The CEOs and senior executives of Enron Corp., WorldCom Inc. and other disgraced companies have certainly gotten their fair share of press, but the huge scandal that nobody talks about is the multitude of cases in which top positions are filled with mediocre people. After almost 20 years of experience in helping companies to find and recruit people for senior positions, I am convinced that the problem of poor appointments is serious, pervasive and highly dangerous. (See “About the Research.”) But many firms are either unaware of the problem, slow to react to it or severely hampered by a number of psychological obstacles.
Understanding the Problem
Three factors explain why companies have such trouble making the best people decisions at the top. First, even for organizations that are adept at selecting winners, the deck is still stacked against successfully finding those individuals.
1. The classic study on this topic was presented in J.E. Hunter, F.L. Schmidt and M.K. Judiesch, “Individual Differences in Output Variability as a Function of Job Complexity,” Journal of Applied Psychology 75 (February 1990): 28–42.
2. Booz Allen Hamilton, headquartered in McLean, Virginia, publishes a comprehensive annual study of CEO succession. Analysis of split performance has consistently shown that the return to shareholders (adjusted by industries and regions) is significantly lower in the second half of the tenure of CEOs.
3. A discussion describing the process of confirming the key competencies relevant for a search is contained in C. Fernández-Aráoz, “Hiring Without Firing,” Harvard Business Review 77 (July–August 1999): 109–120.
4. A very good study on this topic was published in N. Wasserman, N. Nohria and B. Anand, “When Does Leadership Matter? The Contingent Opportunities View of CEO Leadership,” working paper no. 01-063, Harvard Business School, Boston, Massachusetts, April 2001.
5. A seminal article on this topic is I. Gross, “The Creative Aspects of Advertising,” Sloan Management Review 14, no. 1 (fall 1972): 83–109. That article was followed by R.Y. Darmon, “Sales Force Management: Optimizing the Recruiting Process,” Sloan Management Review 20, no. 1 (fall 1978): 47–59, which applied the same models to optimize the investment in salespeople. The same models described in those papers have been used in this article to calculate the expected value of investing in the search, assessment and attraction of the best potential candidates for senior executive positions.