What You Don't Know Will Hurt You: 3 Top Skills Leaders Need To Learn Today

By Marcel Schwantes

Principal and founder, Leadership From the Core@MarcelSchwantes

In my line of work, I will admit that not all leaders and owners have reached a visceral understanding of the potential of people. But those that do see it as their responsibility to help others grow towards their full potential.

Exceptional leaders shine the spotlight on their people by developing them -- a key retention strategy that will give you competitive advantage.

But how? I can think of no better way to developing your own tribe than implementing these simple strategies as soon as you can:

1. Provide opportunities for learning and growth.

What you'll find in most healthy organizations is a high commitment to growing their employees.

If you happen to work in such an environment, you'll probably notice a strong bond between top leadership, training and human resources functions working together to:

• Identify their employees' gifts, talents, and strengths for the best job fit so that they can reach their potential.
• Champion a "learning spirit" within the organization, sending a clear message that "growing our people is one of our highest priorities."
• Give meaning and purpose to the employees' work, adding further motivation.
• Provide ongoing training, coaching and mentoring opportunities that are aligned with job purpose, performance measures, best-in-class customer service, and fulfilling the organizational mission.

2. Build up others through encouragement and affirmation.

Gallup Organization researchers spent decades accurately measuring employee engagement, which resulted in their Q12 Engagement Survey. They have interviewed more than 25 million employees around the world to find the core of a great workplace.

The 12 questions are designed to be posed to employees. And from the perspective of the employee, many of the questions, I will submit to you, point to the principles of encouraging and affirming employees to be the best they can be.

The results can also be boiled down to 12 "look-in-the-mirror" questions that every leader can ask to understand how their companies measure up on the key elements needed to keep their most talented employees.

If you're a manager, and your employees were asked the following about you, how would you do?

• In the last seven days, have I received recognition or praise for doing good work?
• Is there someone at work who encourages my development?
• At work, do I have the opportunity to do what I do best every day?
• In the last six months, has someone at work talked to me about my progress?
• This last year, have I had the opportunity at work to learn and grow?

The research also makes a strong business case for growing leaders in management roles.

Employees who responded more positively to these questions worked in business units with higher levels of productivity, retention and customer satisfaction.

The opinions formed by employees pointed to their immediate manager as the critical player in building and maintaining a great workplace.

Once again, as the old saying goes, people leave managers, not companies.

3. Have honest conversations during the onboarding process.

First of all, if you're new to onboarding, we're not talking about an HR orientation during the first day or week of hire. Effective onboarding is a management responsibility that can extend three-to-nine months after a hire date, sometimes longer.

Research is saying that a typical employee's mind isn't made up about staying or leaving a new company until month six!

I want to bring out some key questions that every leader should ask to find out if you are doing the things that lead to a great new hire experience.

These questions are meant to trigger a response for you to be more intentional about having conversations that lead to high employee engagement during those crucial first few months.

• Do you as a leader/manager engage your new hires in "How can we/I help you with your professional development interests?" conversations in the first month?
• Do you as a leader/manager engage new hires in conversations about what motivates them within the first 1-2 weeks of employment?
• Do most of your employees have development plans? If so, do these plans get discussed periodically one-on-one?
• Are you, as leader/manager, actively helping employees to advance their plans by talking with them?

Slow Deciders Make Better Strategists

 

There are many ways to split people into two groups. Young and old. Rich and poor. Us and them. The 98% who can do arithmetic and the 3% who cannot. Those who split people into two groups and those who don’t. 

 

Then there’s the people who make good competitive-strategy decisions, and those who don’t. 

 

It’s not easy to split people into the good/bad strategy decision-makers. Track records are useful but they’re not unambiguous, and those getting started have no track records at all. General intelligence and business degrees seem to be good signs, but smart people with business degrees don’t agree on what works in strategy. Veterans with specific industry expertise look promising, but so do outsiders with new ideas. 

 

What about mindset? We know people put credence in confidence. However, it seems to me there’s a difference between someone who’s confident after laboring over a thoughtful decision and someone who’s confident with a snap judgment. It seems to me there’s a difference between someone who’s unsure after serious contemplation and someone who’s unsure about a quick pick. 

 

Imagine that we can record decision-makers’ solutions to a competitive-strategy problem. We also ask how confident they feel that they’ve found a good answer and how long it took them to find it. We can categorize them, then, like this:

I’ve got such a database of people, those who have entered the Top Pricer Tournament. The database includes business executives, consultants, professors, and students. I gave all of them the same unfamiliar but straightforward pricing-strategy problem.

Dozens of Tournament entrants said they were very confident in their strategies after making a fast decision, dozens said they were very confident after a slow decision, and so on. The phrases in the boxes are how I interpret the mindsets of the people in those boxes. In the analysis below I’ll leave out the respondents in the “I guessed” box because they seem unrepresentative of what happens in real life, where strategists work at strategy decisions until they’re confident in their answers or they’ve worked long enough to conclude they’re not going to make further progress.

In general, the I-already-knows, confident in their snap judgments, and the Now-I-knows, confident after pondering, tend to be older males. Male business students are also represented in the I-already-knows. The I-don’t-knows, unsure of their thoughtful decisions, tend to be somewhat younger. And females make up well over half of the I-don’t-knows, a much higher percentage than in the other mindsets.

Make your prediction: which of the three styles selected the best-performing Tournament strategies?

The best-performing group: the I-don’t-knows.

Perhaps it’s about age: we gain confidence over time, but maybe not skill. Perhaps it’s about gender: rather than the conventional wisdom that females don’t have enough confidence, maybe males have too much. I don’t have enough data yet to assess those hypotheses. And perhaps the results will change as the sample sizes grow.

Still, the I-don’t-knows’ success fits my business war-gaming experience.

In one case, the new vice president of a troubled business brought together about thirty managers, each with decades in the business. The managers considered the war game an amusing waste of time. They all knew the answer already, they said, and no other options were possible. Then, role-playing their business and its competitors, they discovered that their already-known answer simply would not work. The manag­ers suddenly found new options. We war-gamed one, and it worked, and they rolled it out in real life, and it worked.

