WHAT GOT YOU THERE WON’T KEEP YOU THERE

By Jerry Dilettuso

Bankruptcies, accounting fraud, sexual harassment charges, bribery, inaccurate expense reports, overly leveraged financial institutions . . . all leading to the demise of high profile Chief Executive Officers; and, in some cases, to the companies over which they presided. In most of the cases the CEOs had pedigree educations, have been enormously talented, accomplished, and successful businesspeople – and have tirelessly worked their way to the corner office. What on earth goes wrong?

In a seminar I teach at the Business Leadership Center of the Cox School of Business at SMU about the roles and characteristics of successful CEO’s, I always ask the students why they want to be a CEO. Invariably, they answer using these words: power, authority, wealth, independence, dominance, and assorted similar descriptive phrases. The students provide both a visceral response and a keen insight into the nature of the dilemma with which we are faced. These are all self directed words, and they can be powerful motivators in seeking ones goals. Obviously, an individual must be highly self-motivated to achieve pre-eminence in any endeavor.

Malcolm Gladwell tells us in his book, Outliers: The Story of Success, an individual must practice a minimum of 10,000 hours in order to master a particular endeavor like playing hockey, using a computer, or singing opera.

Alan Couzens trains athletes and developed a chart to measure physical fitness. It shows the number of hours practiced against the improvement in VO2 scores, the body’s capacity to transport and use oxygen during exercise, which is a measure of physical fitness. The chart says an individual with average inherited capabilities can reach world class physical fitness after close to 8,000 hours of practice and can improve another 6 percent by practicing an additional 2,000 hours.

Let’s assume that Gladwell is right and Couzens’ chart is accurate. Let’s also make the assumption “Gladwell’s Law” applies to any field of human endeavor, including becoming a CEO. To become a CEO, an individual must master the fundamentals, which means one must become expert in the functional disciplines of business: marketing, sales, human resources, finance, strategy, operations, and business law at a minimum. Let’s also say one must become an expert in at least one industry. Here’s the math:

It’s going to take the average individual 22 years to master the subject matter required to become a CEO. One may say, “Well, the CEO is not an average individual,” and I’m likely to agree.  I, however, have not included some other areas of expertise that are required, such as communication, negotiating, and computer skills. Neither have I given our CEO much of a life outside work. There’s 12 hours worked each day, six days a week for 22 years with but a scant two weeks of vacation each year – without that, it would have taken longer to attain the goal. So let’s just agree on a range of from 20 to 25 years.

Now remember, that’s just to master the subject matter, and that is the beginning of the fatal flaw. That fledgling CEO has spent most, if not all, of their time mastering the subject matter required to occupy the position. In addition, in order to expend the energy, muster the dedication, and make the sacrifices necessary to attain this level of accomplishment has, in most cases, been inwardly directed; that is, self-motivated. If outwardly directed, the efforts would have been for the benefit of spouse and family. Finally, throughout the years the CEO has learned to have a sense of urgency, be self reliant, and, above all, must at least appear to be exceedingly self-confident. No doubts here.

Then, in the blink of an eye, the entire landscape changes when becoming a CEO. To retain the position, a CEO can no longer be inwardly directed and must now be outwardly directed. When once the efforts were for the benefit of family and self, they now must be for the benefit of others: customers, co-workers, shareholders, and vendors. When once the individual and family came first, now others must come first. When once always wanting the spotlight, now the CEO must want the spotlight always directed at others. I tell my students something that seems to resonate with them and epitomizes the transition that must take place. A CEO gets there by talking and stays there by listening.

This change in perspective is enormous. What once were virtues are now vices. Moreover, these vices are easily detected – here’s one small example. That sense of urgency that has served so well can turn into impatience. Showing impatience with an individual who may be poorly presenting a position means not becoming exasperated and barking, “What’s your point?” Why not? That employee has to go back to the office and work even harder to develop their position. It may mean delivery in three days for what might reasonably take three weeks.

The behaviors required for success in the position are foreign to the newly minted CEO. Humility, patience, listening, promoting others, and accolade resisting are all qualities and skills the new CEO has not learned, and there are not three years or 10,000 hours to master them either. Moreover, the outward manifestations of these behaviors are easily detectable by others but not so easily discernable by the new CEO. In short, the CEOs who go astray are most often protagonists in stories reminiscent of a Greek tragedy. They commit wrongful acts or moral lapses in ignorance of the nature and effect of their actions, which is the starting point of a causally connected train of events ending in disaster.

