Human Capital & Careers

Filling the Void

Why honing tomorrow's finance leaders is a lot harder than it looks.
Janet KersnarMarch 9, 2006

A high-flying career in finance is often all about being in the right place at the right time. But in Frederick “Fritz” Henderson’s case, it was more than that. The 47-year-old — who’s just left his job as vice chairman of GM Europe to become group CFO of the loss-making car maker in Detroit — can thank an aggressive leadership development program for where he is today. Shortly after joining the General Motors treasury team in 1984, he became part of a corporate program that allowed him to move swiftly through finance into operational roles in Asia Pacific, Latin America, Africa, and the Middle East, taking on tough assignments, including his last one — axing 12,000 jobs and making other major cost-cutting moves in Europe. It’s not surprising that the word among GM watchers today is that he’s a strong candidate to be CEO Rick Wagoner’s successor.

In an environment where the skills being honed in finance have become sought after by all parts of a company, it’s easy to see why career paths like Henderson’s leave corporate leadership experts swooning. His focused, disciplined development — transitioning from finance to operations and back again, while combining a mix of different job rotations in different functions and in different countries — is hailed today as best practice leadership grooming.

Yet is Henderson’s route to the top the exception rather than the rule? Ask the current generation of CFOs about their own leadership development and most will concede that it’s been more by accident than design that they’re in the corner office.

That said, their career paths will look more straightforward when compared with those of the up-and-coming ranks of CFOs. Reflecting the much wider range of skills being demanded in finance today, stretching well beyond the technical know-how of accounting and auditing, future finance chiefs are already getting involved in far more parts of a business outside of the traditional finance remit.

All this is happening as the old perceptions of leadership are in flux. While there is still admiration for the “great man” school of leadership epitomized by the likes of GE’s Jack Welch, there is growing recognition that a more consensual approach, such as that honed at Toyota or BP, can require different types of skills, to encourage leadership from many parts of the organization. (See “After Darwin,” at the end of this article.)

And perhaps because of all this change, many HR experts reckon that today’s companies aren’t nurturing the type of leaders they urgently need — what Tsun-yan Hsieh and Sara Yik of consultancy McKinsey refer to as “the 3 percent to 5 percent of employees throughout an organization who can deliver a breakthrough in performance, by launching a new product, by entering a new market, or by more quickly attaining better operational performance at a lower cost, for example.”

From his vantage point, Jonathan Gosling, head of the Center for Leadership Studies at the University of Exeter in the United Kingdom, has a dismal view of today’s leadership programs: “Most companies don’t get it all right; about half fail outright to make any sort of positive impact.”

Still, there is no shortage of companies launching, expanding or overhauling their leadership development strategies — but it’s out of necessity, not choice. Just ask Robert-Jan van de Kraats, CFO since autumn 2001 of Randstad Holding. As he explains, the €6.5 billion Dutch temporary employment company’s focus on leadership development is relatively new, spurred by intense competition in a service business where “our only asset is people. If we don’t develop this, we have no future.”

He reckons that weak leadership was partly to blame for the battering Randstad took six years ago after the sharp economic downturns in its main markets in the United States, Germany, and the Netherlands. By 2001, after having to pull the plug on several costly and poorly executed forays into dotcom businesses, the company’s profit had fallen more than 70 percent, from €207 million in 2000 to €60 million ($251 million to $73 million). “One of the reasons why Randstad showed a decline in performance was not so much that we had the wrong ideas, but that the implementation wasn’t strong,” he says. “We needed much more effective leadership.”

It’s a slice of corporate history that Randstad doesn’t intend to repeat. Shortly after Van de Kraats’s arrival as CFO from credit insurer NCM, the company began addressing its leadership gap with a mixture of offerings for Randstad’s 30 to 40 “high potentials,” including tailored “mini MBA” courses designed by business schools IESE in Spain, TIAS in the Netherlands and IMD in Switzerland, as well as coaching and psychometric testing. That sort of training is honing group-level and local CFOs who can lead their teams into a new growth phase and, as Van de Kraats puts it, who “can hit the brakes and hit the accelerator. It’s not that hard to find people who want to hit the brakes … because of the scars in the company dating back five or six years, there’s a lot of risk avoidance. But we need individuals capable of both.”

