According to a new study from Hewitt Associates, companies that adopt more rigorous leadership development programs tend to do better. 3M, GE, Johnson & Johnson, IBM and General Mills top the list of the 20 best companies for leaders.
A part of these companies’ leadership development success could be attributed to CEO and board participation, which enriches learning offerings and contributes to a trickle-down effect that has direct implications for employment engagement levels. This could be a trend, said Walt Cleaver, president and CEO of the Human Resource Planning Society, but it also could be the result of business turmoil. “I think you’re seeing—across the board—a connection between the very top of an organization, the board of directors, drilling down into the organization in terms of being supportive or familiar with the strategy around developing good leaders,” Cleaver said. “At a broader level, I think the issue is around engagement and recognizing that there is a connection between the leadership capabilities in an organization and how they engage the rest of the organization in their business. Over the last couple of years we’ve seen a disengagement, a cynicism, well deserved in a lot of cases. But there is value in engaging people in terms of trust and credibility issues, and organizations are starting to get that message. The market is recognizing that the cliché, ‘People do make the difference,’ actually has some meaning. Organizations that are doing well, not only the top 20 list, but Starbucks or Home Depot, there’s a real engagement of their workforce.”
Cleaver said this realization may be driven by due diligence, legislation or the need for ethics training and skills to help manage the tensions between financial, legal, ethical and strategic issues within an organization. “The investment in leadership in some organizations is meant to, on one level, prepare leaders to do the right thing and make the right decisions in those four areas,” Cleaver said. “On the other hand, I think it’s recognition that leaders, with the right sort of collaborative skills, can engage an organization or engage people that work with them in a much better way that has positive, bottom-line results. The trends in leadership are essentially two big ones. One is to make sure that organizations are doing due diligence around making those right kinds of decisions between the legal, ethical and financial, but even more importantly recognizing the value that the human element places in an organization and having the right kind of leadership to drive that strategy.”
Michelle Salob, consultant, Hewitt Associates agrees. She said the top 20 companies for leaders have internalized three truths: CEO and board leadership and inspiration for leadership development programs, a powerful focus on the best talent, and having the right programs in place and doing them the right way. “The top companies have strong senior team and board support and involvement for senior team programs. They have good leadership programs, but they execute them well and they have a clear differentiation and focus on their top talent. We also saw a strong differentiator around accountability,” Salob said. “The top companies for leaders hold people accountable for leadership development—both for the programs, and for their own development as well as the development of others—and they measure those things. This year we found that the top companies are getting better, and the other 353 out of our 373 participants, their data has improved somewhat, but they’re not keeping up as the top companies get better and better.”
The execution of leadership development programs is key. Many companies have defined leadership competencies, but it’s how they use them that’s important. “We found that all of the top 20 companies have defined leadership competencies, and 73 percent of other participants have defined competencies for leadership, but top companies tie leadership competencies to a variety of pay,” Salob said. “They use leadership competencies and measurement of those to determine base pay, annual incentives and long-term incentives. In base pay and annual pay 60 percent of the top companies link that versus only about 30 percent of other companies.”
Succession planning also enjoyed a prominent place in the top companies’ leadership development efforts. Salob said that 95 percent of top companies use leadership compensation with internal selection decisions versus 67 percent of other companies. “Having a succession plan is great, but if you don’t actually use it, you’re not making use of the time and energy that your leadership and managers are putting into your succession planning program and process. Sixty-five percent of the top companies actually use their succession plan for selection of middle managers most of the time.”
Then there’s emergency succession or, as Salob calls it, the “hit by the bus” plan. “A regular CEO succession plan may be five years out, 10 years out. There may be a variety of people who you are developing, but if something happens and your CEO had to step down tomorrow, what would that interim solution be? We also asked, ‘Do you have a formal succession planning process?’ One hundred percent of the top 20 do, and 74 percent of the others, but then we asked, ‘How do you use it? Do you use it for a variety of different of things, including selection? Do you use it for the selection of senior managers?’ Eighty-five percent of top companies do. Only 53 percent of the other companies do. ‘Do you use it for selecting middle managers?’ We also asked what kind of things you include in your succession planning process: assessment of potential, development of high-potential pools, looking at talent, reviewing talent capabilities once a year, etc. The top companies have a broad view of succession planning, whereas the numbers are lower for some of the things that other companies include. For example, fewer companies look at current performance versus potential than the top companies do. The top companies don’t rest on their laurels. They are continuously working to refine their programs, improve effectiveness, adjust the leadership practices that they have to match changes to their business strategy. They’re continually measuring the effectiveness of it and looking for ways to do a better job of leadership development within their organization.”
