Thursday, December 17, 2009

Leaders Are Developed; Not Hired

I see that Bank of America (BoA) finally decided on a replacement for CEO Ken Lewis. The board blamed the lengthy process on the compensation restrictions that pay czar Kenneth Feinberg has placed on financial institutions.

I disagree. I place the blame on the board and, more generally, on American business in general.

Companies should rarely, if ever, have to conduct an executive search. The most basic responsibility of a company's board of directors is to protect the interests of shareholders. This cannot be accomplished without continuity in leadership which requires succession planning and leadership to development at the highest levels of the company.

In my practice, I encourage organizations to always have the successors identified for each senior position within the company. Although most agree with the need for succession planning, it is too often given too low of a priority to make it happen.

There are a number of advantages to the organization of developing leaders from the inside, however, that should give it enough importance to make it a priority, including the following:
  • Reduced Recruiting Costs: Besides the price of retaining a recruiter to fill an executive-level position, there are internal costs associated with interviewing and screening potential candidates, as well as the costs incurred while the new leader learns about the company's processes, customers, systems, and culture;

  • Keeping Talent: When people see that leaders are promoted from within the organization rather than hired from the outside, they feel more valued and better about their own future with the company. This tends to increase loyalty and decrease turnover. Also, those with leadership ability can be identified early and groomed into management positions in a way that fits the company's culture and leadership style;

  • Reduced Compensation Costs: Promoting from within tends to keep compensation costs down because you are not competing with other companies for the same candidate. Besides the increased compensation that comes from competition, hiring a leader away from another organization can include contract buyout costs, as well as payments for bonuses, stock options, etc. that the new hire is losing by leaving his or her current position;

  • Continuity in Direction & Approach: One of the most damaging aspects of hiring a leader from the outside occurs when the new hire has a different leadership style than his or her predecessor or takes the company in a different direction. People become confused and fear increases, further increasing costs to the organization;

  • Reduced Risk of Success: No matter how careful the search process is conducted, there is a certain level of risk associated with a new hire. Promoting from inside the company reduces that risk because the person's ability, personality, character, and leadership style is already known.
The obvious downside of developing leaders from inside the company is losing someone after investing to develop his or her leadership skills. Although the lack of focus on leadership development in western business makes this a valid concern, it is not enough of a reason to ignore such an important aspect of an organization's future.


Bruce Baker said...

Very insightful Gregg. I learned my organizational sensibilities in the United States Marine Corps. They HAD to develop and nurture leaders at every level. They can't go outside the org toget a Sgt or a General. All that mentoring and formal and informal development made the Corps a lot stronger. If I were a shareholder in a corporation I would be upset if they felt that they HAD to look outside. Doesn't say much about their investment in people.

Gregg Stocker said...

Great point, Bruce. I hadn't thought about the military - and how they can't just hire from the outside. Thanks for the comment.

Gil Pizano said...


You raise some very good points that many corporate leaders need to keep in mind when looking for leadership talent. I myself am in the process of working with other leaders within my company to setup different types of internal training and mentoring programs with the goal of giving people (who want it) the opportunity to develop the leadership skills needed by so many organizations within a company. In the process I've been surprised at how some actually view such an endeavor as "not necessarily the best for the company's goals". Fortunately, I've run into more leaders who believe in the need to develop other leaders internally rather than search outside.

Thanks for sharing your views here! They are very good and thought provoking.

Best Regards and Take Care,

Gil Pizano

nimia acebes said...

I really admire this post. I hope this is read by the top executives of our country. If your suggestions are followed, then we will have good leaders in our organizations. Thanks for your post.

More blessings.

Nimia Acebes at