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Where There’s No Margin for Toxic Leadership

Geplaatst op mei 27, 2014 in News

Growing a midsized firm takes a top team with zero weak links.  Even one ineffective executive weakens a firm’s ability to address big problems. But building a consistently strong top leadership team is difficult for at least three reasons: the tendency to be loyal to existing members, the lack of management depth to promote from, and many CEOs’ lack of experience in many functional areas.

To be sure, this is not just a problem for midsized firms. Plenty of large companies have dysfunctional executives, as many Fortune 500 human resource consultants can tell you. But big firms can afford one or two dysfunctional leaders because their executive teams are sizable. Ford Motor Co. (a $134 billion company) has a corporate-level team of 41; Western Union (a $5.6 billion company) has 15. One troublesome executive out of 41 or even 15 is not likely to be fatal – unless, of course, he is the CEO. But when it’s a team of six? It’s a different story.

Consider the case of a $30 million manufacturer. Back in 2001, it was growing rapidly. The CEO thought he needed to step out of the chief sales role to focus on operations and finances. He hired a head of sales who quickly asked for broader authority and a fancy title: Chief Lightning Catcher. In fact, he wanted the CEO to stay out of sales altogether, and he succeeded in pushing him out of that function.

Everything seemed fine for the first few years. Three years later, the firm’s sales growth ground to a halt and it continued to be flat for two more years. The CEO sensed a problem with the sales chief, but wasn’t clear what it was so he left him alone. But the sales head kept blaming others for sales opportunities that went sour. The self-appointed Chief Lightning Catcher said he needed more control to right things.

By 2005, the Chief Lightning Catcher found a company that wanted to acquire the firm and provide badly needed investment capital. The Chief Lightning Catcher led the talks, which became serious. But in December 2005, the offer fell through. The reason, the CEO found out later: the would-be buyer didn’t like the Chief Lightning Catcher. It turned out he was manipulative, divisive, and ineffective.

Four months later the CEO fired him. To his surprise, the sales team was relieved; they had been micro-managed. Customers didn’t care; the sales chief had hardly communicated with them. In fact, several customers told the CEO they had stayed with his company despite the sales chief’s presence.

With a re-energized sales team and a new product whose revenue quickly became about a quarter of the company’s sales, rapid growth returned. By 2013, the CEO, his business partner and an early private equity investor received an offer to sell some of their shares to a large company.  They accepted the deal and the CEO and his co-founder continue to run their firm.  In retrospect, the CEO wished he had fired his ex-sales chief two years earlier than he did.

Many CEOs of midsized firms are loyal to the team that got them there, but that loyalty is misplaced if it erodes the company’s ability to grow. Any leader’s first loyalty must be to his firm’s health, not his direct reports’ continued employment at the firm.

Getting rid of subpar leaders — quickly — is hard, especially if they were once outstanding performers. It’s even harder if viable replacements aren’t on the immediate horizon.  This is why it’s the role of midsized company CEOs – not their HR heads — to build the leadership pipeline, both internally and externally. That requires mentoring and developing middle managers as well as building a network of external candidates in critical functional areas.  Those who can build a great team give their companies far more upside potential, stronger growth, and far fewer crises to manage.

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