Milton Friedman, the American economist, and statistician developed an economic doctrine that has influenced most boards and CEOs of the late 20th century. The Friedman doctrine stipulates that the primary goal of companies is to increase profits and maximise returns to shareholders.
This era was epitomized by rock-star CEOs like Jack Welch, of General Electric, whose robust style of leadership became the aspired standard for generations of young executives.
One of the early challengers to the Friedman doctrine was Jim Collins, the American business strategist, author, and speaker. With his research and insights, he questioned the notion that larger-than-life CEOs created more value for companies and shareholders than more humble leaders. In his groundbreaking book Good to Great he coined the term ‘Level 5 Leader’. The Level 5 Leader is an intrinsically motivated, humbler yet firm leader. Collins proved that this type of leadership could outperform the market by a significant factor. He also proposed that it’s not only shareholders that matter but a much broader set of stakeholders.
During the global financial crisis (GFC) of 2007-08, Collins’ case was validated, and the Friedman doctrine of one-dimensional shareholder supremacy was broadly criticised. The GFC was caused by financial institutions engaging in excessive risk to maximise short-term profit, witnessed in the subprime mortgage bubble, which collapsed the American real estate market and triggered a crisis throughout the world economy. This short-termism saw huge bonus payments for a few business executives but taxpayers around the world ultimately paid the price.
Fast forward to 2024. Climate change and its consequence is on everyone’s mind, artificial intelligence is the next big thing, and the world is becoming increasingly fractured. The governance and belief systems of Western democracies are under threat, and the world is witnessing a growing number of military conflicts.
ESG (environmental, social and governance) issues have become a hot topic. The term is used for almost anything that’s supposed to be good for the planet and society. There has been a headlong rush by companies and executives to be seen acting on ESG, be it net-zero pledges or taking a stance on DEI.
Such statements and pledges, while gaining headlines, will have little benefit if they aren’t well thought through – and risk being dismissed as greenwashing or superficial political correctness. To succeed with ESG, CEOs must start with and not lose focus of the ‘G’ – governance. Taking the lessons from Friedman, Collins, and the GFC, we know that avarice creates distortions and temptations… particularly among those only interested in the next quarter. The same applies to contrived and puffed-up ESG statements. Good, genuinely authentic leadership, and well-run business operations are the best starting place for ESG.
And there are signs that things are beginning to re-balance.
We have seen many indicators that boards and CEOs are thinking much deeper about what it takes for companies to weather the complexities ahead. In recent months, we have been approached and asked by a number of executives and non-executives how to best prepare leaders for the future and what it takes to be successful. The list is long, and it’s never easy to condense complex issues to a few bullet points. However, we believe there are five leadership traits that will make a huge difference to a company’s success and are just as integral in succession planning.
1. Systemic and contextual thinking
Our whole life we are educated in a linear, binary way. We are not really taught to think so much as memorize. However, the world we live in is neither binary nor linear. Thus, great leaders need to learn to think more laterally and systematically. This skill is important for all executives but a must for CEOs. Holistic understanding and systemic thinking are required to appreciate an organisation in its entirety, consider the interdependencies and interactions between the various parts. It helps to see the big picture, identify patterns, and understand how different elements influence each other.
How to build and identify this ability: The reason why so many companies prefer internal executives and avoid external hires is exactly to capitalise on this accumulated knowledge. It requires various jobs across an organisation and geographies to understand how a company works and how it interacts in the context of different countries and cultures. Consequently, people on executive succession paths should have a number of jobs in different parts of the organisation, in a variety of locations, ideally complemented by outside experience. The ability to deliver results in different situations should be a pre-requisite for executive progression.
A good example: In February 2017, Fran Horowitz, an industry veteran with a deep understanding of fashion retail, became CEO of clothing brand Abercrombie & Fitch. She inherited a company in deep trouble. Previously, she had turned around the fortunes of Hollister, another Abercrombie brand. From her experience she knew how customer preferences changed with societal context, transforming the company from a teenage staple to one that appeals to a broader demographic. Horowitz stands as a great example of good succession planning. She leveraged her knowledge from across the business, connecting the dots and acting on it. Last year, Abercrombie outperformed Nvidia, the artificial intelligence shooting star of 2023, on a shareholder return basis.
2. Good judgement
Developing the ability to apply good judgement takes a lot of thinking but also a good understanding of the business you’re in, the competition, your internal strengths and weaknesses and what society needs.
One of a leader’s key roles is making good decisions and setting the long-term vision and strategy for a division or company. The ability to observe, listen and analyse data are essential building blocks for good judgment. Exploring instincts and underpinning those with facts can become a superpower for experienced leaders.
Good judgement is ultimately what we pay our leaders for, and it is surprising to see how few examples of good judgement are to be found in business and politics. ESG-related investments and statements should always be a consequence of deep thinking and understanding all the details. Good judgement in this space has not been honed and we are seeing too many thoughtless pledges, too much PR, and not enough genuine, authentic, substance.
How to build and identify this ability: Good judgement is always a function of deep thinking. Deep thinking emerges from lots of analysis and data, but critically, results in decisions. Past behaviour is always a good predictor for future behaviour – it is vital to understand a person’s track record before considering a promotion into executive ranks. Another way of developing and assessing this is a little exercise we have applied many times: Ask a candidate to write two pages answering ‘How would you invest $100,000 in a single listed company? Explain why and underpin it with facts.’ Be prepared to be surprised.
