The CEO's Role in Developing the Firm As an Institution
The author opens with a case study: Bertelsmann, a German media company, is not the largest or most profitable firm in its industry, but is remarked for a number of qualities and is "one of the most respected companies in Europe." The company grew from a small christian book publisher to a media player after World War II under the leadership of Reinhard Mohn.
One distinguishing feature is its commitment to developing corporate culture: developing its people, maintaining a "family atmosphere," and being well regarded by the community are core values. While the firm is public, 69% of the stock is held by the Bertelsmann Foundation, and the trust has tasked the management of the firm to preserve the company, placing longevity over short-term profit.
For Rohn specifically, be maintained a "very creative" notion of professional work: the role of the employee as a participant in the business operations rather than a servant to it is not a unique idea. Many firms speak of the importance of it, but few act accordingly.
Can a CEO Turn a Firm Into More Than a Simple Organization?
A study of the critical success factors for forms (Nora 2003) suggests that a significant proportion of a firm's performance is directly attributable to the leadership provided by the CEO, and its likely that the indirect impact, due to the way the CEO's behavior influences other leaders and employees to make decisions and take actions in the same manner, goes much futher.
Any organization, including companies and countries, needs good leadership and good governance to succeed. The present and past financial crises clearly indicate "counterproductive leadership can wipe out human, moral and economic value on a vast scale."
The author remarks on the considerable growth in the leadership publishing industry: there has been a "tremendous proliferation" of books, seminars, courses, and other educational materials proffering advice on leadership it's a clear sign that leadership is acknowledge as a critical area - that good leadership is essential to success - and at the same time acknowledges that leadership is presently less than ideal across many firms and industries.
One of the main problems with this body of literature is that studies seem to focus on the perspective of the leader and the ways in which he can become more effective, or at least more covert, in the application of power and influence. The effects of his leadership on the organization and other people are seldom considered - as such, the leadership publishing industry has done much to promote autocracy, and little to promote good leadership.
The author also asserts that there is growing interest in granting esteem to the management profession: to make an executive equal in status to a medical doctor. It can fairly be said that management requires a great deal of training a dedication, that the compensation is high and the number of positions is limited, so an executive already has the trappings of a rare and precious individual. The problem is that social esteem is ultimately based on social benefit: medicine is an esteemed profession not because of the training, compensation, or rarity of doctors, but because their work has a positive social benefit.
(EN: Worth remembering that the author is European, and the medical profession is still held in high regard in his culture. It was once so in the US, but has suffered much in recent decades because of the political aspects over healthcare, which has split the profession into two equally undesirable camps: those who would reduce doctors to government employees who provide a cheap commodity good, and those who reduce them to the role of salesmen for questionable products.)
Ultimately, respectability of a profession does not derive from the practitioner's desire to be held in high regard, but to the willingness of others to grant them such esteem. To earn that esteem, those in the management profession should lead their companies to be socially responsible: to serve the needs of their stakeholders.
Said another way, the esteem a manager receives is an indication of the areas in which he achieve, and the esteem that is withheld is an indication of the areas in which he fails to achieve. As a profession, management is valued by shareholders who enjoy the financial results (so long as those results are achieved), but it is not valued by the customers, employees, and other stakeholders because their needs and interests are not being served.
Companies seek leaders whose equalities are in line with their needs, which may change over time - but there is a universal and unchanging quality that all companies need at all times: they need leaders who will seek to preserve the company over time and who seek to maintain a positive relation with all stakeholders by ensuring their needs are met. In short, every firm need a leaders who will seek to make the firm a respected institution.
This objective requires a broad range of vision and careful thought about the firm as an institution that creates economic value and promotes human welfare - providing goods and services is a means to that end, and financial success is a reward or indicator that the core purpose of the firm is being served for all stakeholders.
The CEO's Mission and The Firm As an Institution
An individuals charisma, communication skills, vision, and influence are all relevant issues, but only insofar as they serve to enable him to accomplish his primary role - which is to apply these and other professional and personal qualities to the accomplishment of the company's mission.
The task of a CEO is to accomplish the mission, maintain the respectability of the institution, and ensure the long term survival of his firm. Likewise, tasks such as promoting economic efficiency, attracting and retaining quality employees, and achieving positive financial results are important - but only insofar as they support the accomplishment of those primary tasks.
What we have seen in recent decades are CEOs whose talents and motivation is toward goals that should be regarded as secondary: those who are charismatic and have great personal influence, who are very good at producing short-term financial results for their own sake.
The commercial sector has no shortage of such leaders, and is suffering the consequences of placing such individuals in positions of authority. Companies have enjoyed, for a time, impressive but unsustainable financial success and, during the same time period, plummeting customer loyalty and public esteem for their institutions.