The new VP got promoted.

It’s not that the managers didn’t care or were incompetent; it’s that they were overconfident. When you think you know the answer, you sincerely believe it’s a waste of time to keep looking for it. It feels like continuing to search for your keys after you’ve found them.

I think the essential lesson for competitive-strategy decision-makers is not so fast, in both senses of the phrase: take your time and don’t be so sure. That’s the mindset used by the new VP and the I-don’t-knows.

The willingness to apply that mindset is what separates the good decision-makers from the bad.

---

Mark Chussil is the Founder and CEO of Advanced Competitive Strategies, Inc. He has conducted business war games, taught strategic thinking, and written strategy simulators for Fortune 500 companies around the world.

You are not a leader until....

4 Essential Steps to Building a Customer-Centric Model

Ed O’Boyle

By Ed O’Boyle and Amy Adkins 

Customer engagement represents the emotional and psychological attachment between your company and your customers. It is vital to business growth and vitality, and can accelerate your company’s revenue, sales, profitability and share of wallet. 

Every B2B leader we’ve worked with understands the importance of customer engagement and has a strategy in place to improve it. Yet a recent report from Gallup has found that B2B companies have only managed to engage 29% of their customers. Where’s the disconnect between strategy and outcomes?

The very best B2B leaders we’ve worked with take a customer-centric approach to engaging customers. This approach puts their customers at the core of everything and is about more than focusing on customers or having a defined customer experience. We believe that customer centricity provides the surest path to customer engagement.

Although an increasing number of B2B companies realize they need to be customer-centric to compete in today’s market, not all have figured out how to put this model into use. We have found that developing a customer-centric model essentially comes down to four phases: Discovery, Diagnostic, Analytic and Sustainment. Within each of these phases, there are also common tasks that companies can follow to understand and act on the voice of the customer. 

1. Discovery: This phase involves an evaluation of the current state of your customer relationships. Some of the tasks associated with this phase include:

• conducting stakeholder analyses to identify the current customer landscape
• identifying your organization’s needs and priorities
• exploring your existing world, including account structure, the language and culture of your organization and any prior metrics used to evaluate customer relationships to date
• building or refining a customer engagement strategy
• creating a customer list and relationship map

2. Diagnostic: This phase incorporates qualitative and quantitative analyses. Some of the tasks associated within this phase include:

• conducting a key account review
• gathering key account review findings to make insights into customer accounts
• using key account review insights to make recommendations
• sharing best practices based on insights and recommendations
• carrying out an ethnographic study of customers
• identifying key priorities for customers

3. Analytic: This phase encompasses the findings and insights from the Discovery phase to identify the key drivers of the customer experience and how your company is performing on those key drivers. Some of the tasks associated with this phase include:

• identifying the key drivers that propel the customer relationship forward
• gauging the company’s success with the key drivers
• linking the key drivers to customers’ key priorities and conducting a gap analysis
• making connections among the findings of the Discovery phase

4. Sustainment: This phase pinpoints specific steps to take to improve your customer experience. Some of the tasks associated with this phase include:

• creating an action plan to transform the customer experience
• identifying quick wins for ways to improve the customer relationship
• implementing a results communication strategy across your organization
• communicating progress with customers to ensure they understand your organization’s efforts to improve the relationship

Of course, there is one predominant factor in a customer-centric model: people. It is critical that every employee understands what customer centricity means for your business and how they can deliver on it. This applies to your employees at all levels, including leaders, managers and individual contributors.

Leaders: Leaders must hear the voice of the customer to improve the company’s relationship with the customer and to improve business outcomes. They must take accountability for generating a holistic culture shift and for creating processes to build strong, vital relationships that support business results. 

Managers: Managers are in the best position to set the tone for improving customer relationships by targeting the key drivers that best link to customers’ overall experience.
Individual contributors: Individual contributors who work day in and day out with client contacts are the face of your organization. Helping individual contributors understand the importance of improving the customer relationship is the ultimate catalyst for creating change. 

As your company moves through the four phases outlined previously, you must provide employees with the education, training and tools they need to play their part in the customer experience. For example, during the Discovery phase, your leaders should develop an in-depth understanding of customer engagement and impact, and how both work to strengthen customer relationships. Or, in the Diagnostic phase, your managers should attend a course or similar training to learn how to set up their account teams for success. 

Ed O’Boyle is Global Practice Leader, Workplace and Marketplace at Gallup. Amy Adkins is a Writer and Editor at Gallup.com.

Ed O’Boyle

Gallup

As Gallup’s Global Practice Leader, Ed O’Boyle oversees strategic vision for the company’s Workplace and Marketplace practices. He is responsible for turning ideas into innovation using Gallup’s leading-edge science and discoveries as a guide. Ed was instrumental in developing the company’s B2B framework, which empowers clients to achieve exponential increases in performance through customer engagement and impact.

Managers & Leaders light a fire

7 Signs of Weak Leadership

It’s vital to understand that just because someone is in a leadership position, doesn’t necessarily mean they are meant to be in it. Put another way, not all leaders are born leaders. The problem many organizations are suffering from is a recognition problem – they can’t seem to distinguish the good leaders from bad ones. 
Here are a few key behaviors that beset a weak leader: 

1. Their team routinely suffers from burnout
Being driven and ambitious are important traits for successful leaders. However, if you are excessively working your people or churning through staff than you aren’t effectively using your resources. You may take pride in your productivity, in doing more with less. However, today’s success may undermine long-term health. Crisis management can become a way of life that reduces morale and drives away or diminishes the effectiveness of dedicated people. With any business, there are times when you have to burn the midnight oil but it should be accompanied with time for your team to recharge and refuel. 

2. They lack emotional intelligence
Leaders who are weak are always envious of other peoples' successes and are happy when other people fail. They see themselves in fundamental competition with other executives and even with their subordinates. Such envy is a root cause of the turf wars, backbiting, and dirty politics that can make any workplace an unhealthy one. 

