Executive Wake Up Calls

The first week of the new year has already offered two wake up calls for the denizens of American executive suites: a high profile CEO resignation, and a new survey finding that fewer than half of U.S. workers express trust and confidence in their senior management.

The quality and effectiveness of business leadership has always been a source of popular intrigue. Turn on any business channel, open any major newspaper, peruse any best seller list, and you’re almost certain to find people talking or writing about the topic. Business leaders provide fodder for conspiracy theorists, incomes for consultants, and data points for academic theorists. And yet despite all of the attention, truly effective leadership seems to be in chronically short supply.

Bob Nardelli’s departure from Home Depot this week is the latest high profile leadership failure, and of the two news items under discussion here, this is the one that most executives have probably been attentive to. By itself, this incident only tells us that a sufficient percentage of Home Depot’s shareholders and board members were unhappy enough with Nardelli’s leadership to call for his resignation — it is not a conclusive piece of evidence for poor executive leadership in general. In fact, we suspect that in many executive suites, the incident is being rationalized in this way. However, in order to prevent its more widely applicable lessons from going unheeded, we want to highlight a few datapoints from a recent Wyatt Watson survey, revealing that at least one critically important group of stakeholders — employees — believe that subpar leadership abounds in the U.S. business world.

While the survey’s press release emphasized trends in various ratings since the 2004 survey, the maximum reported variance between the two was only 4%. What grabbed our attention instead were the dismal absolute numbers in categories that are intrinisic to leadership. Using averages of the 2004 and 2006 surveys, we see that:

• Only 50% of senior managers have won the trust and confidence of their employees;
• Only 56% of senior managers are seen as embodying their company’s core values; and
• Only 44% of senior managers are seen as active, visible communicators.

The fact that these categories have declined since 2004 just heaps insult on injury. Without pulling punches, we’ll call this what it is: PATHETIC!!! Our aim isn’t to engage in a pointless blame-placing exercise, but rather to call attention to an extremely suboptimal situation in the world of American business.

When we analyze a company, one of the areas we’re very attentive to is the ’soft stuff’ — organizational culture, leadership effectiveness, employee involvement, etc. Employees are an increasingly critical constituency for most executives, and employees can offer valuable perspectives and feedback on senior management’s effectiveness. The overwhelming takeaway that we’re hearing in the Wyatt Watson survey is that business leaders need to take heed of the shortcomings articulated by employees, and invest some serious time and effort in developing capacities – their own and their organizations’ – for effective leadership.

To skeptics and cynics, we would point out the following. From a bottom up perspective, it’s true that these kinds of investments do not show up directly on the asset side of the balance sheet, and they are likely to have a negative impact on income statements in the short run. However, we have little doubt that in most cases, the long term health of a balance sheet depends significantly on making these kinds of investments. From a top down perspective, we admit that an economy where only half of the labor force is confident in its leaders and engaged in its mission may be sufficient, but is it optimal? Consider instead the same economy where 75% of the labor force is fully engaged. Is "staggering" a fair description of the potential benefits that would accrue to society? We think so.