Hiring Successful Leaders

15 Nov 2012

By Rhodie Miller

The hiring and replacing of leaders plays an integral part in the operational success of any organisation and, in turn, its longevity. The leader of an organisation promotes it, guides its vision and directs employees to ensure a cohesive culture; therefore the selection of the “right” leader becomes a critical element for all organisations. As recognised by a number of scholars, the sophistication of HR management practices used to recruit and select leaders, especially into an innovative organisational culture, can predict organisational success.¹   It is one thing to find a leader but that leader must meet the needs, circumstances and culture of the business at the time. This paper will address the hiring and replacing of leaders and the impact on the organisation of adopting the executive fit/refit model in deciphering how best to hire and replace leaders.

Much has been written about leadership qualities and style. Duigan & Bhindi present a conceptual framework approach to leadership and the need to identify “authentic self” in terms of significant values and relationships.²   Burns looks at leadership from a strong moral perspective, defining transformational leadership as a “process where leaders and followers engage in a mutual process of raising one another to higher levels of morality and motivation.”³   Robert House (1996), however, reformulated his original 1971 theory to include leader behaviours that enhance subordinate empowerment and satisfaction by displaying characteristics of support, direction, participation, achievement and work facilitation. Northouse (2007) defines leadership as “a process whereby an individual influences a group of individuals to achieve a common goal.”⁴   It is usually the responsibility of the Chief Executive Officer (CEO) of an organisation to promote that common goal and drive the group to become more effective and efficient.

Effective leadership on the part of the CEO is imperative to the revitalisation of organisations.⁵ In saying that, a specific CEO can be extremely successful in one organization yet fail in another. Different variables are inevitably at play that can affect the overall outcome of a leader. For example, one organisation may be suited to a specific leadership style, for example a transactional leader that operates within the existing system or culture (as opposed to trying to change it) by (a) attempting to satisfy the current needs of followers by focusing on exchanges and contingent reward behaviour, and (b) paying close attention to deviations, mistakes or irregularities, and taking action to make corrections⁶  – another may not respond well to this style. In attempting to attract and retain the right leader it is important that both the characteristics of the organisation and role are understood clearly as well as the individual characteristics of the applicant. This will enable a more accurate person fit and job fit.

If unsuccessful, many turnover experts see CEO replacement as an essential ingredient for business recovery.⁷   A new leader can provide a fresh approach or vision that the company might be in need of and bring about a change in strategic direction as well as increased motivation and involvement of employees. When an organisation requires a change in leader, they will either hire an individual, often an outsider to the organization, or replace the existing leader with an individual already working for the organisation. The Chrysler Group, which was at the brink of collapse, is now in recovery stage due to the leadership of Sergio Marchionne. Marchionne is committed to rapid change within the organization, including a five-year plan to overhaul its vehicle lineup as well as double sales.⁸   His leadership style adopts a collegial approach with a preference for dealing directly with managers and employees. Indeed, he insists his office be on the same floor as the engineers instead of the top floor penthouse office.

This hiring choice is entirely up to the organisation. However, outside hiring appears to be widely prevalent considering the increase of job boards and social media such as LinkedIn; there seems to be an increased rate of voluntary job turnover. This contradicts the dominant model of previous generations, which saw the reorganisation of firms’ existing employees into new roles. According to Kotter, insiders have an advantage over outsiders as they acquire expertise through long tenure with one company.⁹ Lifetime employment models, popular in Japan and present in the United States with organisations such as GE, GM, IBM and Coca Cola, are essentially based on a retraining and relocating approach. General Electric’s CEO Jack Welch strove to eradicate inefficiency by streamlining the bureaucracy at GE through employee empowerment and opportunities for individuals to grow and progress.¹⁰ Hiring from the outside, however, has often been associated with a troubled firm, one that is attempting to turn around its operations.

Whether an organisation decides to replace its leader with an internal successor or go outside the organisation to hire, it is a given that the most important thing is ensuring that the right person for the position is hired. Internal succession provides the opportunity to again refit executive competencies to suit the altered context.¹¹   This requires the organisation to know what it is they are looking for in the individual and what type of person is a good “fit” so it can realign leadership with corporate strategy.

