The Next Leadership Team: How to Select, Build, and Optimize Your Top Team 9781032343402, 9781032349404

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“This work shows a valuable and flexible approach to leadership. It gets out of the one-size-fits-all, providing a practical and insightful guide on how to build the right leadership team to each individual situation.” Adel Al-Saleh, CEO, T-Systems and member of the management board, Deutsche Telekom AG “Building successful leadership teams and structured succession planning must be a key focus of any executive, even more in the ever changing business environment. This book doesn’t only stress the importance, but also explains that it can and must be adapted to the specific business needs.” Herman Anbeek, President Europe, Americas and Middle East, gategroup “Performance is all about achieving results through people. That is why this book is so crucial as it emphasizes the role of leadership in building high performing teams. It is written in a very pragmatic and down to earth way which makes it very appealing and easy to read.” Magdi Batato, Executive Vice President and head of operations, Nestlé “For me, good leadership is all about people impact – because you, as a leader, have taken the genuine interest and time to understand what motivates, inspires, drives, concerns a person; I strongly believe in servant leaders, it’s what the world needs more of. And reading The Next Leadership Team has provided me with some great food for thought!” Christophe Catoir, President, Adecco, member of the Executive Committee, Adecco Group “Full of real-life examples from CEOs on how to create, manage, and incentivize a leadership team, this is a handy book on an important subject: a good leadership team is vital to the success of a business.” Thierry Delaporte, CEO and Managing Director, Wipro

“A company’s success depends strongly on the leadership team’s qualities and on their effective interaction. Read this book to understand how to build a very effective team of managers and how to lead it to deliver the best results for your company.” Mario Greco, CEO, Zurich Insurance “I highly recommend this important contribution to the key subject of leadership teams.” Laurent Hebenstreit, former CEO, Sogefi “CEOs and executives spend much of their time creating teams that can drive success in the organization. The Next Leadership Team is a valuable guide to doing so. Reading the book, I found many ideas and frameworks for my work and enjoyed reading the down-to-earth style and the examples from around the globe.” Jan Jenisch, CEO, Holcim “The Next Leadership Team is the second masterpiece of the two authors, which translates the commonly used buzzwords on leadership and governance into real business life and instead of presenting management theories, provides practical implementations in modified applications and procedures that can be handled in practice. Here the chair meets the practice and an excellent symbiosis appears.” Andreas Joehle, Partner, Ufenau Partners and former CEO Hartmann AG “Highly insightful book to challenge one’s own approach in building a winning leadership team.” Kai Konola, CEO, Halton “Markets, competition, regulation etc. are always changing, slowly or quickly, fundamentally or gradually. To provide proactive responses is a permanent challenge. Therefore, composition and decision-making are of central importance for leadership teams.” Georg Müller, CEO, MVV Energie AG

“A profound and practical account of the view on executive leadership teams. Everything you need to know about selecting, building and optimizing high performing teams.” Dr. Stefan Nöken, Supervisory Board Member, former Member of the Executive Board of Hilti Corporation “The time of lone wolves at the top is over. Collaboration, shared ownership and a strong sense of all employees winning together are essential to create sustained success. This book shows how it works.” Urs Riedener, Chairman of the Board and former CEO, Emmi “The Next Leadership Team gives a versatile insight into how to build a competitive leadership team. I strongly recommend that you read this book.” Timo Ritakallio, President and Group CEO, OP Financial Group “Keil/Zangrillo’s concept does not preach a one-size-fits-all leadership model. The leadership reality is complex and situational – they address this well.” Jacques Sanche, CEO, Bucher Industries “Composing and evolving effective leadership teams is an art, to which this book provides a systematic framework. Personally, I believe in teams of strong individuals, willing to be stronger together – diverse in multiple dimensions, yet cohesive as a team” Peter Terwiesch, President, Process Automation, ABB “This book is a must-read for any leader who is being faced with major cultural changes or disruptive transformations affecting the whole leadership team. As a leader you find a wealth of practical answers to even those questions you might not have asked before. A great way to learn from other leaders’ experience.” Heiner Thorborg, Headhunter