Success Breeds Success

So do cases like Randstad’s prove that there’s a positive linkage between a company’s financial performance and its ability to produce consistently great leaders? It’s tempting to believe so, say HR experts. Indeed, Randstad’s numbers are looking much hardier than a few years ago — it’s been among the top ten companies in Europe in terms of shareholder returns over the past three years and 2005 profits are expected to be up nearly 20 percent from the previous year, to €229 million ($277 million).

Equally hard to prove is whether companies are ultimately getting a good return on their investments in leadership development programs. Metrics like staff turnover rates, program feedback surveys, high rates of internal promotions and the like can only provide part of the picture. Ultimately, asserts Clive Standish, CFO of UBS, the Swiss banking and financial services giant, “it’s really an exercise in intuition.”

But that hasn’t stopped UBS from investing heavily in its future leaders. In 2002, for example, it opened its own Leadership Institute. The institute’s course — which revolves around three themes: entrepreneurial leadership, partnering programs for growth and integration with other UBS businesses, and client focus — is offered to around 600 of its 70,000 staff worldwide each year. Outside the institute, program participants also have access to its specialists, who can offer bespoke advisory services to help apply the lessons learned in the classroom to real-life projects.

All that is supported by what research from HR consultancy Hewitt Associates has identified as world-class leadership development. Last spring Hewitt enlisted the help of a panel of independent judges to study 100 leadership programs in Europe. They voted UBS number one. Along with the use of metrics to monitor a program’s effectiveness, Hewitt’s judges homed in on whether companies had, among other things, strong executive commitment, a broad range of development opportunities offering both rotational and global assignments, and a focus on development at both the corporate and business unit levels — all of which are de rigueur at UBS. (See chart below.)

“We have to be a developer of talent because we’re far too big an organization to acquire talent from the outside,” says Standish, who was moved from his role as Asia-Pacific chairman and CEO to group CFO in 2004, after what he describes as a “very entrepreneurial career.” As he puts it: “Talent development is probably the most critical thing that we do.”

Other CFOs and HR experts couldn’t agree more. But the truth is, says Phoebe Dunn, a U.K.-based consultant with Square Peg International, “There are a lot of things that blow these programs off course.” One way is when a program falls victim to what she calls “entitlement demands” — when individual staff or program suppliers highjack courses and other types of training to suit their agenda, not the company’s. Another problem is “a mismatch in what happens on the ground [in the classroom] and what executives find useful,” she says. In a recent global survey of 100 receivers and suppliers of leadership training, Square Peg found that 3 percent of the executives interviewed said leadership development courses were a good motivational tool, compared with 10 percent among HR managers and other internal purchasers of development programs and 15 percent among providers.

Tradition of Ambition

Programs that don’t get blown off course leave some CFOs with a whole different set of problems. One of them: managing ambition. Consider Antoine Giscard d’Estaing, CFO of Danone, the €13.7 billion French food company known for its yoghurt, LU biscuits, and Evian water. Among the many good things that he inherited from his predecessor when he joined the company last spring was a global finance team of 800, whose 100 managers are relatively young (the average age is 42) and full of ambition, thanks in large part to an impressive array of leadership and career development programs.

So why is Giscard d’Estaing unhappy? During monthly discussions about staffing with HR and finance heads from Danone’s four divisions, he began to spot a worrying trend: because of Danone’s culture of fast promotions and job rotations, 52 percent of his 100 top managers have less than two years’ experience in their current jobs, and only 22 percent have been in their jobs for more than three years. “In a company like Danone there is a premium given to speed,” he says. “People think it is natural that they move and expect their bosses to favor mobility.”