Finkelstein extols this view under what he calls the “fit-drift/shift-refit”¹² model, defined by the idea that when a new leader is appointed an opportunity becomes available to put in place a person whose skills fit an evolving organisation. This allows their behavioural and cognitive competencies to complement the contextual requirements of the organisation in the present and the foreseeable future. Over time these contextual conditions may drift or even shift, ensuring the ongoing suitability of the chosen leader. Hallmark Cards Inc. places a strong emphasis on job fit and company fit, generating $4billion in revenue and employing 20,000.¹³   The company recognises the hiring and replacing of leaders is a critical element to its success, as is adopting a behaviour-based selection process, and maintaining a consistently low turnover and high employee satisfaction.

The recruitment of a leader can sometimes be in line with a broader corporate strategy aiming to gain greater market share, attract new clients or champion change throughout the organisation. Conigrave recognises the significance of hiring a leader and the importance of an organisation knowing their strategy, where they are taking the enterprise, where they want to be, what their challenges are, and what they are looking for.¹⁴   Establishing key selection criteria and a person specification strategy at the front end will inevitably lead to a more targeted process; to ensure the appropriate candidate is sourced, “they should map and match the individual’s particular characteristics against what the organisation needs.”¹⁵   This can be achieved through the fit/refit model as it highlights the importance of alignment between management capabilities and contextual requirements.

In today’s highly competitive market, leaders are required to inspire and motivate others, be comfortable with change and volatile markets, have the ability to create a high performance culture and provide vision for their company. As organisations are now competing for business on a global scale, it can sometimes be the leader of an organisation that is used as the selling point, a point of differentiation from competitors that will augment its market share.

If the recruitment process is not thorough – if it fails to look at all vital areas such as person job fit, organisation fit, and credentialing and leadership style-then the overall performance of the organisation is at stake. A Harvard University study indicates that 80 percent of employee turnover is due to costly hiring mistakes.¹⁶   The monetary value of failed recruitment is often severe (up to x2.5 salary paid);¹⁷   the higher the salary the higher the overall cost as higher paid employees have a greater impact on business operations.

Negative influences on relationships and employees in an organization can harm culture and reputation. The recent demise of Yahoo’s CEO, Scott Thompson, demonstrates the attention an organisation can receive for a failed hire. Thompson is stepping down after a controversy over a fake computer science college degree in his biography; he is the third CEO to leave the company in three years.  In these types of circumstances it is the leader of the organisation and the HR professionals who have the responsibility to try and rectify the damage that has taken place and implement a strategy for the future. The performance of Yahoo’s listed stock over the last four years indicates that the company was valued at its lowest in January 2009 and September 2011, coinciding with the resignations of the CEOs of the time. The market’s view of the company’s value highlights the damage and instability that occurred at this time.

Graph: Source: Yahoo Finance 2012

It is throughout the hiring process that the competencies and attributes of an individual become apparent; knowledge not only of their skills and experience, but also their ability to motivate and inspire employees, is imperative. Beich identifies the essential criteria of a leader as follows: a visionary coalition-builder; internationally astute; quick learners and fast implementers; highly creative; comfortable with change, volatility, and ambiguity; have an intimate knowledge of the changing customer needs; an agility to revamp operations instantly; and produce rapid results in all areas.¹⁸   Assessing and recognising an individual’s capabilities can be achieved most effectively through adopting tools such as Person Organisation Fit, Behaviour Based Assessments, peer referrals, social media and behavior based interviews. The concept of generic leadership competencies is inadequate; each circumstance and context needs to be considered. When the Board of a troubled company removes incumbents who are substantively mismatched to those conditions, the company has greatly increased chances of improvement.