“All eyes are usually on the top leaders. And top leaders’ behavior is influenced heavily by the CEO. With the top team, it’s the same as with any great performing team, there needs to be trust as foundation and clarity on what is expected including the way of working. The CEO sets the tone, plays a critical role to build and shape the team for whatever purpose (transformation, stability, growth) and sets the direction for the team. If there is too much room for interpretation, no clear approach or the wrong players, things can easily deteriorate and eventually become counterproductive. Therefore the clarity and carrying out of leadership approach of every CEO is essential. This book helps with finding the right one and getting advice. A great practical guide.” Stephanie Werner-Dietz, Executive Vice President and global head of human resources, ArcelorMittal and former Chief People Officer, Nokia

THE NEXT LEADERSHIP TEAM

CEOs and organizational leaders are only as strong as the teams they build. And yet it is surprising how little practical advice there is for senior leaders on how to create, build, and optimize their teams. Step up The Next Leadership Team. Illustrated with real-life examples from interviews with CEOs, C-Suite members, and headhunters throughout, The Next Leadership Team explains how senior leaders can improve the performance of their leadership teams by identifying clear team approaches, associated team member profiles, and by leading that team. These ideas are brought to life with case studies and interviews with well-known corporations such as ABB, Allianz, Amazon, AXA, Best Buy, Capita, Danone, Deutsche Telekom, Ferrari, Freudenberg, Haier, Hilti, HSBC, Holcim, Huawei, Logitech, Microsoft, Nestlé, Netflix, Nokia, Nordea, Schneider Electric, Tata, Wipro, and Zurich Insurance. This book is an invaluable resource for CEOs and senior executives who need to build and develop leadership teams to drive success in the organizations they lead. It is also relevant to headhunters who are involved in the appointments of members of senior leadership teams. Thomas Keil is a professor at the University of Zurich, Switzerland, where he teaches strategy and international management, and partner at The Next Advisors. Marianna Zangrillo is a corporate leader, business angel, investor, author, and partner at The Next Advisors.

THE NEXT LEADERSHIP TEAM

How to Select, Build, and Optimize Your Top Team Thomas Keil and Marianna Zangrillo

Designed cover image: Getty Images / gerenme First published 2023 by Routledge 4 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 605 Third Avenue, New York, NY 10158 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2023 Thomas Keil and Maria Anna Zangrillo Gallinaro The right of Thomas Keil and Maria Anna Zangrillo Gallinaro to be identified as authors of this work has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Names: Keil, Thomas, 1970 February 6- author. | Zangrillo, Marianna, author. Title: The next leadership team : how to select, build, and optimize your top team / Thomas Keil and Marianna Zangrillo. Description: Abingdon, Oxon ; New York, NY : Routledge, 2023. | Includes bibliographical references and index. | Identifiers: LCCN 2022055551 (print) | LCCN 2022055552 (ebook) | ISBN 9781032343402 (hardback) | ISBN 9781032349404 (paperback) | ISBN 9781003324577 (ebook) Subjects: LCSH: Senior leadership teams. | Leadership. | Executive ability. Classification: LCC HD66.7 .K45 2023 (print) | LCC HD66.7 (ebook) | DDC 658.4/092—dc23/eng/20221116 LC record available at https://lccn.loc.gov/2022055551 LC ebook record available at https://lccn.loc.gov/2022055552 ISBN: 978-1-032-34340-2 (hbk) ISBN: 978-1-032-34940-4 (pbk) ISBN: 978-1-003-32457-7 (ebk) DOI: 10.4324/9781003324577 Typeset in Joanna by codeMantra

CONTENTS

Acknowledgments Introduction Different approaches to leadership teams 6 What works depends upon the company type and situation 7 The structure of the book 8

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PART I: Approaches to leadership teams and situational constraints

