We all feel the cost of poor leadership. We are living it right now. The mismanagement of a pandemic, prejudicial police tactics, inaction on climate change – the cost is severe. Poor leadership in business can be just as catastrophic, resulting in pensions decimated, discriminatory hiring practices, or devastating job losses.
Generally executives are appointed by experienced and well-intentioned search companies, who are incredibly good at sourcing candidates but less effective at selecting them. McKinsey and HBR have both reported that 50% of leadership transitions fail within the first 18 months of being promoted or hired. The legacy of failed leadership is not so much a long and winding road, but a seven-lane pile-up. Even in small businesses, leaders fair no better – 75% of start-ups fail in their first 12 months. Despite this, the executive search industry in 2019 was valued at over $20.5 billion. Something is clearly afoot. At the senior level, six-figure search fees are not uncommon – I can only assume there is no money back guarantee.
I am continuously confused by the dissonance with which organisations will scrupulously interrogate a $1million spend on a piece of IT equipment but not the hire of a $1million executive.
Evaluating leadership, like leadership itself, is rarely simple. As Daniel Kahneman states in his ground-breaking Thinking, Fast and Slow, “because luck plays a large role, the quality of leadership and management practices cannot be inferred reliably from observations of success. Even if you had perfect knowledge that a CEO has brilliant vision and extraordinary competence, you still would be unable to predict how the company will perform with much better accuracy than the flip of a coin”.
Adopting a data-driven approach
Chemistry has spent 17 years challenging dismal leadership stats. The results of our research and field experience point to a very obvious answer – organisations may be measuring a whole bunch of metrics about the executives they aim to hire, but the problem is the metrics they’re measuring are largely irrelevant to the outcome they’re trying to engineer. It is a classic case of false equivalence.
On top of this, we have found the more senior the appointment, the less the assessment variable predicted the outcome variable. That means organisations spend less time defining what they need (the assessment variable) and use a lower quality of assessment for this variable – another total disconnect.
Compare the punishing regime of time, energy and data collection that goes into a lowly graduate hire – an individual that has very little impact on the business performance (unless you’re Jack Welch) – versus the subjective, relationship-based, lunch-dinner assessment of most senior executives. I am continuously confused by the dissonance with which organisations will scrupulously interrogate a $1million spend on a piece of IT equipment but not the hire of a $1million executive.
Executive hiring or promotion should be data-led and objective. How do we know the majority of it isn’t? Well, as of right now 47% of FTSE 100 companies have no people of colour sitting on their boards. Only 3.3% of FTSE 100 Chairs, CEOs and CFOs have a BAME background and although great progress has been made in promoting gender parity in leadership and a third of all FTSE 100 board positions are now held by women, in the S&P 500 just 5.8% of leaders are female. With this in mind, can we really say that search companies are selecting the right leaders for your organisation? There is work to be done.
Go beyond a job description
Clearly define the talent you need beyond a job description for the current context you find yourself in. We call this defining ‘what great looks like’ (WGLL™), hiring for where you want to go, using data and behavioural observation to establish what makes your very best executives successful. Then, to avoid cloning, we ask what would we add to make this team/organisation more successful?
Avoid overreliance on the search company
Do not leave the selection to the search company. Remember, they have no skin in that game. They’re brilliant at sourcing candidates: use them for this. Then, consult a third-party specialist to ensure you are picking the right leader from your pool of candidates. Think of it like this – if you are going to spend six figures on a search fee, the specialists are your insurance policy. Unless, of course, your internal talent teams can carry out the final selection.
Stay data-driven while onboarding
Onboard effectively. Almost 70% of executives report a lack of understanding about the norms and practice as a reason for failure. Use the data (which you’ve already paid for) gathered at the point of hire/promotion to successfully onboard the candidate.
The impact of a poor leadership hire can be felt throughout the entire business. When the knock-on effect of leadership failure is people’s livelihoods, finding the right person for the job shouldn’t come down to just a feeling. I’ve brought it down to three steps: defining what you need, selecting for yourselves and onboarding effectively, but putting this into practice will look different for every company. There is still work to be done, and we’re doing that work.
Interested in this topic? Read Recruitment: why AI and Big Data alone can’t solve bias.