C.E.O. Evolution Phase 3
Has the time come for C.E.O. Version 3.0?
The first iteration made its mark in the 1990s, as chief executives like Sanford I. Weill, Gerald M. Levin, John F. Welch Jr. and Michael Eisner built empires, not to mention their profiles, at the companies they ran: Citigroup, Time Warner, GE and Disney.
When the shares deflated earlier this decade after the burst of the tech bubble and various corporate scandals, a new cadre moved in: the Fix-it Men. They were lower-key leaders like Charles O. Prince III of Citigroup and Richard D. Parsons of Time Warner, whose job it was to repair the excesses and mistakes of their predecessors.
Now, management experts and longtime watchers of corporate America say the current environment demands, and is attracting, yet another kind of chief executive: the team builder.
“It’s someone who can assemble a team that functions as smoothly as a jazz sextet,” said Warren Bennis, a professor of management at the University of Southern California and author of many books on leadership.
In the last week, Mr. Prince and Mr. Parsons both announced they would be stepping aside. Mr. Prince’s abrupt exit followed huge losses that dragged down Citigroup’s long-stagnant stock, while Mr. Parsons is retiring at the end of 2007 after a five-year tenure, during which he stabilized the company but failed to move Time Warner shares higher.
Mr. O’Neal substantially increased Merrill’s revenue and profit during his tenure but has been criticized for forcing out subordinates he perceived as rivals, while several top executives left Citigroup during Mr. Prince’s reign. Now both companies find themselves searching for permanent replacements.
“They’ve got to have not just the cognitive ability to run a major firm, which Stan O’Neal definitely had, but the ability to make people feel like they’re working together,” Mr. Bennis said.
“Both felt the need to make sure the top hundred people know that they’re in this together, that their fates are correlated,” Mr. Bennis says. “That’s what it will take to succeed in this century.”
Mr. Lafley and Mr. McNerney have won plaudits not merely for their personal style, but also for their bottom-line performance, with shares of Procter & Gamble and Boeing easily outpacing the likes of Citigroup and Time Warner, as well as the benchmark Standard & Poor’s 500-stock index, over the last two years.
That’s no coincidence, according to Michael Useem, a professor of management at the Wharton School of the University of Pennsylvania and director of the Center for Leadership and Change Management there. “The academic research says if you want to predict what the future financial performance over the next one to three years will be, you need to know the top team,” he said.
Jeffrey A. Sonnenfeld, senior associate dean for executive programs at the School of Management at Yale, says the style of today’s best chief executives differs from both the empire builders and the cleanup specialists.
The former were known for public swagger and boardroom-size egos, while the latter often excelled at a narrow set of skills, Mr. Sonnenfeld said. He cited Mr. Prince’s skills as a lawyer who was able to get his company back into the good graces of regulators after Mr. Weill’s departure. Others say Mr. Parsons was a strong administrator, but failed to offer a strategy that satisfied Wall Street.
Mr. Sonnenfeld says Mr. Lafley and Mr. McNerney, along with Anne Mulcahy, chief executive of Xerox, possess the vision of the empire builders without their overpowering egos, while also bringing more personal warmth to the corner office
Ms. Mulcahy, for example, was able to cut jobs and restore Xerox’s profitability “without coming across as mean-spirited,” Mr. Sonnenfeld said. Mr. Lafley “is disarmingly unpretentious,” he added. “He never comes to my summits and I’ve never been a consultant for him, but he towers over other C.E.O.’s when it comes to putting in people stronger than himself or his ability to talk about setbacks.”
Mr. Lafley has spent his entire career at Procter & Gamble, while Mr. McNerney arrived at Boeing after decades at General Electric, long regarded as something of a management boot camp, and after a successful stint as chief executive of 3M. Although clearly an outsider at Boeing, Mr. Sonnenfeld said, “he learned to listen to the culture there.”
This approach, he said, means these leaders were able to “introduce change but people don’t hate them for it; the team comes to them.”
Mr. O’Neal, on the other hand, “fired people who shouldn’t have been fired,” Mr. Bennis said. Mr. Prince, he added, “was always in the shadow of Mr. Weill; he never was able to build his own team.”
And when disaster struck in the form of billions in losses from the subprime meltdown, these weaknesses came back to haunt Citigroup and Merrill Lynch.
“Whenever you have such a stunning decline, errors become much more visible,” Mr. Bennis said.
Of course, just as chief executives shape the times, so do the times shape them. “There’s a theory that the people who get to the top at big companies should be best at solving the problems of their era,” Mr. Useem said.
In fact, Mr. Sonnenfeld said, the original archetype was what he called “the custodian,” leaders who came of age during the Organization Man era of the 1950s, but were overwhelmed by the rapidly shifting economic landscape of the 1970s and 1980s.
They were followed by the empire builders who focused on mega-mergers and financial management in the 1990s to deliver the growth Wall Street demanded while getting big enough to achieve economies of scale and beat back foreign competitors.
The cleanup artists arrived on the scene in the wake of the collapse of Enron and WorldCom and the passage of Sarbanes-Oxley legislation, which tightened government oversight of public companies.
At the same time, investors were demanding quick fixes. In Time Warner’s case, Carl C. Icahn, the billionaire activist investor, pressed for a quick breakup of the company, something Mr. Parsons was able to stave off.
Business schools are also opting for the 3.0 approach. At the Yale School of Management last year, Mr. Sonnenfeld said, the dean and faculty threw out the old first-year curriculum that emphasized individual disciplines like finance and marketing and replaced it with a team-oriented approach, with professors teaching these subjects jointly. In addition, he said, “We have students, faculty and staff assemble their own teams as part of their training to be future execs.”
What will be the main challenge in the next 5 to 10 years? Mr. Useem predicted it would be achieving double-digit growth internally, without the benefit of huge deals or accounting sleight-of-hand. “That’s why I think the baton will go to the manager who will stimulate a division and will be creative and innovative,” he said.