2 Jan 2013 11:00am

Making the big cheese

In troubled times, leadership is key, and can make the difference between profit and bankruptcy. So, asks Jane Simms, what makes a successful CEO?

Theories about the particular blend of skills, qualities and experience that sets brilliant business leaders apart from their peers have abounded for decades. It’s not surprising: if there were some alchemic formula that would turn base management metal into leadership gold, then individuals, companies and entire economies could win untold riches.

These theories range from the sublime to the (apparently) ridiculous. Height could be a factor according to a 2005 survey which found that Fortune 500 CEOs were on average six feet tall – two and a half inches taller than the average American man. A 2011 study by academics at London Business School and the University of Wisconsin-Milwaukee revealed that companies run by CEOs with wider faces perform better than companies run by CEOs with longer faces.

The best people will increasingly come up zigzag routes in order to gain broad experience

A new book, The Wisdom of Psychopaths, by Kevin Dutton, a research fellow at Magdalen College, Oxford, draws a parallel between the mindsets of business leaders and of serial killers. Dutton found that a number of psychopathic attributes are more common in the boardroom than the padded cell – superficial charm, egocentricity, independence and restricted focus.

Such studies suggest inherent attributes, but leadership can be taught. Manfred Kets de Vries, the Raoul de Vitry d’Avaucourt professor of leadership development at European business school INSEAD, has been studying the characteristics of top performers for over 40 years, and says: “Without discounting nature altogether, nurture plays a very important role.”

For the past 20 years Kets de Vries has run a year-long CEO programme at INSEAD – Challenge of Leadership: Creating Reflective Leaders – which has given him “in-depth psychological portraits” of top performers. The best CEOs, he concludes, are “walking contradictions; they have a knack for reconciling opposites”.

For example, they manage the short and long term, they act and reflect, they are extrovert and introvert, optimistic and realistic, they control and delegate, see the big picture and focus, and possess both hard and soft skills. They are also visionaries, have high emotional intelligence, take calculated risks, are accountable for their actions, are tenacious, energetic and work hard to attain a life balance. They are motivated, says Kets de Vries, by “a healthy narcissism” that makes them feel they can overcome obstacles and meet challenges, while at the same time keeping their ego in check and retaining a sense of humility.

But if such things can be learned by an aspiring CEO, where’s the best place to learn them – other than on a course at INSEAD? Crucially, is someone’s functional or professional background a determinant of their success? There is an old adage that accountancy-trained CEOs tend to hold sway in recession, and marketing-trained CEOs in times of expansion. So if we assume that our current economic climate is more reflective of “the new normal” than the 10 years of boom leading up to the crash of 2008, does that mean the demand for financially-oriented CEOs is rising? Yes, say observers, but they disagree on whether this is a good or a bad thing.

Lydia Harrison, senior professional development manager at ICAEW, says: “Accountants sit in the engine room of the company, and that, combined with their professional rigour and training (not least their very strong ethical code), makes them a safe bet for the chairman and investors at this stage in the economic cycle.”

But Andrew Kakabadse, professor of international management development at Cranfield University School of Management, is more negative. “The reason we are seeing more and more finance people at the helm in the US, the UK and Europe is entirely functional: cost constraints. There is more profit to be made from reducing costs than making money.”

But you can’t keep cutting without damaging the business, he continues. “We’ve cut the fat and are now cutting into muscle and bone. The argument for having marketers at the helm to trade our way out of difficulty is profound – but it’s not happening.”

David Thorp, director of research and professional development at the Chartered Institute of Marketing (CIM), estimates that only around 10-15% of FTSE 100 companies are run by former marketers. By contrast, 51% are run by people with strong financial backgrounds – half of whom are chartered accountants, according to a survey in 2010 by recruitment company Robert Half. The rest are engineers, lawyers, scientists, sales people and MBAs. HR people are conspicuous by their absence.

Ten years ago the CIM conducted research that showed that while just 12% of FTSE 100 CEOs were marketers, they delivered 5.3% more total shareholder return than the other 88%, prompting calls for more marketer CEOs. This was during the unprecedentedly lengthy boom however – and since then marketers have shifted closer towards the communications end of the marketing spectrum, effectively ruling themselves out of the C-suite.

