The Economist
How to run a company well
From The Economist print edition
Ten
commandments for successful leaders
LEADING a
big public company is one of the world's most important jobs. It is already
fiendishly difficult, and seems to be getting harder all the time. Those who make it to the top frequently fail: they stay
for shorter and shorter periods. And there is more
competition than there used to be for the talents of top bosses because private
equity now offers another option. To judge by the huge
pay packets offered to the few deemed capable of doing such jobs, there is a
dire shortage of people thought to have what it takes. Here
is a ten-point checklist of the necessary qualities.
1. A sound ethical
compass. If the boss's values are undemanding, the company's will
also be wobbly. That may not put it out of business,
but it means the company will have to pay a premium for talent. Good people do not like working for organisations
whose values they mistrust. But ethical values are
difficult to acquire on demand, in middle life. “The
deeper sources of constraint are hard-wired at an early age,” says NYU's Mr Allen.
2. The ability to take
unpleasant decisions. Many judgments must be made on the basis of
ambiguous information. Leaders often have to deal
swiftly with conflicting demands without being sure of their facts. That calls for a strong stomach. Those
who cannot bear to inflict pain or risk making enemies, or who need cast-iron
evidence before making up their minds, should not apply.
3. Clarity and focus are essential
requirements for making those awkward judgments. Leading
a large company, and dealing at speed with a host of complicated and many-sided
issues, is an immense intellectual challenge. To
extract the crucial point from complexity is essential for devising an
effective strategy. In order to survive the clamour for time and attention, a leader must also be able
to screen out unnecessary noise and to focus on what really matters. That goes with realism—there is no point in aspiring to
the unachievable.
4. Ambition. The best leaders are
empire-builders who want to create something that outlasts them. That is different from ego-boosting personal ambition. It supplies the ruthless drive and the obsession with excellence that are essential components of good leadership.
5. Effective
communications skills are a relatively new requirement, the result of the
increasing intrusion of the outside world: media, analysts, shareholders,
environmental groups. All require a corporate leader
who can talk convincingly—which is not always the same thing as telling the
whole truth. Motivating a large workforce requires a
gift to present a clear vision persuasively. A leader
who cannot inspire trust and convey authenticity will find the task difficult.
6. The ability to
judge people is an essential prerequisite, given the importance of human
capital. Lord Stevenson, the chairman of HBOS, a big
bank (and also of Pearson, which part-owns The Economist), says that he
spends perhaps three-quarters of his time getting to know the top 150 people
where he works. Mr Welch
used to describe himself as the “world's best-paid human-resources director”. Judging who will work best in which slot is one of the key
tasks of leadership. Like so many aspects of the top
job, it requires intuition as well as experience.
7. A knack for
developing talent is needed to build a stock of future leaders. People
learn far more about the art of leading from a good mentor than from a great
book. So effective leaders need not only to spot where
the talents of a particular individual might be best deployed; they must also
be teachers, conveying their skills to those around them (and encouraging
others to teach their colleagues too). That is the way
to create leaders at many levels in an organisation.
8. Emotional
self-confidence. Accumulating a pool of talent requires an
ability to work with people who may be better at their job than you are at
yours, and to guide and motivate them. Leaders who are
jealous of their followers do not inspire loyalty. Self-confidence
also allows people to admit to weakness and ask for help without feeling
defensive or inadequate. Successful leaders need to be
able to say, “I don't know what to do next,” without losing the respect of
their colleagues.
9. Adaptability will prove invaluable
when things go wrong. Surviving a reverse calls for
resilience and flexibility. It is one thing to spot a
change in the market, or in public attitudes, or in the political climate. It is quite another quickly to devise a completely different
approach, even if that means abandoning an idea to which a leader has been
passionately committed.
10. Charm is not a quality
taught on MBA courses, but few get to the top without it. A
bit of luck helps too, though that may prove hard to arrange.
Many of these
qualities are useful for leading any enterprise, but especially a publicly
traded corporation. In turn, the way companies are led determines the prosperity of nations and the
happiness of their workforce and their customers.
In response to the
scandals and collapses of the past two years, governments have rushed in to
tighten the rules of corporate governance. That is no
bad thing: good governance may not guarantee good performance, but at least it
provides tools to tackle bad management. And it is
right to give boards a sense of responsibility and the means to exercise it. All this helps to rebuild trust.
There is, though, a
danger that regulators, under pressure to be seen to act, will eventually go
too far in some countries. Regulation is only one of
several growing and conflicting constraints on corporate leaders. The glare of the media, the incessant demands of analysts
and the increasing politicisation all make the job
harder to do well. But corporate leaders now have an
alternative. The demand for capable people to run
businesses held by private-equity ventures is booming.
Talk to the chief
executive of a public corporation about a job in private equity and “the first
question is, ‘When can I start?' They bite your hand
off,” says Ashley Summerfield, a headhunter with the
Running a large public
company is still a thrilling and rewarding job, but nobody should take it for
granted that there will always be a supply of leaders with talent and integrity
willing to take it on. Too much mistrust and
invective, and some of the best may simply decide the task is not worth the
effort.