A good example: In the lead up to the launch of the iPhone, Apple decided that in a world with ever faster internet connectivity most content would be consumed on personal mobile devices and that software, accessibility, not hardware, would be the decisive enabler. Nokia on the other hand assumed that its existing supremacy in hardware would secure them continued dominance in the mobile phone market. Nokia is barely worth $20 billion now, Apple more than $2 trillion.
3. Getting things done.
Time is the most precious commodity on earth. Getting things done and not wasting time with irrelevancies is probably the most undervalued quality in leaders. And not just at C-suite, this is relevant at all levels. Productivity in most Western countries is slowing down, in some places even decreasing. Unnecessary internal processes, increasing regulatory complexity, lack of accountability and a culture of complacency slow down corporate productivity. It is so important that executives be role models for a ‘getting things done mindset’. In large corporations, too much time is wasted on feeding leaders’ need for perfection; it breeds indecisiveness and often results in a lack of clear direction and communication.
How to build and identify this ability: This is probably the easiest skill to identify but the most difficult to develop. Some people simply thrive on getting things done, finishing things, sticking to commitments. Others love to explore and constantly stay in the realm of possibility. In our opinion, all performance management systems lack a quantifiable input-output equation. Fixing this will make apparent who gets things done and who doesn’t. A good indication is who are the people wanted on a project or as an executive assistant. They are normally the doers.
An example: Last year was a great year for Meta. At the end of 2022, Mark Zuckerberg declared 2023 the year of efficiency for his company and shortly thereafter implementation started: reorganizations were underway, focus was re-established. We have hardly ever seen such a swift implementation of corporate change. The share price speaks for itself. Zuckerberg got things done!
4. Ownership mindset
A recent article claimed that listed companies largely controlled or influenced by the founder families outperform their peers. Many of these companies, be it Henkel, Roche, Amazon, LVHM, Google, Reliance, or Meta, have something in common. It’s the culture of ‘ownership mindset’. You simply don’t find this in other companies.
But what does it mean, what are the characteristics? For us, it is about four things. First, be proactive and take accountability, never be satisfied with the status quo. Second, be resourceful. Every penny counts, so only spend money if you understand the return of the investment. Third, be bold. Make mistakes, admit them, fix them fast and keep going. And four, most importantly, gather the best people. Leaders with an ownership mindset are rare, they are gifted, and they are sought after. They may not always be the kindest, but they are often the most extraordinarily gifted in achieving the previously unimagined. The very best balance their appetite for risk by surrounding themselves with very effective support teams.
How to build and identify this ability: We really like how bp handled this topic with their next Gen Leaders. Every year a completely open application process sees a cohort of under-30s get to participate in the One Young World Summit. The recruitment process is brutal, and you have to be really good to be selected. Afterwards, the participants take on consequential projects where they are encouraged to leverage the informal organisation, all sponsored by senior executives. When we were involved, we were amazed by what people came up with and delivered when given space and support. It is something we highly recommend. How do you identify this mindset? The best thing to look at is cost reports and inquire how money is spent: hold leaders accountable, ask how the spend helped the company to be more profitable or how it benefited society at large. Don’t be surprised to get a blank look.
A good example: Several years ago, we worked with Reliance in India. The words of chairman and managing director Mukesh Ambani still resonate with us many years later. He epitomised the ownership mindset. He believed that Reliance needed to grow, think outside the box, create value and jobs for society and value for shareholders would follow. Since then, the firm has revolutionised India’s digital economy, fuelling its emergence as a new force in our now increasingly globally connected world. His belief in betting on India and its people is off the charts.
Change will accelerate, politicians will be politicians, corporate scandals will continue, and the clock speed of our daily lives will keep getting faster. We understand that the world creates uncertainties, ambiguities, uncontrollable variables. However, there is much more we can do to make the pieces we have an influence over better. Better lead, better run, better managed. Within this, there is nothing more important than the question of how we decide who gets to lead our organisations. Large, global companies now have a much bigger role to play in society than in the 20th century. Indeed, some companies now surpass many national states in their access to resources and ability to bring about necessary change. The stakes have never been higher.
Dr Helmut Schuster co-author, with Dr David Oxley, of A CAREER CAROL: A Tale Of Professional Nightmares And How To Navigate Them, is a dual Austrian/British citizen who lives in London, UK. He is the former Group HR Director of BP PLC. Schuster is currently Chairman of the Board of Ivoclar Group, a world leader in aesthetic dentistry, an active entrepreneur, investor, and frequent contributor to leadership and AFS Intercultural Programs. He completed his PhD in Economics from the University of Vienna.
Dr David Oxley co-author, with Dr Helmut Schuster, of A CAREER CAROL: A Tale Of Professional Nightmares And How To Navigate Them, is a dual UK/US citizen based in Austin, Texas. He started his career as a management consultant before leading major people and corporate restructuring projects for BP PLC across Europe, USA, India, and the Middle East. Oxley worked closely with Reliance Industries in India, one of BP’s partners, as they embarked on their big corporate restructuring. He was awarded his doctorate in Organizational Change at Cranfield University and his MBA from the University of Notre Dame.
For more information, please visit www.ACareerCarol.com
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