Thorp says that 80% of marketing “is nothing to do with communications, but marketers have allowed themselves to be ghettoised into communicators. They had fluffy metrics, so the accountants stepped in to provide solidity, and over time marketers’ business and financial skills have deteriorated.”

Marketers used to focus much more closely on revenue generation in the days when they worked more closely with sales, says Thorp, who believes a sales background is a better preparation for the CEO role than either marketing or finance. “You are responsible for targets and getting people to perform to those targets straight away, whereas accountants and marketers tend to manage concepts, ideas and strategies, with less hands-on management of people.”

But David Pardey, head of research and policy at the Institute of Leadership and Management, says that while sales people have a strong sense of budgetary responsibility and personal responsibility for achieving goals, “they also tend to be lone rangers – there is lots of competition between them, which discourages teamworking”. They also, he adds, tend to work in silos. Both charges could be levelled at accountants too.

But while functional excellence – of whatever flavour – can provide a springboard for a shining career, by the time you are approaching the top, functional background is immaterial.

“Our recent Talent Pipeline research shows that where you start becomes less and less important as you move up the organisation,” says Pardey. “By the time you get to the top your functional expertise is the least important thing, because the operational responsibility is handled below you.”

Indeed, functional background can become a hindrance. Kets de Vries says: “If you are strongly identified with one professional background, it makes it difficult to delegate – and micro-management by CEOs is a big problem. You have to try to shed your functional identity, but unfortunately people regress.”

So arguably, people become CEOs despite, not because of, their functional expertise – and the best ones work very hard to compensate for it.

“A single-track career route to the top is not enough these days – if it ever was,” says Peter Cheese, chief executive of the Chartered Institute of Personnel and Development. “The best people will increasingly come up zigzag routes in order to gain broad experience.”

But it is “the soft stuff” that has the biggest impact these days – and it is the hardest to do, he adds. “Talent development, culture and values are crucial because of the need for engagement and trust with a wide range of stakeholders.”

Does that make professional background less important? Competency is a key component of trust, says Cheese: “People have to know you know about business. Equally important is authenticity, integrity and ethics. But you can develop these in any business management or functional management role.”

CEOs need to know enough about business to be able to question and challenge, to be team players who can get the best out of people, and to communicate effectively inside and outside the organisation. How can anyone prepare themselves for such a hybrid role? Some opt for an MBA – but Cheese, for one, is sceptical about business schools’ ability to capture “all the soft stuff” in their curricula, adding that an MBA is “no substitute for real hands-on experience.”

ICAEW’s Financial Talent Executive Network (FTEN) offers the Institute’s aspiring CFOs and CEOs a middle way. A leadership programme aimed at those one level below the board, FTEN exposes participants to boardroom life through networking events, seminars and skills-based workshops, drawing on input from existing CFOs and CEOs. A critical component of the programme is mentoring: aspiring CEO/CFOs are paired up with those already in the role, matched according to the development needs of the former and the expertise of the latter.

“Mentoring helps build confidence and commercial acumen and develop leadership skills,” says Harrison.

The year-long programme is now in its fifth year, and much of the focus is on what it takes to be an inspiring leader. It covers aspects such as

Accountants sit in the engine room of the company, and that, combined with their professional rigour and training, makes them a safe bet for the chairman and investors at this stage in the economic cycle

developing a boardroom presence, developing strengths and plugging gaps in the team, building relationships across the business, influencing and selling the strategy inside and outside the organisation, building personal image and becoming an ambassador for the organisation. It is, says Harrison, “very different from business theory-type MBAs”.

But the business school case-study approach has its merits, as a new book, The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success, testifies. Written by William Thorndike, founder and MD of Housatonic Partners, a US private equity firm, The Outsiders chronicles eight iconoclastic leaders who helped their companies to achieve exceptional performance over several decades.

On average their total return outperformed the S&P 500 by over 20 times, and their peers by over seven times, over a period of 25 years.

