Companies, especially in today’s difficult environment, often believe a charismatic leader will save them from all their woes. but, to many observers, such chief executives tend to be more mouse than man.
Chief executive officers, like dogs, come in a variety of breeds and dispositions. Whether they display the fortitude of a pit bull, the tenacity of a terrier or the sloe-eyed diffidence of a hound dog, the ceo of a public company is usually responsible — fairly or not—for the immediate success of a great enterprise, and by extension, the fortunes of its employees and shareholders.
Take, for example, former Disney executive and new Gap ceo Paul Pressler. By all accounts a very nice guy, while at Disney, Pressler never let his benevolent persona prevent him from engaging in ruthless cost cutting in order to build a better bottom line.
Then there’s former Warnaco ceo Linda Wachner, widely considered to be brilliant at company building, but whose “difficult” personality has a way of alienating employees, investors, the press and — judging from her recent sub-million-dollar settlement when she was looking for $25 million — bankruptcy court adversaries.
And one can’t overlook Allen Questrom, the man who brought Federated Department Stores back from life support and is now credited with initiating J.C. Penney’s impressive turnaround. Ask industry observers what they think of Questrom and most of them moon over him as if he were their favorite member of a boy band.
What links these very disparate personalities and reputations is a myth: the myth of the ceo as superhuman, as a larger-than-life figure who can change a company’s performance almost overnight and create untold riches for investors, employees and, of course, the ceo him- or herself (usually him). While a top-notch manager is critical to the success of a business operation, especially in difficult times, it is far too much to say that any individual can single-handedly make something as enormously complex as a modern corporation execute on all levels all of the time. After all, ceo’s are only human.
So the questions then are these: Are there objective criteria for selecting the best person for a given ceo opening? What criteria actually get used? And what are the pitfalls?
This story first appeared in the November 25, 2002 issue of WWD. Subscribe Today.
Charisma is probably the single most important proximate factor in deciding which candidate will be hired as a ceo. Once in power, charisma can also go a long way toward allowing a ceo to get things done. Unfortunately, hiring a person based on charisma turns out to be rather risky, since there is no evidence whatsoever linking ample supplies of it and a positive effect on earnings. And yet, it happens all the time. Why?
Cheryl Swanson, cofounder of Toniq, a brand management and advisory firm, said: “Charisma actually means the ability to instill confidence and all its constituents such as competence and that extra oomph for employees to work harder and Wall Street to believe what you are saying.
“[The Limited Brands ceo] Leslie Wexner is a really good example of a good leader in retail. Someone who is not a good leader is Linda Wachner or Chuck Conaway [the former ceo’s of bankrupt Warnaco Group and Kmart Corp., respectively]. Liz Claiborne ceo Paul Charron is a quick learner, with the ability to translate [ideas] and then to execute them.”
In the September issue of the Harvard Business Review, Harvard Business school professor Rakesh Khurana argued that while companies hire charismatic bosses in the belief that they will boost earnings, there is little conclusive evidence that this ever happens. Indeed, Khurana said that the majority of studies suggest that the two most important factors determining a company’s performance are the economic climate and the state of the industry in which it functions.
Professor Henry Tosi of the University of Florida could not agree more. Charisma will get a person the ceo’s job, he said, but it won’t earn the company more profits.
“Looking the part is part of getting the part,” said Tosi. “It’s what I call the ‘good-enough theory of promotion.’ In order to get the job you don’t have to be the best, you just have to be good enough to make the cut. What happens is a board of directors gets enamored of form over substance. That’s a mistake because when you get subjective, your biases come into play. You look to hire someone like you.”
After assessing the charisma of ceo’s at 59 major American companies, Tosi has determined that there is absolutely no connection between charisma and a company’s performance.
Another problem with charisma is that it isn’t only the good guys who have it. It is also often possessed, in mountainous quantities, by con men, card sharks and despots. In today’s post-Nineties boom-hangover economy, where accounting scandals at places such as Tyco, Enron and Worldcom were presided over by charismatic leaders, investors are leery of slicksters and glad-handers.