These problems are widespread, and cannot be addressed simply by weeding out a few bad apples. Where the fundamental philosophy that drives the firm is likened to vinegar, a leader cannot steeped in such a culture remain a "good apple" so for long, but will turn sour. When the philosophy is pervasive, the question then arises: where shall we find a good apple at all?
This suggests that shareholders and boards of directors must first consider the problem, to reconsider the purpose of their firm, which will ultimately give license and motivation to the CEO - and then, as there are no sources of good executives among their competitors and industries, seek to grow their own by way of nurturing the corporate culture and being proactive in developing employees. That is to say that there must be a break in the vicious circle, and that the board is the only organ within the corporate body that is capable of initiating such a change.
Attributes and Qualities Of an Institution-Building CEO
The professional competencies that contribute to a CEO's ability to wield power and pursue financial objectives are already well known and widely practices - but these are managerial skills that are pertinent to any level of the organization. What differentiates executives from managers is their long-term integrative perspective of their organizations, and doing so successfully requires a different set of skills and personal qualities.
The author describes the CEO's role as a manager of managers: he does not need to know more about finance than the CFO or more about technology than the CTO - but instead he must be able to engage in conversation with these professionals to ensure that their expertise, which will be considerably greater than his own, is correctly applied in pursuit of the organization's mission and purpose.
Long-term perspective
The first task of an executive is to graduate from the here-and-now perspective of a manager to take a long-term perspective of his company, markets, consumers, products, competitors, and the various areas tat help a firm become an institution: its mission and values, and the ways in which the resources at his disposal are used in their pursuit.
Executives are under enormous pressure to deliver short-term results, particularly financial ones. An executive cannot ignore this demand, but he cannot pander to it, to the abandonment of his other responsibilities to the firm.
As such, the executive must have expertise in negotiating among conflicting interests and ensure that stakeholders are satisfied - those who place financial demands upon an executive should not be ignored, but neither should they overshadow any other interest.
Global view of the organization
Another differentiating factor between managers and executives, and between a low-level executive and a senior one, is the breadth of his perspective. A front-line manager considers only the team of workers; a mid-level manager considers his department; a senior manager should consider the organization as a whole; and the CEO should consider the organization in the context of its industry and society. In addition to having a longer range of vision, higher-level executives must have a greater breadth of vision.
In a basic sense, he must understand each of the company's units and functions in the context of the whole organization - the way in which it contributes to the whole, its boundaries and synergies with other units. These units are the resources that he will leverage in accomplishing goals for the organization.
He must understand how they function presently, how they might function in the future, and the effect of any change he may wish to make, not only relative to his specific desires, but any side-effects that may occur. He may also consider how each might be improved or changed.
Another analogy of the CEO to a conductor of an orchestra: he does not need to be a virtuoso talent with each instrument, but he does need to know how they sound to conduct them and recognize harmony and discord. (EN: I've seen the "conductor" analogy for the lower levels of management, and I sense it makes more sense there - the CEO level is likely better compared to composer rather than conductor.)
The author switches analogies to the medical field: diagnosis of the firm is likened to diagnosis of the health of a body, with an understanding of the way the organs and systems work, identifying problems and challenges, knowing what it is fit to do, knowing what must be done to improve the general health of the firm.
Aside of knowing the present function, the CEO must consider projects in terms of how the units of a corporation will be involved: where they are sufficient to the job, where they are not - and in the latter case, whether an existing unit could be strengthened or a new one need be created to enable the firm to succeed at the task.
Humanistic qualities
The executives of a firm manage the company; and the company is a group of people; therefore executives manage people, albeit in an indirect manner. To do this successfully, they must have aptitude for dealing with people. Their knowledge of industries, markets, finance, and the various technical areas of business amounts to nothing if they do not have the ability to motivate and influence the human resources at their disposal.
There is rather a long passage about virtues and character, which is normally relegated to the personal and religious spheres of an individual's life, but which has a significant impact on their performance as a professional. Men of poor character make poor leaders; and considering the breadth of impact a CEO can make on his firm, industry, and society, it is of particular importance that he be an exceptional leader, and a person of exemplary character.
Narcissism is a significant flaw of many CEOs - indeed, a person who seeks to become an executive craves to be recognized as a powerful individual - but being an effective CEO requires a service mentality: not merely the desire to have power and influence as ends in themselves, but the desire to serve others, to use power and influence to effect broad changes that deliver a benefit to others. Without this motivation, a leader becomes an autocrat or a tyrant, who harms people and repels them from himself and calls into question the legitimacy of the power invested in him. "Only if he shows a spirit of service can a leader become a model for others and help build a respected company."