Jerry Dilettuso is a partner at Newport Board Group and is based in Dallas. Newport Board Group is a partnership of board directors and senior executive leaders with deep knowledge of business strategy, operations and capital markets. Jerry.Dilettuso@NewportBoardGroup.com

MAKING THE CASE FOR CFOS TO BE A CEO’S PRIMARY INFLUENCER

By Jerry Dilettuso

According to CristKolder Associates, a search firm specializing in C-suite searches, the number of Chief Operating Officers is in decline and has been since the year 2000. In that year 47.5 percent of all companies on the Fortune 500 and S&P 500 lists had a COO. By contrast, in July, 2011, the number of companies on these two lists with a COO had declined to 38.3 percent. These numbers reflect my own perspective.

I once joined a struggling company with two operating divisions as its president. Not more than three weeks after my arrival, the head of our most profitable division, who was universally revered by his colleagues, decided to leave for another opportunity. I knew absolutely no one at the company – never mind their strengths and weaknesses; I didn’t even know many of their names. What’s more, we had zero time to conduct a lengthy replacement search, and by “lengthy” I mean more than a couple of weeks.

After some reflection, I consulted with our Chief Financial Officer, who had been with our company for a couple of years and was familiar with all of the company’s executives. I had an idea, but I certainly wanted to discuss it with someone. Simply stated, the proposition was to request the department heads within the division to select their leader. After considerable discussion, my CFO and I agreed that I would meet with the department heads; explain I needed their help, and ask them for a recommendation.

When we met, I said they need not provide an answer during the meeting, but in all of our best interests, they had to move expeditiously. Much to my surprise, one of the department heads asked if they could meet separately and immediately. They returned in a couple of hours. Not only had they chosen a leader, but also they suggested a restructuring that separated the division into two units, named the head of the new division, and suggested the new division head report to me. We implemented their plan exactly as presented and the individual who succeeded the resigning division head is still in that position today.

The point of this story is not the process of choosing a division head; it was my reliance on our CFO for wise counsel, as well as the CFO expanding his purview beyond his traditional role. Here’s another example. We had an invoice that was considered by everyone, including our customers, virtually unintelligible.  It, along with other factors, caused a perception that we were not easy to do business with.

Our CFO and I got together and decided he would conduct a series of focus groups with some of our customers to simplify the invoice. Once everyone agreed on its structure, our CFO had to work with our IT department to construct the desired end product.  Sure, there were plenty of compromises made during the process, but we ended up with an invoice the customers liked and improved payment time.

Again, the point is not about the invoice; it’s about the CFO taking on responsibilities beyond finance. I want to provide one more example before drawing some conclusions. Many companies compete on “time.” For our company competing on “time” meant reducing cycle time. We defined cycle time as the number of days from the moment a salesperson received an order until the order was placed, in perfect condition, in the hands of the customer.

Consequently, reducing cycle time required that we flowchart the process and take “time” out wherever possible, not just speed the order through the plant. The “front end” of the order consisted of the sales person entering it and finance determining the credit worthiness of the customer. We reduced our guaranteed delivery time from eight weeks to five weeks with a considerable number of days coming from the credit portion of the “front end.”

Our CFO understood that cycle time reduction, a key element in our competitive strategy, required every element involved in the flow to provide a contribution in terms of days. Finance was not sacrosanct; it was merely a piece of the puzzle.

Now, let’s count up the number of functions in which our CFO became involved. The first example involves the most important task of the CEO: who to hire. It is, however, essentially, a human resources task. The second example involves marketing and sales with a corollary benefit to finance. The third example involves strategy and IT. Even more important, the third example involves a realization that finance is an integral part of a value chain that helps determine a company’s unique capabilities, competencies, and competitive advantages. There are additional functions in which our CFO became involved, including manufacturing, merchandising, communications, and legal.

There is a two-fold point to be made here, which is almost circular in nature. The first is: because finance is inexorably intertwined with every aspect of a company, the CEO must, by necessity, rely upon the CFO for perspective on every major decision made . . . and some minor ones as well. The second is: because the CFO must be consulted on a wide variety of issues relating to every division and function in the organization, the CFO must be able to think broadly. After all, what I am describing here is the principal confidant or counselor to the CEO.

The CFO cannot just report numbers, rather, the CFO must be able to interpret the numbers. The CFO must possess that unique ability to get “behind the numbers,” and get out of the office, walk the corridors and shop floor, forge relationships with divisional and departmental people, and understand their issues – not only to provide wise counsel to the CEO but also to assist the divisions and functions in the resolution of their issues.

I have never liked the term “number two,” as it suggests there must be a number one, which, in turn, leads to some sort of pecking order. I’ve always fostered a team approach where everyone is important and no one worries about who is more important than anyone else. If, however, we use influence as a measure of importance, I would suggest that, by default, a CEO’s CFO must have primary influence so long as that CFO is equipped to do so. I would also suggest that smaller companies cannot afford the additional highly paid position of COO. Finally, I believe there is too much redundancy in the COO/CFO positions to merit the additional COO head-count.