3. They don’t provide adequate direction
Failing to provide adequate direction  can frustrate employees and will hinder their chances at completing tasks correctly and success. Poor leaders might not tell employees when a project is due or might suddenly move the deadline up without regards for the employee who's doing it. Project details can also be vague, making it difficult for staff to guess what factors the leader considers important. If a project involves participation from more than one employee, a poor leader may choose not explain who is responsible for what part. Good leaders provide adequate direction and are always there to provide descriptive feedback when it is needed. 

4. They find blame in everyone but themselves
Weak leaders blame everyone else for their mistakes and for any mishaps that happen to them and their division/company. Every time they suffer a defeat or a setback, a subordinate is given the talk down, or worse, an axe. Great leaders don't do this and they always stay positive no matter what the circumstances are. They are accountable for the results and accept full responsibility for the outcomes. 

5. They don’t provide honest feedback
It is very difficult for weak leaders to give the honest messages or constructive feedback to their subordinates. When they have to say something negative to someone, it's always someone else, usually a superior, who has told them to do.  By that time it is to late and the leader hasn't really identified the problem before it reached the climax. They also make it a point to let the individual know that it's not their idea. Good leaders speak from the heart and provide honest feedback that is backed up by facts. They never wait for superiors to identify problems for them. 

6.  They're Blind To Current Situation
Because weak leaders are egocentric and believe that their way is the only way, their followers are afraid to suggest anything new. Those who follow such leaders only give them praise or the good news. Such appreciation only gives a boost to their status and ego and the leader is left clueless as to what the current situation is as well as the changing trends in the marketplace. 

7. They're Self-Serving
If a leader doesn't understand the concept of “service above self” they will not retain the trust, confidence, and loyalty of their subordinates. Any leader is only as good as their team’s hope to be led by them. Too much ego, pride, and arrogance are not signs of good leadership. Long story short; if a leader receives a vote of non-confidence from their subordinates…the leader is a weak one.

Written by

Aleksandr Noudelman

My Leadership Fails: 4 Horrible Bosses & 6 Healthy Habits

"People don't leave companies - they leave leaders!" Greg Savage

Did you know that we spend 34% of our lives (approximately 228,708 hours!) at work? Given how much time we invest in our work it is important to be in a job we are happy with, and even more important to have a Champion Boss (or be a Champion Boss if you are a manager yourself!). 

Horrible Bosses: Four Leadership Patterns to Avoid
We all know what it is like to have a Horrible Boss – either through firsthand experience or through friends and colleagues. Check out these four common types of horrible bosses: 

The 'Laissez-Faire' Leader
Laissez-Faire is a French term which translated means: “let it be” or “let them do as they will”. With this definition in mind you can easily imagine the dysfunctional leadership characteristics of the Laissez-Faire leader. Their preference is to avoid responsibility and not interfere with anything either above or below them in the organisational structure. In management meetings they avoid sharing their opinions and go with the status quo. When interacting with their staff they do not provide feedback, do not follow-up on requests for help, do not communicate their views about important issues and remain vague and elusive.

The impact of this style of leadership on staff is quite destructive, with increased withdrawal behaviours among staff who show low discretionary effort and poor performance, eventually leading to complete disengagement and team dysfunction.

The 'Popular' Leader
The popular leader may not initially seem like a dysfunctional leadership style. Popular leaders are, by definition, focused on being ‘liked’ by their staff. As such, their leadership style has some upsides, namely high support and a very strong focus on positive interpersonal relationships.

However the downsides of a popular leader are low focus on core business, neglect of performance management, avoidance of tough conversations, and a team vs corporate or ‘us and them’ mentality. The impact on staff working with a popular leader is initially positive with high discretionary effort among staff to follow directions. However, the over focus on relationships and the lack of focus on core business invariably leads to poor team performance. Instead of addressing the issues, the popular leader engages in upwards bullying by blaming other teams and more senior leaders for issues rather than taking responsibility and accountability.

The 'Command and Control' Leader
Command and Control Leaders, as the name suggests, take the necessary management responsibility of organising and directing teams to unhealthy and extreme levels. The one redeeming characteristic of a Command and Control leader – high clarity – is completely overwhelmed by the negative characteristics of low perceived support, low engagement, poor communication, neglect of developmental feedback, and an over-emphasis on corrective feedback. The impact of this dysfunctional leadership style on the team is vast and includes a stigma about reporting personal problems, low discretionary effort, low innovation, increased withdrawal behaviours, fear, intimidation and conflict.

The 'Follow The Rules' Leader
What’s wrong with a leader following the rules, I hear you say? Nothing at all – unless of course it is taken to the extremes and becomes the only focus of leadership activity at the neglect of everything else. The ‘Follow The Rules’ leader is characterised by a strong focus on rules and procedures, low perceived support, a reactive people focus, high clarity, everything is black or white, and low engagement. When under pressure, they tighten adherence to the rule.

The impact of this dysfunctional leadership style on staff includes a reluctance to report problems, low discretionary effort, low innovation, increased withdrawal behaviours, harassment and conflict. 

Champion Bosses: 6 Healthy Leadership Habits
While many of us may have had to work with one or more horrible bosses in our careers, we may have also worked with several Champion Bosses but in all the mayhem and confusion of work and life may not have realised it at the time.

A Champion Boss isn’t necessarily a boss who gives you everything you want but rather a boss who can bring out the best in you at work and make the workplace both engaging and profitable for the whole team. Champion Bosses are able to both (1) drive team performance and (2) effectively support staff by engaging in 6 Healthy Habits. 

6 Healthy Habits for Champion Bosses
There are 6 Healthy Leadership Habits of Champion Bosses. 3 Habits help drive team performance and the other 3 Habits assist in effectively supporting staff. 

Healthy Habits To Drive Team Performance

Healthy Habit No 1. Communicating Vision & Strategy
Champion Bosses have a great ability to regularly and clearly communicate to team members the short- and long-term vision and strategy of the organisation at both a global and team-specific level. 

Healthy Habit No 2. Showing Credibility & Getting Results
Champion Bosses are able to effectively demonstrate their own competence and to perform their role and get the team to deliver credible results at both the team and organisational level.