According to Linda Schoenthaler, ceo of Financial Decisions, a wealth advisory service that also provides compensation consulting, the focus now is on leadership style where integrity is the buzzword.
“The single most important ingredient is integrity,” said Schoen thaler.
Following the emphasis on corporate governance issues, she said, corporate boards will spend increasing time looking more closely at the individual.
Personal integrity is increasingly becoming a premium, added Elaine Hughes, president of executive search firm E.A. Hughes & Co., as she suggested that Tyco’s appointment last week of VF Corp.’s Mackey McDonald to its board of directors was based, in part, on using McDonald’s “stellar reputation” to help clean up Tyco’s horribly tarnished one.
“He always presents himself in public as a straight shooter,” said Hughes.
Yet another pitfall a company’s board can fall into is the tendency to place too much faith in the capabilities and practical power of a single person for either good or for ill. When Gap reported better-than-expected third-quarter earnings last week, the unreasonable but tempting first reaction among some observers — the competition, investors and yes, the press included — was that Pressler’s arrival was somehow responsible for the strong showing. No knock on Pressler, but almost immediately, senses returned. Anointed just two months ago, Pressler hasn’t been with?Gap long enough to memorize the names of the board of directors by heart, much less to learn and substantially guide the labyrinthine and multitentacled operations of the nation’s largest specialty retailer
“Too often there is the assumption that the ceo is going to have more influence than they do,” said Koors. “It is very seldom that when things go right, it is all the ceo’s doing. And when things go wrong, it’s never all the ceo’s fault. But, in some sense, boards and Wall Street have unrealistic expectations.”
Koors adds that another problem in finding the dream ceo is that the demands of the job have become so much greater. Finding a candidate with the plethora of skills needed to run a major retail or apparel company can be a daunting task, indeed.
“Historically, the ceo’s prime responsibility was to set the vision for the organization partly as it reflected the merchandise assortment: What’s the merchandise? What are the price points? And so on, with the numbers being handled by the guys in the back,” said Koors. “But today, especially in a down economy, you need someone with a strong right brain and a strong left brain. They need to be able to handle the merchandise aspect of the business as well as be conversant with the numbers. They need to be able to handle the merchandise aspect of the business as well as the numbers.”
Koors said Penney’s Questrom is the epitome of this, and highly regards Federated’s president Terry Lundgren and Mickey Drexler — despite his exit from Gap — in this aspect, too.
A lack of those skills is what doomed Conaway’s short tenure at Kmart, say some observers. Conaway, an oft-used punching bag, whom some sources dismiss as an “empty suit” or “a living example of trying to fit a square peg in a round hole,” gets a more balanced assessment from Hughes.
“He is an intelligent, capable guy,” said Hughes, “but as soon as he told them his plan was to go after Wal-Mart, they should have shook his hand and said, ‘Thanks for coming in.’”
As important as having the copious skills necessary to lead a major corporation, there is something an individual must have that is even more important, said some observers.
“Leadership skills are first and foremost,” said Bob Kerson, a managing director who runs the global retail-fashion practice at Korn/Ferry International. “Successful ceo’s have the ability to manage a team and to get them to focus on a goal. You’ve got to rally the troops and create values and a corporate culture that inspires your people. ceo’s who fail are always kind of wishy-washy.”
Kerson counts ceo’s like Burberry’s Rose Marie Bravo, Coach’s Lew Frankfort, Bloomingdale’s Michael Gould and, once again, Penny’s Questrom as the best leaders in the business.
Integrity, fierce intelligence, inspirational leadership skills, vision and yes, why not, just a little bit of charisma, are what boards and investors should look for in their ceo’s. Of course, finding the extraordinary person who embodies all these qualities is a Herculean task, and that is why the truly great ceo is such a rarity. Even retired General Electric ceo Jack Welch doesn’t look quite as good in retrospect as he did while on the job.