This comprehensive approach to leadership development is deeply embedded throughout the company. When Lafley became CEO, according to the magazine of his alma mater, Hamilton College, he removed the oak-paneled executive offices on the 11th floor of P&G’s Cincinnati headquarters, lending the paintings that hung there to a local museum. He moved the divisional presidents’ offices nearer those of their staffs and converted the former executive space to an employee learning center. He did it, Lafley said, “so people understand we’re in the business of leading change.”
Other chief executives lauded for their leadership in recent years — including Jeffrey Immelt at General Electric, Jim McNerney at Boeing, and New York City Mayor Michael Bloomberg — all share with Lafley an emphasis on building a long-term capability for generating results. To be sure, these accolades aren’t always reflected in corporate stock prices; analysts tend to be justifiably skeptical of CEOs’ loftier ambitions. But there is some evidence of the financial value of integrated leadership. Consider Fortune magazine’s list of the “100 Best Companies to Work For,” a compendium produced by the Great Place to Work Institute in San Francisco. (Procter & Gamble, which has been on the list five out of the six years since Lafley took office, ranked number 68 in 2007.)
When our own firm, Booz Allen Hamilton, joined the list in 2005, we realized the in-depth attention to organizational design that is needed to make the cut. Companies must provide extensive quantitative and qualitative data on their workforce profiles, programs, and policies. The Institute’s researchers survey at least 400 randomly selected employees, and audit such employee-related factors as promotions and training, pay and benefit practices, communications to and from management, celebrations, and fun on the job. The criteria are weighted toward organizational structure (how companies are set up to involve and engage people), strategic direction (how compelling their vision is), and the optimism of the company’s culture.
Whether or not you agree with the ranking of any particular “Best Company,” the success rate of this group over time suggests that attention to a multifaceted, broad-based context for leadership is consistent with sustainable positive results. According to Gurnek Bains in his book Meaning, Inc. (Profile Books, 2007), annual investments in the publicly held “Best Companies” would have yielded, from 1994 to 2006, a return of more than 600 percent. By comparison, an investment in the Standard and Poor’s 500 would have yielded 250 percent, and the 18 companies lauded in Built to Last, the 1994 bestseller written by Jerry Porras and Jim Collins, would have yielded only 150 percent. (The high returns for the “100 Best Companies” have been confirmed by other research, such as one current study by economist Cullen Goenner.)
Few companies will prosper by copying P&G, or any other member of the “100 Best Companies,” directly. Great management practices are not replicable in recipe fashion. But companies can develop a design for strategic leadership. It would draw upon both long-established ideas and recent management research — emerging, for example, from the University of Southern California’s Center for Effective Organizations, where faculty members such as James O’Toole, Edward Lawler, Warren Bennis, Jay Galbraith, Chris Worley, Sue Mohrman, and Kathleen Reardon have tracked the relationship between leadership styles and corporate performance for more than 15 years.
A design for strategic leadership is an integrated group of practices that build a company’s capacity for change. To develop and maintain this capacity, four critical elements need to be integrated together: the commitment to the company’s purpose; the makeup of the top management team; the capabilities and motivation of people throughout the organization; and a sequence of focused, well-chosen strategic initiatives that can take the company forward. (See Exhibit 1.)