Healthy Habit No 3. Providing Feedback & Development Opportunities
Champion Bosses are always on the look out for opportunities to give and receive both positive and constructive feedback as well as provide developmental opportunities to team members in a way that is fair and equitable to all.

Healthy Habits To Effectively Support Staff

Healthy Habit No. 4. Being Trustworthy
Champion Bosses are able to create an environment of honesty and trust by being an effective listener and never sharing in any negative gossiping. By being trustworthy, Champion Bosses help team members openly share their needs and concerns.

Healthy Habit No. 5. Providing Motivation & Encouragement
Champion Bosses have a great ability to motivate and encourage team members based on their individual needs and preferences. They are great at knowing what makes each individual ‘tick’ and can use friendly nicknames, jokes, small talk, and have goal driven conversations to make people feel encouraged and motivated at work.

Healthy Habit No 6. Supporting People’s Career & Personal Goals
Champion Bosses take the time to understand the career and personal goals of their team members and then provide feedback and support to help them when opportunities emerge. 

Champion Bosses: What healthy habits does your boss have?
If we take a good hard look at our leaders (and ourselves) it is easy to find fault but not always as easy to see the Healthy Habits our Bosses may already have. It is just too easy to cut down the tall poppy when they try to change for the better, or crush the seeds of hope when only a few redeeming features may be evident.

One of my all time favourite sayings is about seeing the glass half full rather than half empty. I always try to encourage people to focus on the positive characteristics of their bosses. So take some time now to reflect and ask yourself the following questions:

How many different bosses have I had over the years and how would I rate each boss in terms of the 6 Healthy Habits to Drive Performance and Support Staff?

Focus on my current boss: (1) What habits are they already a Champion in? When was the last time I gave them some positive feedback about this? (2) What areas do they need to improve on and how could I support and encourage their Healthy Habits?

Focus on myself as a Boss (whether you are currently a Boss or may one day become a Boss): what are my strengths and development opportunities across each of the 6 Healthy Habits of a Champion Boss?

By taking the time to assess and support the 6 Healthy Habits of the Champion Bosses around you, as well as setting your own leadership growth goals, you will be on a path to greater success and happiness in your workplace!

Ride The Waves of Life!

Written by

Dr Pete Stebbins

6 Secrets of Business Leaders Who Built Hugely Successful Companies

 

 

1. Communicate from the inside out.

Simon Sinek, author and CEO of the Sinek Group, believes the most awe-inspiring companies begin with a great leader who regularly asks herself “Why?”

Why are you in business? Why should customers care? Popular brands emanate a strong, purposeful mission statement to their customers. Often, people can live without your product or service, but they consistently do business with you because they support what you stand for, including your vision.

Apple’s latest launch of products illustrates this. Visit Apple.com to learn more about the new MacBook and get caught up in how the company describes its latest offering. “With the new MacBook, we set out to do the impossible: engineer a full-size experience into the lightest and most compact Mac notebook ever.”

Apple engages you with a feeling they are conquering the impossible for the user’s ultimate benefit. The brand prioritizes users’ needs to create beautiful, easy-to-use products. To build a successful business, leaders need to fully understand why they are doing what they do and communicate that to their employees and customers. No gimmicks. No fluff. 

2. Shoot the dogs early.
In 1973, Barbara Corcoran started The Corcoran Group with a $1,000 loan from her boyfriend. By 2001, she successfully scaled and sold the company she founded for $66 million. As a leader, she knew her success depended on the overall happiness and productivity of her team members. To ensure her employees had the best working environment, Corcoran routinely weeded out  the complainers and the laggards who negatively impacted everyone else’s performance.

Each year Corcoran cleaned house and let the bottom 25 percent of her sales staff go. She calls this “shooting the dogs early.” By releasing the poorest performers and those who groan and grumble, she maintained high company morale and ensured she retained the best staff possible. 

3. Walk it out.
When building a business, entrepreneurs often get stuck. Completing a simple task, conceiving new ideas or resolving a small problem can feel tantamount to climbing Mount Everest. To overcome an obstacle, you might just want to take a walk.

According to the New York Times, studies have shown that exercise helps you perform better in areas like decision making, organizing your thoughts and thinking creatively. In the workplace, this can translate in a few ways, the simplest of which is taking a quick walk around the office. Encourage your employees to get up and stretch their legs if they find themselves helplessly stuck on a problem.

You can also encourage walking meetings in your office. The Guardian suggests taking four to six people on a walking meeting to get ideas flowing. Set a time limit of 30 minutes to keep from over-exerting everyone, and offer to buy coffee the first few times you go out. Keep track of all the ideas you come up with on your smartphones. 

4. Be transparent.
As more companies open up about their processes and methods, customers are becoming savvier and hungrier for transparency. Fortunately, transparency does not require you to fork over trade secrets but it does mean being honest about how you conduct business. Your customers want to feel they can trust you. Openness and information sharing helps to build that trust.

Clothing company Everlane takes transparency to the next level. While many retailers disclose where their materials are sourced and what kind of factories they use to make their products, Everlane goes a step further and tells shoppers what the company paid for their materials. Every item has a “Transparent Pricing” section that explains how much the materials, labor, duties, transportation, real cost, and markup is for that particular item, comparing it also against how it would be priced at a traditional retailer. By sharing the economics of each garment, Everlane fosters client loyalty, brand trust and the intimacy companies need with customers to prosper. 

5. Encourage your employees to express their creativity.
Profitable and sustainable enterprises thrive on original thinking while copycat businesses shutter their doors as soon as the idea they have stolen loses its relevance. Since the successful conception and development of viable business ideas takes time and requires a flexible corporate structure, try setting aside a dedicated amount of resources to allow your employees to be creative on their own terms.

Google does this by giving its engineers 20 percent of their time to work on any project they want. This allows team members to develop products they are passionate about. Many times, that means more care and attention goes into each effort. Gmail is the most famous consequence of Google’s generous 20 percent time policy. 