An example of a decision by a company Board to reposition a business given market conditions and relative competitiveness was the appointment by Virgin Australia of John Borghetti as CEO.  The company faced stiff competition by rivals Qantas, Jetstar and Tiger Airways and required the expertise of a new CEO to reposition the company’s brand. Since his appointment Borghetti has successfully improved the company’s performance and market share; from early 2010 the Virgin Australia Holdings share price has increased by over 33% (ASX 2012), while its share of the domestic airline travel market has increased to precisely 32.5%.¹⁹

Every organisation has its own uniqueness and individual culture; recognising this is the key to hiring success. It is imperative therefore to attract the best person, someone who will match the job requirements whilst fitting in with the company’s culture and mission, a leader who causes quantum change in the paradigm of an organisation. As Jack Welch, CEO of GE stated “strategy follows people.”²⁰   This emphasises the importance of high level involvement in the executive resource planning and staffing processes and the importance of an alignment between a new leader’s experiences and competencies with the company’s strategic vision. People like Jack Welch and Winston Churchill, vastly different but leaders in their different ways, both possesse/ed the persistence and ability to cut through the substance of everyday processes to inspire and challenge others to compete in the everyday marketplace – this approach should be regarded as a model for success.

¹Shipton, H., Fay, D., West, M., Patterson, M., Birdi, K. (2005). ‘Managing people to promote innovation.’ Creativity and Innovation Management, 14, 118-128
²Duigan, P. A. and Bhindi, N. (1997). ‘Authenticity in Leadership: an emerging perspective, ‘ Journal of Educational Administration, 35 (3), 195-209.
³Burns, J. M. (1978). Leadership. New York: Harper and Row.
⁴Northouse, P., cited in Rowe, G., Guerrero., L, (2010). ‘Leadership – what is it?,’ Cases in Leadership, Ivey Publishing. Retrieved from http://www.sagepub.com/upm-data/15104_Rowe_Chapter_01.pdf
⁵Tichy, N., Devanna, M. (1986). The Transformational Leader. New York, NY: John Wiley Press.
⁶Bass, B, (1985). Leadership and performance beyond expectation, New York: Free Press. / Burns, Leadership, 1978.
⁷Bibeault, D. (1982). Corporate Turnaround: how managers turn losers into winners, McGraw Hill, New York. Conigrave, N. interviewed in Birchfield, R (2011). ‘The Director: The Challenge of Choosing the CEO,’ New Zealand Management Magazine.
⁸Welsh, J. (2012). ‘Chrysler Decline and Recovery’ featured in 60 Minutes. Viewed 23 May 2012, http://blogs.wsj.com/drivers-seat/2012
⁹Kotter, J., (1999). On What Leaders Really Do, Harvard Business Review Press.
¹⁰Clieaf, M. (1992). ‘Strategy and Structure Follow People; Improving Organisational Performance Through Effective Executive Search,’ Human Resources Planning, 15:1, 1992.
¹¹Chen, Hambrick., D. ‘CEO Replacement in Turnaround Situations’
¹²Finkelstein, S., (1998). ‘How much does the CEO matter? The role of managerial discretion in the setting of CEO compensation,’ Academy Management, 179-199.
¹³Davilla, L., Kurksmark, L., (2005). How to choose the right person for the right job every time, McGraw Hill.
¹⁴Conigrave, N. interviewed in Birchfield, R (2011). ‘The Director: The Challenge of Choosing the CEO,’ New Zealand Management Magazine.
¹⁵Spencer, S. interviewed in Birchfield, ‘The Director.’
¹⁶Study cited in Davilla, Kurksmark, How to choose the right person for the right job every time.
¹⁷Callander, J. (2010). ‘The true cost of businesses recruiting the wrong person for the job,’ HR Review, UK.
¹⁸Beich, E. (2011). ‘Developing Leadership Development Programs: whose responsibility is it anyway?’ ASTD Leadership Handbook.
¹⁹Robin, M. (2012). ‘Qantas and Virgin fight over market share,’ Leading Company, viewed 19 May 2012, http://www.leadingcompany.com.au/business-models/qantas-and-virgin-fight-over-market-share/20120426816
²⁰Jack Welch cited in Hinterhuber, H., Popp, W. (1992). ‘Are you a strategist or just a manager?’ Harvard Business Review, retrieved from http://hbr.org/1992/01/are-you-a-strategist-or-just-a-manager/ar/1