This is part of a special advertising section on the Outlook for 2012.
In addition to plummeting stock prices and 20-year-high unemployment, the 2008 recession brought with it a flood of executive attrition, both voluntary and involuntary. Now, the slower-than-expected recovery has turned that flood into a steady stream springing from the highest corporate levels.
Last year alone, 51 S&P 500 CEOs left their posts, leaving many companies scrambling to find strong leaders among a sea of candidates.
Competent leadership is paramount to a company's success. Businesses with strong leadership are 13 times more likely to outperform their competition, and three times more likely to retain their most talented employees, according to the DDI Global Leadership Forecast 2011. But despite the importance of strong leadership, only 18 percent of HR professionals reported enough bench strength to meet their companies' future needs; only 44 percent reported having a formal process for identifying employees with leadership potential. This self-inflicted talent shortage is driving companies outside of their walls in search of C-level talent.
Unfortunately, outside hires for senior positions have a spectacular rate of failure -- 66 percent fail, many within the first 18 months, according to The Leadership Gap by the Center for Creative Leadership. As an alternative to outside hiring, the emerging trend is to create an internal system for identifying and training high-potential employees. Although the so-called leadership pipeline does present a significantly better result than outside hiring, the effectiveness of many such programs is limited because of the way in which high-po candidates are identified.
Traditional thinking holds true that, as the old saying goes, cream rises to the top. In other words, high-potential employees will also be high-performing employees. Therefore, high-potential employees will have exemplary work records and performance reviews. This thinking is so dominant that, in a survey covering the past two years of executive succession in the S&P 500, virtually all boards of directors emphasized the professional qualifications of the incoming CEO, often through a description of his or her professional career and educational background.
The problem with judging performance based on managerial review is that managerial review is tainted by politics. One of Hogan's studies, for example, showed that, of a 150-person national sales force, those receiving the highest performance ratings weren't those whose sales numbers were highest, but rather those who completed their paperwork the most efficiently. Performance reviews also ignore context. A talented employee may underperform in a caustic working environment -- working under a bad boss, or in a position for which he or she is a bad fit -- and could be overlooked.
We believe the answer lies in progressive programs that identify high-potential candidates by systematically assessing candidates' leadership style, derailment tendencies, values and motivators, critical thinking ability and judgment.
The essence of leadership is the ability to form and maintain a high-functioning team. Evaluating employees' leadership styles helps identify those candidates with the most natural ability to lead and helps mitigate the chance of talented employees slipping through the cracks.
Just as important as leadership style are derailment tendencies. These tendencies are strengths, often the very strengths that facilitate an employee's rise through the ranks, which turn into crippling neuroses under the pressure of the C-suite. Assertive, risk-taking personalities are often easy to identify as up-and-comers, and, many times, that assertiveness and risk-taking pays off. Under the pressure of an upper-level position, however, that same employee can become overbearing and reckless.
Values and motivators drive engagement; finding high-potential employees whose values are in line with those in the company increases exponentially the chances of those individuals staying with the company and eventually assuming a management role.
Assessing for these characteristics has been shown to be extremely successful; the correlation between predicted and real-world outcomes is .44. To put this number in perspective, the correlation between the use of Viagra and increased sexual performance is .38. In addition to correctly identifying high-potential candidates, assessing for these qualities creates a solid foundation on which to design skills-building and coaching programs. Candidates gain self-awareness through learning and experience through being placed in stretch roles within the company.
At a time when the difference between a growing company and a struggling company is so narrow, businesses are looking more and more to their leaders to guide them to success, and when CEOs are subject to the whims of the stock market and the lure of competitors, sound succession planning is paramount to continued success. By identifying and investing in high-potential employees within their own ranks, companies can ensure their success extends for generations into the future.