For a CEO to act otherwise "would be a huge mistake." If a CEO believes himself to be in a position of privilege in which others owe fealty and service to him, but he owes them nothing in return, he will be ineffective and detrimental to the firm. In many recent instances of failed firms, it is clear that CEOs made their companies serve their own goals and purposes, with devastating and embarrassing effects. To be blunt, such a person is not fit to hold a leadership position in any capacity.
While the CEO leads the employees of the company, he must also serve them by developing and empowering them. In addition to serving employees, he must also see that the firm serves its investors, its customers, and its community. He must mitigate among the conflicting interests of these various parties, but ultimately, each decision he makes must deliver a benefit to one or more, and the sum of all decisions must deliver benefits to all stakeholders if the firm is to be successful.
Leading by example
Influence is ultimately based on trust. Some measure of trust is granted due to functional competence, but it is largely based on the personal regard one has for a person or institution based on their behavior and the degree to which their actions demonstrate their character.
Specifically, a CEO with integrity and ethical values does not simply talk about ethics, but puts it into practice. His actions and decisions can be clearly associated to his actual intentions, and where they are not so, the subterfuge cannot be maintained for long.
People are quick to notice disparity between words and deeds, and a CEO is subject to much scrutiny: may are aware of what he has said, and what he has done, and where the two do not agree, it creates mistrust, causes his character to be called into question, and diminishes the legitimacy of his authority as a leader.
The author speaks to the corporate scandals involving executive misconduct. The media and public gleefully feed on such things. Where a firm or an individual has a solid reputation, they can be forgiven a few misdeeds, and human beings make mistakes. But in order to gain this forgiveness, he must have earned a solid reputation, such that his misdeeds are out of line with what is perceived to be his character, rather than representative of his normal behavior.
The author also implies that CEOs live under scrutiny at all times. People at lower ranks of an organization are not held to the same standard. A rank and file employee can be an alcoholic if he's sober during office hours, but the CEO has no such privilege.
Especially since CEOs have become celebrities, they have ceded their private lives to public scrutiny, ad must at all times conduct themselves in accordance with their stated values.
People development, talent building
A company is an organization of people. For a company to be successful ion the short term, its people must be effective in their current roles. For it to be successful in the long term, the effectiveness of its people must be maintained, improved, and expanded. Consequently, the CEO must make personnel development a priority, as the success of the firm depends on the maintaining and increasing the competency of its employees.
The author returns briefly to the notion of firms whose primary resource to acquiring talent comes from hiring managers from outside rather than developing them from within. This practice indicates a firm has failed to consider its future needs and is dependent on outside sources (competitors) to train up competent employees.
Good professionals seek more than financial rewards for their work: to varying degrees, they expect professional challenges and constant opportunities to learn and improve. As such, a firm that fails to provide opportunities for growth will find that employees who seek professional growth will leave to find it elsewhere.
A CEO with a long-term focus must recognize that developing employees internally is critical for the long-term success of a firm: it is necessary to retaining talent, as well as attracting new talent.
Willingness to learn
Since senior-level management is concerned with the future, and the future is unknown and changing, the CEO of a firm must be constantly willing to learn. At lower ranks, "business as usual" may be sufficient until change is forced upon them by the organization. At higher ranks, executives must explore the new, and decide what changes the organization ought to make to improve and grow.
There's also the notion that traditional measurements of success are backward-facing: financial reports refer to the last financial period, not to the future. This often skews the perspective of executives who rely upon these metrics to the past - remedying problems rather than identifying opportunities. A company becomes efficient by correcting problems, but it experiences no growth or forward momentum.
Willingness to learn is also critical because in order to take the right course of action, one must first learn what the right course might be. And where companies experience failure, they must seek to learn from their missteps to avoid making similar mistakes in future.
The alternative, to assume that one already has the knowledge that will ever be needed, and to simply walk away from mistakes without taking a lessor, is obviously counterproductive to leading an organization.
Some Final Thoughts
In this chapter, the author has proposed that the quality and reputation of a firm is heavily influence by its leadership - not merely in their professional competence, but in the manner in which they exercise leadership that, in turn, is determined by the qualities and attributes of the character of the leader.
While the importance of good leadership is widely acknowledged and there is considerable growth in the area of teaching people to be better leaders, it is often directed to merely the functional aspects of the role or, worse, to considering leadership as the exercise of personal power and influence without consideration of the end to which that power and influence is applied.
The greatness of a leader depends not on the day-to-day accomplishments in his work, but to the positive effect of his work that is reflected by the reputation of his firm, which derives from the perception of stakeholders. Where a leader encourages its firm to act in a responsible and beneficial manner, the leader and the firm both accrue a strong positive reputation.