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Former CEO of Olympus, Michael Woodford poses for a photograph in central London, Oct. 25, 2011. (TOBY MELVILLE/REUTERS)
Former CEO of Olympus, Michael Woodford poses for a photograph in central London, Oct. 25, 2011. (TOBY MELVILLE/REUTERS)

Management advice

The art and science of picking a leader Add to ...



Whatever the reason for Michael Woodford’s abrupt exit from Olympus (of which more later), everyone can agree that if the board’s chosen chief executive leaves prematurely, something has probably gone wrong.

It happens surprisingly frequently at large companies with heavyweight boards. Léo Apotheker lasted 11 months at Hewlett-Packard. Ian Smith – announced with a fanfare as directors’ top choice to succeed Sir Crispin Davis at Reed Elsevier – stepped down in 2009 after less than nine months at the media and information company.

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If executives who are supposed to be the cream of the cream are souring within months of their appointment, it is a fair bet that below the top level, the incidence of fluffed hires, poor promotions and recruitment U-turns is even greater. Directors should surely be asking themselves: why are we bad at picking good leaders?

That is the title of a recent book by Jeffrey Cohn and Jay Moran, which adds to the pile of titles on the topic. The authors are consultants specializing in succession planning and executive recruitment, as are James Citrin and Julie Hembrock Daum, who wrote another recent book, You Need a Leader – Now What? If you look past the “Hire us!” subtext, they offer some interesting guidelines. Interesting, but far from definitive.

Drawing on a study of CEO transition at companies in the U.S. and Europe, Mr. Citrin and Ms. Hembrock Daum refine the intuition that outside hires often underperform insiders. That is largely true when outsiders are appointed to run healthy, growing companies, they say. But when a company is “in a significantly challenged or crisis condition,” the reverse is true. In the U.S., outside hires picked to run troubled companies are three times as likely to achieve top-quartile performance than insiders.

The snag is that the exceptions they cite punch a large hole in their broad conclusions. Anne Mulcahy, the quintessential Xerox insider, followed outsider Rick Thoman as chief executive in 2000 when the company was palpably in crisis.

Mr. Citrin and Ms. Hembrock Daum say this “pendulum effect” is an important exception to their overall thesis. But it is no disrespect to Ms. Mulcahy, who led a successful turnaround, to suggest that in Xerox’s darkest hour, with investigations and bankruptcy looming, the list of external candidates must have been short. The same goes for companies that pull board members into executive positions in a crisis – the authors’ second exception. Such hybrid chief executives have the best record of any type of CEO, yet boards rarely appoint them.

Matching the right individual to the right situation using the right process is complicated. However experienced, directors are people. When people pick people, it is always a task with unpredictable consequences – and outcomes as varied as the people involved. Knowing the essential truths of leadership selection or recognizing the attributes of great leaders will help but, as Mr. Cohn and Mr. Moran put it, “the trick is knowing what these attributes mean and how to spot them.” The number of books that try to teach the trick just shows how difficult it is to carry off.

When Jack Griffin lost his job as head of Time Inc. this year after only five months, Jeff Bewkes, CEO of parent company Time Warner, told staff that Mr. Griffin’s “leadership style and approach did not mesh” with the company’s. It was a rare public reminder that appointing corporate leaders is as much art as science. If it is at all scientific, it is more like a heart transplant than a laboratory experiment. Even after a suitable replacement organ is identified, there is a risk of rejection. CEOs should have a chance to demonstrate their worth. But directors who remove an executive who proves unsuitable – like surgeons who pick the “wrong” heart – should probably be given greater benefit of the doubt.

I have less patience for the Olympus board, however. Mr. Woodford had honed his style – identified as a reason for his dismissal – over many years at the company. He had a mandate to shake things up. Olympus directors may now feel they picked the wrong candidate. But if the ex-CEO has uncovered an unhealthy culture, ripe for reform, he or she may go down in history – and in the next set of headhunters’ how-to manuals – as the board that picked the right man, but by mistake.

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