6. Work in small groups.
According to the Small Business Chronicle, small groups allow employees to bring their individual skill sets to the table, which can complement and augment others’ talents. Having multiple perspectives can help the group approach a project or issue from different angles. This enables fresh ideas to emerge and mature.

Whenever possible, encourage your coworkers to collaborate in small groups. Businesses flourish when colleagues partner to conceive, develop and implement new concepts that help the company grow. Often, team members would not be able to produce the same sort of ideas alone. The best products and services are seldom built in a vacuum.

Leadership Lessons from Great Family Businesses

It’s no secret that family businesses can struggle with governance, leadership transitions, and even survival. Consider a few high-profile examples: Banco Espírito Santo was rescued by the Portuguese government last year following the resignation of its CEO, the great-grandson of the bank’s founder, amid allegations of financial improprieties. The Doosan Group, a South Korean conglomerate, was thrown into turmoil when the clan that runs it replaced one brother with another in the chief executive role. Fiat, the Italian auto group run by the heirs of Gianni Agnelli, went through five CEOs and three chairmen in two years before bringing in an outsider to lead it. And in the United States the New England grocery chain Market Basket faced employee protests and lost $583 million in sales as two cousins—one a board member, the other the chief executive, both grandsons of the founder—publicly vied for control of the company.

Although we’ve also heard numerous family-enterprise success stories, cases of harmony, health, and longevity seem to be exceptions to the rule. According to the Family Business Institute, only 30% of these organizations last into a second generation, 12% remain viable into a third, and 3% operate into the fourth generation or beyond. Even those that do continue often see their value decline significantly when power changes hands at the top. Joseph Fan, a professor at the Chinese University of Hong Kong, tracked the market performance of 214 family-run firms in Taiwan, Hong Kong, and Singapore; he found that on average their shares dropped by almost 60% in the eight years surrounding a change of CEO. Leaders of family companies acknowledge the problem. In a survey conducted by the Harvard Business School professor Boris Groysberg and the researcher Deborah Bell, directors of family business boards gave themselves much lower performance ratings than members of nonfamily boards, especially in the area of talent management. Fewer than 10% said their companies were effective at attracting, hiring, retaining, or firing employees or at leveraging diversity in the workforce.

Only 30% of family businesses last into the second generation; 12% are viable into the third.

And yet family-owned or -controlled businesses play a key role in the global economy. They account for an estimated 80% of companies worldwide and are the largest source of long-term employment in most countries. In the United States they employ 60% of workers and create 78% of new jobs. These aren’t just mom-and-pop shops either: In one-third of S&P 500 companies, 40% of the 250 largest firms in France and Germany, and more than 60% of large corporations in East Asia and Latin America, family members own a significant share of the equity and can influence key decisions, particularly election of the chairman and the CEO.

Imagine the benefit, then, if more of these companies mastered key people management, leadership development, and succession practices. How? By learning from the best in their class: large family-owned or family-controlled organizations that have prospered for decades, if not centuries.

With advice from Sabine Rau, a professor at King’s College in London, our firm, Egon Zehnder, partnered with Family Business Network International to analyze 50 of these leading family firms. Each had annual revenue above €500 million, and together they represented all major industries in the Americas, Europe, and Asia. Although we did find a few cases of subpar governance and undisciplined succession at the top, most of these companies offer valuable lessons for unlocking great leadership in family businesses. Through our interviews with both family and nonfamily executives, we uncovered several best practices: The most successful family firms establish good governance as a baseline, preserve “family gravity,” identify and develop both family and nonfamily talent, and bring discipline to top-level succession. 

A Governance Baseline
Family businesses cannot hope to manage internal talent (both family and nonfamily) or attract the best outsiders without establishing good governance practices that separate the family and the business and ensure oversight from a professional board. Even among the leading companies in our study, a quarter of the nonfamily executives we interviewed said they originally had governance-related concerns about joining a family business: uncertainty about levels of autonomy, hidden agendas, lack of dynamism, and the potential for nepotism and irrational decisions. “What would have absolutely stopped me from coming,” said the CFO of a British investment trust, “would have been if I had a feeling that I could not be independent and the family was running the business rather than it being professionally run.” The CEO of a U.S. consumer business who also proceeded cautiously before signing on told us, “I was making sure there was a level playing field in terms of future possibilities, growth, and advancement.”

Only a small minority of the companies in our study had no advisory or supervisory board, but all those were entirely family-owned, and some were considering instituting a form of independent oversight in the future. Meanwhile, 94% of the surveyed firms were controlled by supervisory or advisory boards of about nine members, on average. Family representation on these boards averaged 46% in Europe, 28% in the Americas, and 26% in Asia, but a clear separation between family and business existed in most cases. “We have an official governance structure, and this codifies the boundaries,” reported the nonfamily CEO of a well-known consumer company in the UK. And the CEO of an American maker of high-performance materials explained his firm’s explicit rules: “We have a supervisory board, and each branch of the family tree is allowed to send one member, unless the branch already has a member as part of management. For every family member on the board, one external, nonfamily member is also nominated.”

Good governance is an obvious first hurdle for family businesses that want to hire and keep the best people and compete successfully over the long term. Committing to sound decision-making and management practices is thus essential, whether a company is publicly traded, partly owned by professional investors (such as private equity firms), or completely under family ownership.

 "Family Gravity”
Although family businesses should match nonfamily ones in their governance structures and opportunities for professional growth, they must also be careful not to lose what makes them special. We call this “family gravity,” and our research shows it’s another critical factor in achieving long-term success.

The firms we studied usually have one key family member (but up to three) standing at the center of the organization, like the sun in our solar system. These people personify the corporate identity and align differing interests around clearly defined values and a common vision. They focus on the next generation, not the next quarter. They tend to embrace strategies that put customers and employees first and emphasize social responsibility. And they have strong personalities that draw talented people into their orbits and keep them there. One nonfamily CFO of a Japanese education company told us, “I decided to join because I fully respected [the family patriarch] from my heart.” The nonfamily CEO of a Swedish media business expressed similar sentiments: “I liked the family. They were somehow real people with personalities that were exciting to manage.” Other executives said, “My shareholders have faces” and “The beauty is that we think long term, about the legacy we will leave behind.” When a single family member (or a few who are completely in sync) maintains the right presence in a family business, recruitment, retention, and results clearly benefit. 