Thorndike identified these leaders (who include Warren Buffett at Berkshire Hathaway, Dick Smith at General Cinema and Katharine Graham at The Washington Post Company) after an extensive trawl through the library at Harvard Business School. Only these eight companies satisfied his twin criteria of beating (in terms of relative market performance) both their peers and the legendary General Electric boss Jack Welch, who delivered a compound annual return of 20.9% during his 20-year tenure. Thorndike set about finding out what differentiated them and what, therefore, others could learn from them.

The leaders came from a variety of backgrounds. One was a former marketer, one an astronaut, one a widow with no prior business experience, one inherited the family business, two were highly quantitative PhDs, one an investor who’d never run a company before and one a consultant. All were first-time CEOs, most with very little prior management experience. Not one came to the job from a high-profile position, and all but one were new to their industries and companies. Only two had MBAs. None sought or attracted the spotlight.

Despite widely varying industries and circumstances, they shared what Thorndike calls “a genius for simplicity, for cutting through the clutter of peer and press chatter to zero in on the core economic characteristics of the business. This led them to focus on cashflow and to forgo the blind pursuit of the Wall Street Holy Grail of reported earnings”. The examples of these CEOs, says Thorndike, “suggest a new, more nuanced conception of the chief executive’s job, with less emphasis on charismatic leadership and more on thoughtful deployment of firm resources”.

His findings turn received wisdom about CEO success on its head. It’s not revenue and profit growth, but the increase in a company’s per share value that offers the ultimate barometer of a CEO’s greatness, says Thorndike. He believes the role of capital allocator and investor is probably the most important responsibility any CEO has – yet most are unprepared for it. Business schools don’t teach capital allocation.
Why is there so little focus on what is clearly the differentiating factor in the most successful businesses?

“Maybe CEOs see it as being the job of the finance function,” suggests Thorndike. “They might see it as a bit arcane and less sexy than other parts of their role. They are also biased towards activity and a desire to leave an impression.”

Thorndike may have discovered an alchemic formula for CEO success. But will existing CEOs listen? Peter Waine, founding director of executive search firm Hanson Green, says, “It is extraordinary how ordinary most CEOs are and how basic the mistakes they make are.” But, he says, this is great for aspiring CEOs – particularly those willing to learn on the job and from the experiences of others – concluding, “The competition’s really not that great.”






Name: Alison Cooper, 46

Title: CEO, Imperial Tobacco

Nationality: British

Qualifications: Degree in mathematics and statistics from Bristol University and chartered accountancy qualification

Career: Qualified with PwC, then worked extensively on the Imperial Tobacco account, before swapping sides. Became CEO in 2010 and is currently one of only two female FTSE 100 CEOs. 


Name: Vittorio Colao, 51

Title: CEO, Vodafone Group plc

Nationality: Italian

Qualifications: Business degree; MBA, Harvard Career: Merchant banking (Morgan Stanley, London); publishing (Mondadori, Italy); management consultancy (McKinsey, Italy); telecoms (Omnitel Pronto Italia, Italy, then Vodafone); publishing (RCS Media Group, Italy); telecoms (Vodafone).


Name: Stuart Gulliver, 53

Title: Group CEO, HSBC Holdings plc

Nationality: British

Qualifications: Masters in Jurisprudence, Oxford University

Career: Joined HSBC in 1980. Has held key roles in the Group


Name: Sir Andrew Witty, 48

Title: CEO, GlaxoSmithKline

Nationality: British

Qualifications: Degree in economics

Career: Joined Glaxo in 1985 as management trainee, held a variety of sales and marketing roles in the UK and abroad. Worked in South Africa, the US and Singapore, leading Group operations as senior vice president, Asia Pacific.


Name: Ian Livingston, 48

Title: CEO, BT Group

Nationality: British

Qualifications: Degree in economics and chartered accountancy qualification

Career path: After qualifying with Arthur Andersen, joined Bank of America, then 3i before a long spell in various roles at the Dixons Group. Joined BT as finance director after overseeing the sale of Freeserve.

Jane Simms