patrick Lencioni said at the recent Global Leadership Summit, "I'm tired of hearing about servant leadership. There is no other kind of leadership. This is the only true leadership."

Transactional leaders have a contractual basis and rely on extrinsic motivations. They usually motivate with a whip (demotion, cut in pay, termination) or a bribe (incentive, bonus, award, plaque, etc.). They are not in their position to serve but to get the job done.  If they desire organizational success or success of others, it is so they can ride the coattails and further their own career, prestige and monetary rewards. Transactional leaders tend to run 'fad of the month' programs to create organizational change rather than the organic, cultural changes driven by transformational leaders.

A new CEO coming into the position is going to start out transactional. They don't have the time to work transformatively. By the time, they've figured out who to trust, who to rely on, how to unleash their group's potential by understanding their strengths and intrinsic motivations, they're about done with their tenure.

Therefore, dear board director, don't think you can transform the organization by bringing in a new CEO. It might be better to try to develop and modify the leadership style, if you can, of the person you have in the position.

Worse is this advice:

According to the study, the average CEO holds office for 7.6 years, but the optimal tenure length is 4.8 years.

Here's the context:
The study's authors found that the longer a CEO serves, the stronger the firm-employee relationship becomes. However, an extended period with the same CEO results in a weakened firm-customer relationship over time.  According to the study, the average CEO holds office for 7.6 years, but the optimal tenure length is 4.8 years.  One of the study's authors, Temple marketing professor Xueming Luo, said as CEOs accumulate knowledge and become entrenched, they rely more on their employees for information, growing less attuned to market conditions and customers.
The article describes how the CEO's source of information shifts from external to internal. Perhaps they found this in the study. If so, then our CEO peers are operating incorrectly. They need to remain customer-centric and in touch with the marketplace. Reducing the CEO's tenure is the wrong way to ensure this. Instead, this policy will create dysfunctional organizations as the helm is headed by different people every four years or less.

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