In corner office - the rise of the anti-star?
After CEO debacles, boards reconsider who should lead.
"Where is our Jack Welch?" Rakesh Khurana was taken aback by the question, thrown at him over lunch by a board member of a Fortune 500 firm.
The company was on its second chief executive in seven years, both outsiders. And it was preparing for the possibility of a third.
"It seemed as if this director was just waiting for some messiah or Buddha to come out from beneath a banyan tree and rescue his company, rather than taking action on things that we know actually produce long-term leadership," recalls Mr. Khurana, a professor of organizational behavior at Harvard Business School. "My response to him was, 'What has your board done to develop your next Jack Welch?' "
It's a question that corporate America is starting to ask. After three decades of pursuing "star" CEOs in the mold of General Electric's former chief, corporate boards are beginning to reevaluate what they're looking for in a leader and how to groom that person from within their own ranks. Recent debacles of imperial leaders at Enron, Tyco, WorldCom, and others have prodded the reassessment. But the push to move beyond the era of star CEOs is glacially slow. Habits are hard to break.
"We're hard-wired to look for saviors," says Barbara Kellerman, research director of Harvard's Center for Public Leadership and author of "Bad Leadership." Almost inevitably, these heroes harbor a drive for self-promotion. "Some of this is good. Unless somebody wants money and power, they're not likely to become a leader. The question is whether they can at some point moderate their impulse for more [rewards]."
The most closely watched Fortune 500 company facing a leadership change is Disney. CEO Michael Eisner announced this month that he would abandon his post in 2006 after a two-decade run that grew increasingly controversial. But two other Fortune 500 chief executives - Harry Stonecipher at Boeing and Ray Gilmartin at Merck - also have announced they will step down in two years. Neither company has made public a solid plan for who will come next, though all three exiting leaders have recommended people inside their respective firms.
That's a tactic recommended by many observers, who also maintain that search committees should look for subtle traces of stardust on their internal prospects, rather than scanning the corporate firmament for giants.
"I don't think charisma in and of itself is bad, but often we don't look beyond it for more substantial qualities," says Jean Lipman-Blumen, a professor of organizational behavior at Claremont Graduate University, in California, and author of "The Allure of Toxic Leaders." Further, big-ego leaders from the Machiavellian school have long carried a certain appeal, she says. And while integrity has been touted as the new top priority, the old flash appeal can still be blinding.
"I think Al Dunlap at Sunbeam was a great example," says Professor Lipman-Blumen. "The Sunbeam people understood what had happened before. They knew what his history was. But they rather liked it. They wanted somebody who was going to come in and run a lean, mean company."
Mr. Dunlap, nicknamed "Chainsaw Al," was fired from Sunbeam in 1998 after two years of job-slashing. Ultimately, amid allegations of fraudulent bookkeeping, the Securities and Exchange Commission barred him from serving as an officer or director of any public firm.
In time, destructive leaders tend to implode, says Andrea Redmond, who heads the CEO practice at Russell Reynolds Associates, an executive recruiting firm. But "I think there are cultures ... that may indeed support and hide some of that. It could be [at] a not-for-profit, a hospital, a school. You get cultures that allow for a greater band of acceptable behavior."
Not that all high achievers mean trouble. "If you can put your ego at the service of the group, instead of chaining it to your own ambition, then I think that makes a difference," says Lipman-Blumen, citing Herb Kelleher at Southwest Airlines as a model. "I don't think in the long run you can be a successful leader if your focus is on yourself."
Others point out that a powerful personality can supercharge a firm's products or services. Virgin Atlantic's Richard Branson lends his personality - that of swashbuckling raconteur - to his brand.
Then there's the Donald.
"The marketing power of that name places a premium on his assets, so you pay more for a Trump apartment or a Trump property because he has his name associated with it," says Judy Olian, dean of the Smeal College of Business at Penn State University.
But CEO brand-power works less well for nonentrepreneurs. In the broader corporate world, the key is to place a premium on "observable skills," says dean Olian. This can make big names tempting.
"[Boards] want it to be obvious to everyone around that this person is skilled," she says. "The easiest signal is that they've done it in the past, and they're well known. In that sense, 'rock star' CEOs provide that signal. But it's not just that they are flamboyant, it's the track record of performance."
Performance made Chrysler's Lee Iacocca the first iconic CEO, says Khurana. With the help of a $2.2 billion government-guaranteed loan, Mr. Iacocca brought the corporation back from the brink and became "the embodiment of a leader." There was a buzz about the CEO's autobiography, even talk of his running for the United States presidency.
The business media shifted its focus from balance sheets to the personalities of the leaders, creating new stars.
"These few iconic agents became the template that other [CEOs] tried to model themselves after, even if it wasn't authentic," says Khurana, who adds that corporate types aped the demeanor of entrepreneurs and demanded similar forms of compensation, such as stock options. A growing "fetishness" about CEOs had been spawned. Boards - often comprised of CEOs or former CEOs - became less inclined to challenge corporate skippers on expenses or perks.
The stage was set for the Enron era, a period in which CEOs were kings and institutional safeguards - boards, securities analysts, and auditors - broke down.
But the tech bust, Enron and other corporate scandals, and pressure for disclosure brought by the Sarbanes-Oxley Act of 2002 have provided more clear-eyed criticism. Board members are now personally liable - in a very public way - for the bad judgments they make, says Olian. "They're going to be very careful about their selections."
That means drafting what Lipman-Blumen calls "constructive leaders," who might not be outsiders or even be existing stars. "They're often the people who don't have that inordinate amount of ambition to push themselves to the front of the line. They're the people you turn to for quiet advice," she says.
Ultimately, management experts say, aggressive vigilance - by media and activist investors - will help guide choices.
"If there's a change it will really have to come from outside pressures," says Kellerman, "because the boards of directors will still want someone who'll get them where they want to go, which is generally short-term gains, generally the bottom line."