Forget emotional intelligence, it’s the CEO with the aggressive eye on results that matters. Zalud’s Blog just received an information report from Dr. Brad Smart, president
Smart & Associates. www.SmartTopgrading.com
Two recent issues of The Wall Street Journal and Chief Executive have created a bit of a firestorm, with Topgrading research questioning, if not destroying, a common myth – the myth that top executives, including CEOs, need more Emotional Intelligence than Type A intensity.
Are you surprised at this politically incorrect result? The current issue of Chief Executive shows the staggering costs of mis-hires at the top … and the fact that 2/3 of CEOs fail to meet the objectives they were hired to achieve, and the average tenure for a CEO these days is only 18 months. I think the two lines of research are related – that high level managers are hired with too much weight placed on Emotional Intelligence and not enough importance put on getting results.
In this article, I summarize some academic research on success of Topgraded CEOs, and you can judge whether the results are equally applicable to other upper management jobs. Having assessed well over 6,000 senior executives, including more than 600 CEOs, I happen to think what you are about to read pertains to ALL upper management jobs.
The September 15, 2008 issue of The Wall Street Journal reported findings in which three
WSJ: “The findings are sure to intensify debate about how much toughness is appropriate in a CEO.” With tough CEOs at General Electric, IBM, and Hewlett-Packard replaced by CEOs high in Emotional Intelligence, and with hundreds of studies of EI in the psychological archives – almost all seeming to sing praises for EI – the results indeed break with conventional wisdom.
As you might expect, the private equity firms researched, including Blackstone and Bain Capital, are not shy about measuring the financial performance of CEOs they hire.
RESULTS: Among the high-scoring traits of CEOs delivering superior financial results are: following through on commitments, hiring A players, setting high standards, holding people accountable, and analytical skills. Correlating less with financial performance are treating people with respect, listening skills, persuasion, creativity, and enthusiasm.
These results coincide with my experience – high performing leaders are not necessarily super salespeople, but as Jim Collins points out in Good to Great, underneath the surface they are intensely motivated. And results-oriented “doers” are not necessarily warm and empathetic, but people respect and follow them as leaders. Mark Gallogly, a co-founder of Centerbridge Partners, suggests that CEOs of public companies need more soft skills to manage relations with the public, shareholder groups, analysts, governmental entities, etc.
The ideal of course is to have both intense drive to produce results AND warmth, understanding, and empathy. But for any upper management job if there are two finalists, one with superior financial results and “okay” Emotional Intelligence, and the other with superior EI and only an “okay” record of accomplishment, which would you hire? Me, too.
Geoff Smart’s Topgrading professionals performed all the in-depth Topgrading assessments of the 225 CEOs, and he and I have discussed the results. In personal communications Geoff said that soft skills are important; however, the existence of the hard skills is what differentiated CEO performance.
In his CEO performance study Geoff refers to “cheetah” CEOs, who scored highest on being fast, aggressive, persistent, proactive, strong in work ethic, and holding people to high standards. And there are the “lamb” CEOs, who scored highest on showing others respect, listening, and openness to criticism. The “cheetah” CEOs met or exceeded their financial targets twice as often as the “lamb” CEOs.
It may be that the tough skills are absolutely necessary to get results, and the soft skills are important in moderation. I personally cringe when boards weight the soft skills over the proven ability to get results, because that almost always spells disaster. But it’s equally risky to hire the Type A, hard driving SOB manager who is clearly deficient in EI.
For more than a decade my specialty as an executive coach at GE was to help the autocrats “grow ears,” and it was my recommendation to Jack Welch to fire any executive who did not achieve at least a 7 on a 10-point scale on the interpersonal aspects of leadership. Jack agreed, and got the attention of the world when he fired four executives who exceeded their stretch operating and financial goals, yet after a year continued to be deficient in … you guessed it … treating people with respect, listening, etc. High performing companies, in my experience, have a lot of excellent managers who are a 9+ in getting results and a 7 in Emotional Intelligence.
CHIEF EXECUTIVE MAGAZINE ADDS TO THE CONTROVERSY
The December 2008, issue of Chief Executive published an article, The Costs of CEO Failure, using the cost of mis-hire model I developed in the 1990s. That model has broken the costs of mis-hires down into dozens of factors which I placed in categories such as annual comp, cost of hiring, cost of maintaining the person in the job, mistakes/failures, disruption, etc.
My research base on the cost of mis-hires has grown over the years, with costs added for different groups, and results have been published in both editions of Topgrading: How Leading Companies Win by Hiring, Coaching, and Keeping the Best People, and in Topgrading for Sales: World-Class Methods to Interview, Hire, and Coach Top Sales Representatives. Although our research showed the average cost of mis-hiring a sales rep earning a $100,000 base to be $500,000+, or 5 times base comp, the average cost of mis-hiring an upper level manager is 27 times the base comp.
The Chief Executive analysis took our basic model (and credited us with it, thanks) and then showed how at the CEO level the costs skyrocket! Bottom line, the average cost of a CEO of a large company is $53 million, for a mid-range company is $22 million, and for a small company is $13 million. Appropriately, the writers noted that when there is a CEO change, 25% of the other executives depart – zoom, the costs go up. And there are 6-figure signing bonuses; zoom, the costs go higher. And the average severance is 3 times annual salary for large companies, 2 times for mid-sized companies; more zoom.
So as to not be accused of hyping the data, in my cost of mis-hire research I’ve always accepted “zero” as the cost of disruption, with respondents typically saying the cost of impaired morale and trying to figure out new directions must be high, but too hard to guess at. The Chief Executive authors put pen to paper and came up with high numbers for “disruption.” Good for them! Zoom, up go the mis-hire costs.
And those high costs of mis-hire do NOT include the cost when the stock declines. Booz Allen Hamilton research shows an average stock decline of 10%+ when there is a CEO change of a company that has been doing well. Downward Zoom. Can the seriousness of mis-hires at the top get any worse? Yes! …
The Chief Executive authors add some startling statistics … 40% of CEOs are gone within 18 months, 64% fail to achieve the objectives for which they were hired, and get this – only 37% of CEOs have previous CEO experience.
Smart’s conclusion: my hunch is that senior executive hiring has been an extremely costly failure in part because of disproportionate emphasis on Emotional Intelligence and insufficient emphasis on getting results, and that the standard for hiring senior managers should be that they are good in Emotional Intelligence and great at getting results.