Mr. Dilettuso is a CEO adept at reversing distressed situations. He is a member of the faculty of the Business Leadership Center at the Cox School of Business at Southern Methodist University where he teaches a seminar entitled “The Five Roles of the Chief Executive Officer.”  He may be reached in Dallas at jerryd@dilettuso.com and 972-569-7848.   

THE FUNDAMENTALS OF A GREAT LEADER

By Jerry Dilettuso

Several years ago a private equity firm recruited me to be the CEO of a troubled company that provided apparel, camps, and competitions to the cheerleading world. As part of my duties, I was invited to speak to coaches’ organizations that were made up of mostly middle and high school teachers. Generally, their knowledge of the activities of a CEO was limited to what they learned from the media, which was not at all favorable. When they met me, they were filled with images of CEO’s from companies such as ENRON, WorldCom, Tyco, Adelphia, and the like. Because they were educators and naturally inquisitive, they would ask me, very pointedly, “What do you really do?” It caused me to think more deeply about my job as a CEO.

Recalling the CEOs I have known, as well as my own experiences, I have come to believe that a CEO has five roles: chief strategy protagonist, chief organizational designer, chief talent scout and team builder, chief agenda setter, and head cheerleader. Everything the CEO does can be placed into one of these five roles. They are not mutually exclusive. Rather, they are inseparably intertwined and overlapping, mutually supportive, and collectively exhaustive.

Chief Strategy Protagonist

Fundamentally, strategy is an iterative process built on a foundation of extensive analysis directed towards customers, competition, and economics. The result of analysis should lead, inexorably, to a clear and simple strategy statement anyone can understand. The process must involve as many people in the organization as reasonably possible without lapsing into paralysis or chaos. The ultimate strategy should include a “values proposition” that posits, paradoxically, profit is not the primary pursuit; it’s an outcome. The primary pursuit is excellence in products and services. To motivate people to achieve excellence, the organization must have a “loftier purpose.” At our cheerleading company our “loftier purpose” was, “We help kids grow up.” The job of the CEO is to be the catalyst in the development of a concise strategy based on demonstrable quantitative and anecdotal evidence.

Chief Organizational Designer

Organizational design consists of four elements: business model, structure, processes, and culture, of which the latter two are the most important. Good processes, such as a solid business planning process or a rigorous continuous improvement process, encourage disciplined thinking, promote corporate-wide integration, and resolve trade-offs.

Culture ALWAYS comes from the top and is rooted in the personal attributes and actions the organization values. A successful organization must value:

«  open and honest communication

«  outspoken, challenging thinking

«  the free flow of and widespread access to pertinent data

«  an inclusive as opposed to exclusionary atmosphere

«  the passionate encouragement of creativity

«  a religious fervor for measurements

«  a pervasive commitment to the creation of a “meritocracy”

The job of the CEO is to install the appropriate processes and embody the values of the organization.

Chief Talent Scout and Team Builder

There are two axioms that underlie this role: the most important decision any manager ever makes is who to hire, and business is a team sport. Consequently, the CEO must get involved in the hiring process across the entire organization as deeply as humanly possible without becoming meddlesome. The essence of teamwork is convincing individuals to set aside their own personal goals and aspirations for the greater goal of team success. Because very few teams become successful, this may well be the most difficult job a CEO has.

Chief Agenda Setter

No company has limitless resources, and the scarcest resource of all is time. The CEO must decide how best to deploy the collective efforts of the entire organization: which processes to install; what analyses to perform; what metrics to track; what projects to undertake; and a host of other endeavors that devour time. Behind whom to hire, the second most important decision a CEO makes is choice of agenda.

Head Cheerleader

The role of head cheerleader is all about accessibility and approachability inside and outside the corner office – around the offices, on the factory floors, in customer meetings, in vendor visits, in the community. It’s mostly comprised of one-on-one, informal conversations with all of the organization’s constituencies to obtain unfiltered, frank perspectives and assessments, to provide encouragement and reinforcement, and to offer constructive criticism in a positive manner. It involves the recognition the CEO is there to serve constituencies, not the other way around.

These roles require equal parts science and art. With considerable help from my teammates, I employed all of them as we, together, turned around our cheerleading company. The beloved Chinese philosopher, Lao Tzu, said it perfectly, “The best of all leaders is the one who helps people so that, eventually, they don’t need him. When he is finished with his work, the people say, ‘It happened naturally.’” We should have zero tolerance for the “Imperial” or “Celebrity” CEO. Achievement of the “loftier purpose” and organizational success alone must be the real reward.

Mr. Dilettuso offers a seminar in the Business Leadership Center at the Cox School of Business at Southern Methodist University and regularly speaks to groups and organizations on The Five Roles of the Chief Executive Officer. He can be reached at jerryd@dilettuso.com and 972-569-7848.