CHAPTER 1

Leadership Development Has Never Been More Critical

In a world of strident shareholder demand, shifting business priorities,disruptive innovation, rapidly changing demographic and geopolitical forces,regulatory changes, and increasingly competitive business environments, leaderswho envision and execute today's strategy as well as anticipate and prepare fortomorrow's challenges are more critical than ever. Leaders are expected todemonstrate a deep understanding of their organization's business as well as itsproducts and services, master the nuances of global markets, and conductthemselves in ethical ways. They must respond quickly to competitive maneuvers,foster innovation, communicate a compelling vision, and develop not only theirglobally distributed teams but also the next generation of leaders, all whiledelivering long-term value measured by short-term results. Becoming such aleader is like reaching the Mt. Everest of leadership development—andattainment is elusive. The results of failure to produce such leaders are oftenpublic, usually pronounced, and always profound.

Yet, strong leaders can be developed if organizations, businessleaders, and those who head leadership development functions create the systems,processes, leader involvement, and accountability that are crucial to success.Some organizations seem to have reached the summit. Others struggle against thevertical climb. Still others remain unable to gain a foothold. It's not going toget any easier.

What Do We Mean by Leader, and How Do We Define Success?

What makes an effective, successful leader? What does it take to be successful,and how is that success determined? Is the success to be evaluated quarterly andbased on results delivered to the satisfaction of analysts and shareholders? Isit to be judged by results delivered during the tenure in the role, over thecourse of a lifetime of leadership, or ultimately by the future success of thecompany, business unit, or team after the leader has departed? What role doescharacter play in this examination of business impact? What characteristics andcompetencies of a leader distinguish the "best" from the merely "very good"?

As a core criterion, the expectation of leaders has always been to "get the jobdone" by managing assets and people. Often missing has been a more holistic viewof the process in terms of how to motivate, engage, reward, and lead employees.

Twentieth-century research began to crystallize the way effective organizationalleaders are viewed and subsequently developed. Few depictions of effectiveleadership have withstood the test of time as well as that of Peter Drucker, whoarticulated the eight core practices of the effective leaders he worked withover a 60-year career. According to Drucker, effective leaders:

1. Ask, "What needs to be done?"

2. Ask, "What is right for the enterprise?"

3. Develop action plans.

4. Take responsibility for decisions.

5. Take responsibility for communicating.

6. Are focused on opportunities rather than on problems.

7. Run productive meetings.

8. Think and say "we" rather than "I."

As he saw it, these questions "gave them the knowledge they needed ... helpedthem convert this knowledge into action ... [and] ensured that the wholeorganization felt responsible and accountable."

One researcher answered the question by offering that in addition to IQ andtechnical skills, these emotional intelligence attributes characterize the trueleader:

1. Self-awareness

2. Self-regulation

3. Motivation

4. Empathy

5. Social skill

Another offered a profile of Level 5 leaders who credit others with success yetassume personal responsibility for failure. These leaders are characterized byhumility and a will to succeed that does not tolerate mediocrity; they arequietly and calmly determined to succeed.

Over the years, we've seen the "one-minute manager" joined by the "situationalleader" and the "servant leader" and by those leaders who are values driven,principle centered, or searching for "true north." While definitions willundoubtedly continue to evolve, the fundamental description of a leader as onewho delivers results in a way that affirms, engages, inspires, and respectsothers is unlikely to fade from view.

Why Is Effective Leadership Critical?

Effective leadership is critical to the success, and often the survival, ofcorporations. In recent years, we have witnessed the demise or serious cripplingof companies because of the inability of leaders to competently and ethicallylead, creating a breach of trust with the public as well as with employees.Newspaper headlines and, in some cases, high-profile trials remind us of thefailures of leadership. They are not confined to a particular region orindustry, as scandals surrounding such companies as WorldCom, Satyam ComputerServices, Adelphia, Parmalat, Tyco International, Clearstream, Enron, GlobalCrossing, and Arthur Anderson can attest. While most companies are not in theheadlines for their leadership failures, they are all accountable forbusiness results.

