Sunday, November 18, 2007

Best Companies for Leaders

Hay Group and CEO Magizine released a study that identified the best companies for leaders and leadership development practices for 2006. Here's the news release:

PHILADELPHIA, January 4, 2007: General Electric ranks number one in the 2006 Best Companies for Leaders study, conducted by Hay Group in partnership with Chief Executive magazine. The study highlights the best practices for identifying and fostering leadership talent.
"An estimated 75 million workers will retire in the U.S. in the next 5 to 10 years , including 50% of CEOs from major corporations," said Mary Fontaine, vice president and general manager of Hay Group's McClelland Center for Research and Innovation. "There's an urgent need for leadership with only 45 million younger workers available to fill those roles. Some sectors and markets are already battling for talent and leaders. Within a few years it will be a full-scale war. Those companies that are not already preparing are putting their futures at risk."
The concern is not isolated to the U.S. and Western Europe where aging Baby Boomers are readying to retire. In emerging and developing countries—particularly in China, Eastern Europe, Brazil, and elsewhere—the need is to bring in and develop enough leaders to maintain their pace of growth.
Focusing on identifying and managing the talents of high potential candidates will rise to the top of the agenda, predicted Fontaine. "Organizations that are able to identify, develop, and promote their leaders from within will find themselves better positioned than their peers to win the war for leaders—and to safeguard their organizational futures. The top companies are already focused on this. Those companies which are not prepared will be forced to rely on external recruitment—which is usually much more expensive and less dependable than internal promotion."
Who are the best companies?
The 2006 Top 20 Best Companies for Leaders:
General Electric
Procter & Gamble
Johnson & Johnson
HSBC Holdings
Home Depot
Verizon Communications
Lockheed Martin
BAE Systems
These companies are a worthy benchmark group for our analysis: Their average five-year total shareholder return beat the S&P 500 over the same period by 3.53%. This period covers both the bleak years following the downturn and 9/11 as well as the recent surge in the S&P.
And what do they do?
The study identified the practices followed by the Best Companies for Leaders. The top three of the six best practices in 2005 were also the top three for 2006 and account for 68% of the variance in the number and quality of leaders as reported by each organization. 2006 Best Practices for Leadership Development
Having leaders at all levels who focus on creating a work climate that motivates employees to perform at their best.
Ensuring that the company and its senior management make leadership development a top priority.
Providing training and coaching to help intact leadership teams, as well as the individual leaders, work together more effectively.
The remaining best practices highlight the need to start early on mid-level managers and high potentials:
Rotational job assignments for high potentials.
External leadership development programs for mid-level managers.
Web-based self study leadership modules for mid-level managers.
Executive MBA programs for mid-level managers.
"The Top 20 companies are far more likely to use the top practices than their peers," said Fontaine. "And, while many of the companies we looked at employ all of the practices, the top ones use them by a much wider margin."
In addition to identifying the practices that companies should focus on to develop their next generation of leaders, the study also flagged activities that do not add value—at least not if your goal is to identify and develop leaders.
Practices that waste resources include:
Outdoor activity-based programs
Paper-based self-study leadership modules
Job shadowing for senior managers
Executive MBAs and web-based self study modules became worst practices when implemented too late in the executive’s career
"These practices may achieve other objectives, such as personal rewards or short-term team building," continued Fontaine. "But they don't help companies develop more, better leaders."
The shortage of talent and leaders will inevitably cause ripple effects elsewhere in business, particularly in placing inevitable further upward pressure on salaries and work/life balance issues. It will force organizations to pay a premium to hire talent from the outside, which is financially costly, takes time, and often fails.
Fontaine provides this analogy: "Imagine a game of musical chairs. Those companies that are proactively dealing with the crisis now will be seated in the chairs [with leaders intact]. The ones that are too late will be left standing—watching. Where will you be when the music stops?"
About the Study
For the Best Companies for Leaders study, Hay Group surveyed 564 companies with at least $8 billion in revenue from around the world. Data were collected from three sources: surveys of leaders within the companies, surveys of leaders from peer companies, and interviews with relevant academics and search firm executives.
Hay Group is well positioned to understand leadership traits with over 60 years of experience in the field, along with a database comprised of over 4.8 million assessments of 471,544 employees at 4,279 organizations. Over 38,000 of these individuals are at the executive level.
"Hay Group research shows it takes about three years to identify a high potential, and another 10 to prepare them for the executive suite," observed Fontaine. "The costs and risks of recruiting from the outside can be even higher. Yet how many major companies have a 13-year horizon in place for their talent development programs?"

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