Finding Future Leaders
Companies with sound governance and gravity should have no trouble attracting managers—from within or outside the family. But how do you decide who is right for the highest-level positions in your firm? All talent, and especially family members, must be assessed on competencies, potential, and values.

The competencies most frequently required for success at the top of any sizable business include strategic orientation, market insight, results orientation, customer impact, collaboration and influence, organizational development, team leadership, and change leadership. In family businesses you should also look for people who understand the company’s ownership dynamics, accept that responsibility for multiple generations comes with the job, and are able to manage social ventures and sustainable growth. Along with competencies, candidates must demonstrate potential—the capacity to change, learn, and grow into increasingly complex and challenging roles that we might not envision today.

But in the family businesses we studied, values seem to be the acid test. When we reviewed the transcripts of our interviews, we found a 95% overlap in the language that each firm’s family members and nonfamily executives used to describe their corporate ethos: words such as respect, integrity, quality, humility, passion, modesty, and ambition. “We are working on the same page, in the same way, and he understands my commitment to bring the company forward,” the nonfamily CEO of a German retailer said, referring to the group CEO. The family chairwoman of a Chinese consumer company reported, “We have the same values, the same vision. We trust each other.”

Family members told us that when evaluating senior executive candidates, they considered cultural fit above all else: “He did not have all the operational requirements the board had asked for on paper, but he had so much more!” said the family chairman of an Indian consumer business, describing his nonfamily CEO. “He is the kind of person who just fits into our culture, and that is more important than the role spec.” The family chairman of an American beverage company echoed those sentiments: “We evaluate people on the basis of leadership qualities, which extend to the interaction with the family. That includes their values, which is very different from a résumé that says this person built up the Russian business.” 

About the Research

The businesses we surveyed were among the top three in their respective geographic markets and industries, with at least 50% of voting rights controlled by family members, most of whom were in the third or fourth generation.

Seventy-seven percent of the European companies, 48% of those in Asia, and 33% of those in the Americas were more than three-quarters owned by the family. In most cases, we interviewed at least one key family member and one key nonfamily executive, including 34 family chairmen, 12 nonfamily chairmen, 12 family CEOs, and 31 nonfamily CEOs. The interviews, conducted in person in the local language by Egon Zehnder consultants around the world, were audiotaped, translated into English, and coded. To analyze succession processes, we carefully reviewed the most recent change in top leadership, including the method of identifying the anointed person, the evaluation criteria, the family’s role in the process, family members’ perceptions of the successor, the successor’s view of the family, the first 100 days of integration, and communication with the new leader.

With family executives, in whom cultural fit was more easily found, the key concern was development. More than 40% of the companies in our study included members of the next generation on their boards and committees in order to nurture their business and management skills. Younger family members also held positions such as head of U.S. sales, China country manager, and adviser to the CEO, and they filled roles at various levels in corporate strategy, innovation, product management, and the family office. At one U.S. consumer company, the CEO, a family member, told us, “We very consciously develop family talent with two to six interns every year. The culture used to be, Go out and make it on your own, and come in with a track record. Now there is more encouragement to consider working for the company [from the start].”

The best family firms find their future leaders early and invest in them—whether they are cousins and grandchildren, existing nonfamily employees who show promise, or outsiders with no previous connection to the firm. Likely prospects are carefully brought up through the business so that when they’re ready for more-senior roles, the values and competencies match is a sure thing. “I prefer to hire and grow,” the family chairman of an Indian consumer company told us. A top nonfamily executive at a Chinese business outlined his firm’s approach: “We created a corporate university sponsored by the family, not the company, and educated 100 people at MIT and Stanford to prepare them for management.” 

Disciplined CEO Succession
The greatest threat to any large corporation is a failed CEO succession. In his analysis of once-great companies in decline, Jim Collins, a leading business thinker, found that all but one had experienced a problematic transition at the top, and Joseph Fan’s research confirms the value destruction often seen in such scenarios. If there is one area in which most family businesses could stand to improve, this is it. Even among our exemplary sample, nearly 30% considered only a single candidate for their top succession, and about two-thirds didn’t follow a properly structured selection process. Instead, a leading family member intuitively chose the successor, who was then formally approved by the supervisory and management boards and introduced to the rest of the organization. Sometimes the decision came about through inspiration or chance: “[Our CEO first] worked with us on a consulting project,” said a family representative from an Indian consumer company. “Over that period of four months, I got to know him and his style really well.” In other cases, recommendations were sought. At one Spanish company, a family member consulted a management professor he trusted and chose between the two people the professor recommended. At a Japanese consumer business, the board appointed a family member who had risen through the ranks. “He built up his career here and knows the daily operations and products very well,” a nonfamily director explained.

However, ample research shows that CEO appointments are far more successful when they follow a disciplined search involving multiple candidates. The best family businesses in our sample addressed CEO selection proactively and strategically (see the chart “A Disciplined Succession Process”). In the initial stage, the supervisory board appointed a formal nominations committee to define the specifications for and conduct a broad internal and external search. This included outlining the ideal profile, developing a long list of candidates, and assessing all of them through behavioral interviews and reference checking. Next the committee selected a short list, agreed on a ranking, and presented it to the supervisory and management board members, who chose a finalist. Finally, the family members and the independent directors approved the selected candidate, although in most cases they had an informal yet significant veto power.

The former (nonfamily) CEO of a British construction company told us, “The process was handled very professionally. Initially, I was interviewed by HR and the third-generation family, then I had sessions with the leading family member, then with the brother, then with all five of the fourth generation together, and then I had one-on-one sessions with all the nonexecutive directors. All of them took references on me.” At the Swedish media company, the family chairman led a similarly comprehensive assessment process: “I decided that seven elected board members would each get some time to interview [the prospective CEO], either by themselves or a few together. Then we compared notes and came to a conclusion.”