Giscard d’Estaing says he wants the job-hopping “to slow down a bit,” but he knows there’s a big risk attached: With finance skills in high demand in other parts of Danone, “if people don’t feel like they have good mobility, they’ll send themselves to another job in the company.”

When all is said and done, it wouldn’t come as a surprise if Giscard d’Estaing greeted Danone’s leadership initiatives with distrust. On the contrary, he says, “To grow my people, this is what’s interesting in my business.” And it was the same at his previous CFO job with Schneider Electric, a French electricity and automation management company. During his five years there, one of his main projects was to diversify and “internationalize” the finance team. “It took a long time, but when I handed over the keys to my successor, I told him he could rest easy because of the team I was leaving behind,” he says.

Give and Take

What about other CFOs? Isn’t it easy to feel just a tad cynical about something that by its nature is very touchy-feely and can eat up so much of their time?

Clive Watson grants that it was something that crossed his mind four years ago when he arrived at Borealis. The €4.6 billion Danish plastics company has a long tradition of “very structured performance management,” which demands a heavy commitment from the entire senior management team. “I was a very reluctant participant when I joined,” he confesses.

For Watson, it’s meant meeting three times a year with his six to eight direct reports to, among other things, plot on a grid the performance potential — high, medium, or low — of individuals. The same exercise also happens at the executive board level. There’s a dual aim: first, to capture the top 400 people and set up individual plans for them; second, to keep an eye on individuals whose names are entered in the “low potential, low performance” part of the grid — “It’s very tempting to park underperformers or leave people in their comfort zones for too long.” So what won him over? It’s simple, he says: “I can really see a marked change in the way people are performing.”

Perhaps the hardest part of leadership development in corporate Europe isn’t winning over skeptical CFOs, but knowing whether companies are finally figuring out what works and what doesn’t. That remains unclear. As Randstad’s Van de Kraats concedes: “It’s getting easier, but it’s still not easy.”

After Darwin

The Jack Welch school of leadership famously holds that you should lavish great rewards on the top 20 percent of your employees, let the middle 70 percent know what they need to do to get into the top 20 percent, and let the bottom 10 percent know that they must improve or they’re out. “Failing to differentiate among employees — and holding onto bottom-tier performers — is actually the cruelest form of management there is,” says Welch, who as CEO of GE in the 1980s and 1990s, presided over the creation of vast amounts of shareholder value.

Welch, like other renowned corporate chiefs such as Walter Wriston at Citibank, is famous for encouraging Darwinian internal competitiveness, where leaders naturally rise to positions of power. But there is an alternative school that profoundly disagrees with that hierarchical, survival-of-the-fittest model.

Gerard Fairtclough, a former CEO of Shell Chemical and founder-CEO of Celltech, a bio-pharmaceutical company which was sold to Belgium’s UCB for €2 billion last year, is a proselytizer for the “dispersed leadership” model.

Fairtclough, who argues his case in his book The Three Ways of Getting Things Done (Triarchy Press, 2005), points to the success of companies such as Toyota and WL Gore, maker of Goretex fabric. “Their attitude to leadership is that anyone is a leader, and if they can persuade others to go along with them on a particular project, no one is going to stop them,” he says.

Traditional hierarchal leadership is outmoded, Fairtclough argues. “We are imbued with the idea that hierarchy is vital and without it, we don’t have a proper organization,” he says, noting that finance can be particularly drawn to a rigid power structure because of its inherent need to measure and control. “Control of resources, and particularly financial resources, is a good way to exercise power. Finance gets bound up with this need for power. That’s bad for business and bad for people in the finance function.”

At Shell and Celltech, Fairtclough says, he always coaxed finance leaders out of their silo to work in broader business groups. “For some people that is rather difficult,” he notes. But in searching for the right balance between control and freedom, Fairtclough says, “there is no easy answer, but mutual trust is a good thing.” —Tony McAuley