CEOs Care About Leadership

In the wake of a crushing global crisis, companies and their leaders areshifting from survival mode to a business growth approach. It is no wonder thatleadership development was on the minds of CEOs around the world when theyresponded to the Conference Board's annual CEO Challenge survey. When asked torank their top challenges for the coming 12 months, they ranked business growthfirst. The surprise was that, after an absence from the 2009 and 2010 "top 10"findings, talent emerged as the second most important global challenge; AsianCEOs ranked it number one, ahead of business growth. CEOs thought talent,innovation, and cost optimization would fuel business growth. When asked aboutthe strategies CEOs would implement to address the talent challenge, these werethe top 10:

1. Improve leadership development programs; grow talent internally.

2. Enhance the effectiveness of the senior management team.

3. Provide employee training and development.

4. Improve leadership succession planning.

5. Hire more talent in the open market.

6. Promote and reward entrepreneurship and risk taking.

7. Raise employee engagement.

8. Increase diversity and cross-cultural competencies.

9. Flatten the organization, and empower leadership from the bottom up.

10. Redesign financial rewards and incentives.

Even a cursory read of the top strategies indicates a focus on internalleadership (improving the existing internal leadership base, especially at thetop of the house; up-skilling all employees; improving leadership succession)before fighting for talent in the open market. In Asia, where talent was scarcebefore the global financial crisis, "hiring more talent in the open market" wasranked eleventh, with an internal development and retention focus beingpreferred, as qualified talent is both scarce and expensive. Asian leadersunderstand that they must build leaders faster than the global competition. Twothings distinguish the approach of Asian companies: (1) attention to thespecific developmental needs of the individual leader and (2) the speed withwhich they accelerate the development of key talent through experience,exposure, and custom training programs.

Customers and Consumers Care About Leadership

We live in an age where maintaining an organization's reputation and brandmanagement is a constant challenge. Of the many ways corporate reputations aremade and lost, few are more important than the quality of their leaders.Consumers are negatively influenced by headlines of errant and unethicalbehavior and positively influenced by lists of most-admired companies,especially those touted for their strong managerial practices. Consumers andcustomers have strong brand affiliations, product dependencies (e.g.,prescriptions or replacement parts), and business affiliations that would bedifficult to replace, and they take note of leadership behaviors. Knowing thatraw materials are harvested in a sustainable way, that clothing is notmanufactured by the use of child labor, that executives are not "tone deaf" tothe average citizen, and that the stock market is still a fair and level playingfield is important to consumers. In a world of choices, they will providefeedback by remaining loyal to a brand or by choosing a competitor foressentially the same product. They often share their thoughts and feelings amongthe members of their social networks with messages and postings that seem tonever fade from the Internet.

Shareholders Care About Leadership

Those shareholders whose investment dollars and pension funds balance on theedge and are subject to mismanagement, lost revenue, and missed opportunitycosts pay close attention. They are looking for superior returns and believethat those returns are the result of well-run companies led by ethical leaders.Analysts agree. There is mounting evidence of a direct correlation betweeneffective leadership and business results. In their examination of CEOperformance at publicly traded companies, researchers found that the "best-performing CEOs in the world" came from many countries and industries, and, onaverage, those CEOs delivered a total shareholder return of 997 percent(adjusted for exchange-rate effects) during their tenure. On average, these top50 CEOs increased the wealth of their companies' shareholders by $48.2 billion(adjusted for inflation, dividends, share repurchases, and share issues).Compare that to the 50 CEOs at the bottom of the list who delivered a totalshareholder return of -70 percent during their tenure and presided over a lossof $18.3 billion in shareholder value. Industry, country, and economic factorswere accounted for, and each CEO's background and the situation he or sheinherited were certainly factors in judging success. Many on the list ofsuccesses are familiar names; numerous others are relatively unknown but tend tobe selected internally and have served longer in the role than the currentaverage tenure of CEOs.

Internal Stakeholders Care

In an era of increased scrutiny of virtually all expenditures, accountabilityfor the development of leaders, particularly at the top, will only increase.Significant resources continue to be devoted to developing leaders. The AmericanSociety for Training & Development (ASTD) estimates that, even in the midst of aglobal financial crisis, U.S. companies alone spent just under $126 billion peryear on employee learning and development; slightly more than 10 percent of thatexpenditure was devoted to developing leaders and managers, and an additional 4percent was expended on executive development. The inability to determinewhether or not resources have been expended wisely cannot be sustained in mostcorporate environments, even when we intuitively believe that leadershipdevelopment (along with all employee development) is a noble pursuit.