Most of the companies followed a clear hierarchy when considering candidates, giving preference to family first, internal talent second, and external executives third. We enthusiastically endorse that practice, provided that the right assessment and development processes are in place. In family businesses, where culture and personal relationships are critical, internal hires stand the best chance of success. In the 50 firms we studied, 38% of CEOs were family members. Of those who weren’t, 54% were internal appointees and 46% external. In those cases, we found three basic types of executives. The sidebar “Three Nonfamily CEO Archetypes” describes them and their suitability for particular mandates.

Of course, the initial integration period can make or break any newly appointed executive. On the basis of our experience, we estimate that the right transitional support can cut the risk of a failed hire or promotion in half. Especially for nonfamily CEOs coming into family firms, major conflicts almost inevitably arise in this phase, as we heard from some of the executives we interviewed. “The owners say that I am responsible, but the next day they move into this field and make decisions, and sometimes they don’t even notice,” the managing director of a German business told us. “It is impossible to become part of their world,” said an executive from a different company. “I never got the feeling that it is my project.”

To avoid these problems, family firms must ensure that new CEOs are given adequate time to get to know the organization and its key players as well as to meet and bond with important family members. “When we get someone in, we accompany him like a personal scout,” one family CEO explained. “A director or board member introduces him, helps him, and talks to him regularly. The know-how is transferred personally.” The family chairman of a Belgian food and beverage company described a similar approach: “He will have lots of contact with me, and I will make sure that I can show him what the family wants.” A thoughtful onboarding process, along with a professional, fair selection system, can help a CEO succession unfold smoothly and effectively, creating value for the company rather than destroying it.

Leadership decisions, particularly at the very top, can be a minefield for family businesses. But our research shows that companies can navigate safely and prosper for generations if they establish good governance as a baseline, preserve family gravity, identify and develop high-potential executives both within the family and outside it, and bring the right discipline to their CEO succession and integration processes. The payoffs are clear: Research by Ernst & Young, the Family Business Network, Credit Suisse, and others shows that large, long-standing, publicly traded family businesses grow faster than nonfamily companies, are more resilient, and outperform market returns by several percentage points.

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Claudio Fernández-Aráoz is a senior adviser at the global executive search firm Egon Zehnder and the author of It’s Not the How or the What but the Who (Harvard Business Review Press, 2014).

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Sonny Iqbal is a partner at Egon Zehnder and coleader of its global family-business practice.

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Jörg Ritter is a partner at Egon Zehnder and coleader of its global family-business practice.

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Measuring the Return on Character

When we hear about unethical executives whose careers and companies have gone down in flames, it’s sadly unsurprising. Hubris and greed have a way of catching up with people, who then lose the power and wealth they’ve so fervently pursued. But is the opposite also true? Do highly principled leaders and their organizations perform especially well?

They do, according to a new study by KRW International, a Minneapolis-based leadership consultancy. The researchers found that CEOs whose employees gave them high marks for character had an average return on assets of 9.35% over a two-year period. That’s nearly five times as much as what those with low character ratings had; their ROA averaged only 1.93%.

Character is a subjective trait that might seem to defy quantification. To measure it, KRW cofounder Fred Kiel and his colleagues began by sifting through the anthropologist Donald Brown’s classic inventory of about 500 behaviors and characteristics that are recognized and displayed in all human societies. Drawing on that list, they identified four moral principles—integrity, responsibility, forgiveness, and compassion—as universal. Then they sent anonymous surveys to employees at 84 U.S. companies and nonprofits, asking, among other things, how consistently their CEOs and management teams embodied the four principles. They also interviewed many of the executives and analyzed the organizations’ financial results. When financial data was unavailable, leaders’ results were excluded.

At one end of the spectrum are the 10 executives Kiel calls “virtuoso CEOs”—those whose employees gave them and their management teams high ratings on all four principles. People reported that these leaders frequently engaged in behaviors that reveal strong character—for instance, standing up for what’s right, expressing concern for the common good, letting go of mistakes (their own and others’), and showing empathy. Examples include Dale Larson, who took over his family’s storm door business decades ago after his father died of cancer, growing it from about 30 employees to more than 1,500 and gaining a market share of 55%; Sally Jewell, a former CEO of REI, America’s largest outdoor retailer; and Charles Sorenson, a surgeon who moved into management at Intermountain Healthcare when the company began to grow and eventually took on the top job.

 “I’m Suspicious If a Report Card Is Too Good” 

Charles Sorenson, the president and CEO of Intermountain Healthcare, was one of the highest-scoring leaders in KRW’s study on character. He spoke with HBR about what he learned from the results. Edited excerpts follow.

Courtesy of Intermountain Healthcare

Do you think KRW measured the right principles—integrity, responsibility, forgiveness, and compassion?
 
There are two I might add. One is the pursuit of excellence. That’s partly included in the definition of responsibility—the desire to leave the world a better place. It’s especially important in health care. The other is the courage to do the right thing even when it’s difficult or painful. To make changes in a field as deeply entrenched as health care, you need to stick your neck out.

How have you incorporated the feedback?
 




We’ve made some changes in leadership—put in people who model these values. In medicine and surgery, most of us just remember the last five episodes of patient care and extrapolate incorrectly from them. So it’s wonderful to have an objective measure of culture and behavior.

What struck you most about the responses?
 
We had some room for improvement—but that’s OK. I’m suspicious if a report card is too good. One person wrote that it doesn’t always feel safe to disagree with management. We’ve made progress there, so I was a little disappointed. There was also a comment about conservative attitudes toward women. That’s an oucher for me. We have a lot of terrific women in senior positions.

At the other end of the spectrum, the 10 lowest scorers—Kiel calls them “self-focused CEOs”—were often described as warping the truth for personal gain and caring mostly about themselves and their own financial security, no matter the cost to others. This group includes the CEO of a public high-tech manufacturing firm, the CEO of a global NGO, and an entrepreneur who heads a professional services firm. (All study participants were guaranteed anonymity from the beginning. Only a third later gave permission to use their names.) Employees said that the self-focused CEOs told the truth “slightly more than half the time,” couldn’t be trusted to keep promises, often passed off blame to others, frequently punished well-intentioned people for making mistakes, and were especially bad at caring for people.

Early in the project the researchers expected to find a relatively small relationship between strength of character and business performance. “I was unprepared to discover how robust the connection really is,” Kiel says. In addition to outperforming the self-focused CEOs on financial metrics, the virtuosos received higher employee ratings for vision and strategy, focus, accountability, and executive team character.

Do leaders who need to work on their character know it? In most cases, no—they’re pretty deluded. When asked to rate themselves on the four moral principles, the self-focused CEOs gave themselves much higher marks than their employees did. (The CEOs who got high ratings from employees actually gave themselves slightly lower scores—a sign of their humility and further evidence of strong character.) Fortunately, Kiel points out, leaders can increase their self-awareness through objective feedback from the people they live and work with. But they have to be receptive to that feedback, and those with the biggest character deficiencies tend to be in denial.

How can such leaders get past their denial and overcome their character deficits? Seeking guidance from trusted mentors and advisers helps a great deal, Kiel says. He discovered that firsthand early in his own career. After earning a PhD in psychology, he built two large clinical practices and briefly served as the CEO of a publicly held company. Back then, he says, he was more like the self-focused CEOs than the virtuosos: “While I never engaged in any illegal behavior, I’m sure many of my colleagues in those days felt that I was more than willing to throw them under the bus if it meant success for me.” As Kiel reached middle age, though, he began to feel a sense of moral and spiritual emptiness—and he knew he needed to change. It was a long, difficult process. After all, he was trying to undo deeply ingrained habits. But with practice and counsel he succeeded, and he was inspired to help other business leaders do the same.

If Kiel’s experience (and his clients’) is any indication, character isn’t just something you’re born with. You can cultivate it and continue to hone it as you lead, act, and decide. The people who work for you will benefit from the tone you set. And now there’s evidence that your company will too.

Learn more about KRW’s findings in Return on Character, by Fred Kiel (Harvard Business Review Press, 2015).

Women-led companies perform three times better than the S&P 500

Boston-based Quantopian looked at how well Fortune 1000 companies led by women performed compared to the S&P 500 over a 12-year period.

You’ve heard that companies with women executives at the helm tend to perform better than those led by men— and a new study furthers that claim, finding that women CEOs in the Fortune 1000 drive three times the returns as S&P 500 enterprises run predominantly by men.

Quantopian, a Boston-based trading platform based on crowdsourced algorithms, pitted the performance of Fortune 1000 companies that had women CEOs between 2002 and 2014 against the S&P 500’s performance during that same period. The comparison showed that the 80 women CEOs during those 12 years produced equity returns 226% better than the S&P 500. (Global nonprofit women’s issues researcher Catalyst compiled the list of women CEOs used in the simulation.)

“It’s based on a buy-and-hold strategy aimed at looking at how well women CEOs have performed cumulatively,” says Karen Rubin, Quantopian’s product manager. She says she is now working with Morningstar to create an algorithm for a fund built on the same premise using real-time data for live trading.

Here’s how the simulation works: Rubin invests a hypothetical $100,000 in the companies that had women CEOs between Jan. 1, 2002 and Dec. 31, 2014 and another $100,000 in the S&P 500. Rubin buys a company’s stock when the woman becomes CEO, and holds it through the CEO’s tenure.

According to the algorithm, the women CEO fund would end up being worth $448,158, or a return of 348%, while the S&P 500 investment would have risen to $222,306, or a return of 122 %. The results are even on the conservative side for the performance of the women CEOs, since dividends weren’t reinvested automatically as they were with the S&P 500.

Of the women CEOs tracked over those years, the two best performers were Mindy Grossman at HSNi, parent of the Home Shopping Network, and Debra Cafaro at Ventas, a healthcare and senior living real estate investment trust. Both women, still CEOs of their respective companies, increased the initial investment by more than 500%. Cafaro has been chief through the entire 12 years, while Grossman became the head of HSN in 2006 when it was still part of Barry Diller’s IAC. HSN was spun off in August 2008 at the height of the recession and just in time for the stock market meltdown. The simulation calculated Grossman’s performance from the IPO date.

Other top performers within the make-believe fund include Carol Meyrowitz at TJX, Linda Lang at Jack in the Box, Denise Ramos at ITT and Gracia Martore at Gannett—all of whom increased Rubin’s initial investment by more than 200%, and 300% in Meyrowitz’s case.

Quantopian

“There’s a lot of the theorizing around why the results are dramatically higher for the women, but most think it has to do with how hard women have to work to become CEO at such big companies in the first place,” Rubin says. The ones who do “really represent the cream of the crop,” she adds.

Of course, not every woman CEO had a stellar performance. The biggest loser on the list was Janet Robinson at The New York Times, where an investor would have lost more than 80% of his or her investment during her tenure from Dec. 27, 2004 to Jan. 3, 2012. Others in the negative were Mary Sammons at Rite Aid, Kerrii Anderson at Wendy’s International, and Patricia Russo at Lucent.

There are six companies on the list in which two female CEOs led during the 12 years, including Yahoo, where both Carol Bartz and Marissa Mayer held the top spot, Xerox with Anne Mulcahy and Ursula Burns, HP with Carly Fiorina and Meg Whitman, and Avon Products with Andrea Jung and Sheri McCoy. Best performing of these was Yahoo!, where the investment increased in value 20% under Bartz and an impressive 224% under Mayer, who was a beneficiary of the increasing value of the interest in Alibaba purchased by Yahoo! founder Jerry Yang.

Rubin decided to embark on this experiment after seeing the results of the Credit Suisse Gender 3000, which showed the return on equity for companies with women in more than 10% of key positions was 27% better than for those with less than 5 percent and the dividend payouts had a 42% higher ratio. The study by the Credit Suisse Research Institute tracked some 28,000 executives at 3,000 companies in 40 countries.