Current and Prospective Employees Care

Effective leaders create a culture that serves as a magnet for attracting toptalent. With each generation entering the workplace, a greater emphasis isplaced on continual development as these new employees know that they areunlikely to stay more than a few years; it's about what they can develop andacquire to take to the next stop in the career journey. We know that effectiveleaders are one of the most important influences on levels of engagement. Recentresearch reaffirms the correlation between engagement and the leaders' abilityto:

• Develop a positive and significant relationship with each employee

• Provide constructive performance feedback often

• Coach employees

• Provide opportunities to grow and develop

• Set a clear direction—at whatever level is appropriate

• Communicate not only corporate strategy goals but also progress toward thosegoals

• Act in ways that are consistent with words

Higher rates of engagement translate into higher rates of retention, animportant factor in retaining talent in an increasingly competitive job market.In a world in which fewer than one in three employees is engaged, trust inexecutives can have a significant impact on engagement.

Other Stakeholders Care

In an increasingly interconnected world, there are many stakeholders whosefortunes and fates are inextricably linked to successful leaders and theleadership development (LD) programs that create and support them:

• The families of employees who have offered their talents and energy in returnfor current compensation and, in many cases, future retirement and security

• Taxpayers called upon to "bail out" specific companies, as well as entireindustries when economic stability hangs in the balance

• Industries that are enhanced by the reputation for good stewardship byoutstanding executives or forever tarnished by the action of a few highlyvisible transgressors

• Communities that stand to be the beneficiaries of business profits that arepoured back into the community in the form of goods and services purchased fromlocal companies, as well as scholarships, endowments, and sponsorships

• National governments whose ability to gather tax revenue from profitable,well-run companies can mean the difference between national solvency andnational bailouts

Current Status of Leadership Development

There is no doubt that leadership development is important, and it has changeddramatically in the past decade. Starting many years ago as typical classroomtraining on the principles of leadership, it has evolved into a critical part oforganizational growth and development. How leaders are selected for programs andthe specific ways in which programs are offered and structured are significantissues that define the current status.

How Leaders Are Selected for Development

Because leadership development can be one of the most expensive types ofdevelopment (multiples of 4 or 5 times the expenditure made for other employeesis not uncommon), selection is usually a thoughtful process.

At higher levels in the organization, participants in LD programs are oftenselected by one or a combination of the following methods:

• Nomination by a manager

• Cumulative data from performance management systems and/or past talent reviewdiscussions

• Assessment results

• Individual assessment (including a 360-degree instrument and/or psychologicalprofiles) and custom developmental plans based on the outcomes of thatassessment

• Participation in an "assessment center" exercise

• Testing (the test needs to be subjected to validity and reliability checks todetermine the value of administration)

• Behavioral or structured interviews

At lower levels, participants are often "selected in" versus "screened out" andenter into an LD program by virtue of a promotion or a change in job title. Forexample, all new supervisors may be automatically enrolled in a particularprogram.

How Leaders Are Developed

Lewis Carroll, in Alice's Adventures in Wonderland, wrote: "If you don'tknow where you are going, any road will get you there." This is also true withleadership development. Unless there is a clear road map, it is indeed a lovelyjourney but one without a destination or committed travelers. The methods fordevelopment are varied, and many are combined into programs and initiatives ofinfinite variety:

• Formal training usually in a classroom (a virtual or "brick-and-mortar" one)

• Informal learning including self-guided or structured content (books, onlinelearning, audio/video podcasts, etc.)

• Action learning (with a focus on strategic planning or innovation)

• Job shadowing

• Coaching (either internal or external)

• Mentoring

• Experiential learning

• Stretch assignments

• Simulations

• Community involvement

• "Community of practice" or network involvement

• Short-term rotational assignments

• Long-term international assignments

Years ago, researchers created assignmentology, a way of mappingstandard leadership competencies to specific opportunities for development, suchas serving on a taskforce, chairing a major initiative or assuming a role with agreatly expanded scope. The science of knowing what developmental experienceswill result in specific competency improvements (and, by extension, what willnot) is an extraordinary global positioning system in a world of increasinglyfewer marked paths.

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