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Approaches to leadership teams Competition and collaboration in leadership teams 16 Team of Stars approach 18 Synergistic Team approach 20 Stretch Team approach 22 When the three leadership approaches degenerate into low performance 23 Reasons for success and failure of the leadership approaches 25

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Mapping the leadership team approach with situational constraints Company types 31 Three company situations and leader mandates 36

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PART II: Selecting members to the leadership team

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How to select leadership team members Leadership team composition 48 Process for selecting new leadership team members 56 Criteria for selecting new leadership team members 68

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Selecting team members for different leadership team approaches and situational constraints Selecting members for different leadership team approaches 80 Situational constraints and the selection of leadership team members 86

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PART III: Building the team

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How to initially build the leadership team Setting the team’s purpose 101 Creating the team environment 103 Team structures and processes 108 Managing discussion 111 Decision-making 112 Leader role 115 Development tools 118

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How leadership approach and situational constraints shape leadership team building Building the team for different leadership team approaches 125 Building the team under different situational constraints 133

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PART IV: Optimizing performance

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Optimizing leadership team performance over time Keeping the leadership team aligned  144 Performance management  145 Keeping the leadership team relevant  148 Strategic change  151 Changing team members  155 Succession planning and talent management  160

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Optimizing performance for different leadership team approaches and in different situations Key challenges of optimizing the leadership team under different leadership team approaches  168 Optimizing the leadership team performance under different situational constraints  178

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Designing the future of leadership teams Creating purpose-driven leadership teams  190 Building organizational resilience through the leadership team  192 Driving organizations through style  195 The changing profile of leadership team members  197 Creating and leveraging team diversity  200 Concluding thoughts  202

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References Index

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ACKNOWLEDGMENTS

Writing and publishing a book is a process that requires the input of many whose names do not appear on the front page. We would like to take the opportunity to acknowledge and thank all who made this book possible. This book would not have come to life without your help. First of all, this book would not have been possible without the generous help of all the CEOs, executives, and headhunters who agreed to be interviewed, shared their insights, gave feedback on our ideas, challenged our thinking, and allowed us to create new thinking and concepts. Since this is our second book focusing on the most senior leaders in an organization, over the years we have had the opportunity to develop an ongoing dialogue with many individuals, not only providing us with inputs into our research but also helping us to test our emerging ideas against practice. While throughout the book we cite many by name and organization, some preferred to remain anonymous. Nevertheless, their insights were equally important for our research and occasionally allowed us to give voice to challenges that are not always easy to speak out aloud. We would therefore like to thank you all equally. Your work in the organizations you lead, the clarity of your thinking, and your desire to advance knowledge have inspired us in our work. We also wish to highlight a few individuals who have contributed directly in exceptional ways with the development of our ideas and the creation of the book.

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acknowledgments

Stuart Crainer and Des Dearlove of Thinkers50 have been again instrumental in shaping and sharpening our ideas. Their feedback has been invaluable in shaping our initial set of thoughts into a clear and concise manuscript. We will be forever grateful. We would like to thank Professor Martin Hilb from the University of St. Gallen for encouraging us to develop our initial book on CEO succession into a series of books geared to help boards, CEOs, and executives. And how could we forget our editor at Routledge, Rebecca Marsh, for her responsiveness and extremely collaborative approach that has made publishing this book so much more enjoyable. We would also like to thank Lisa Humphries, who copyedited the final version of the book and helped us to sharpen our text. While geared toward CEOs and executives, our book is grounded in years of academic research. Among all the academic colleagues that contributed through countless discussions, we would like to highlight the help and insights we received from Stevo Pavicevic. Stevo has not only become an authority on senior leadership but through the many thoughtful suggestions and conversations has contributed over and over again to our work. While our first book took almost ten years from the first interview to the publishing, this time around we were able to complete the additional research and interviews needed for this book in less than a year while the total research project took five years. This would not have been possible without the efficient research assistance of Gian-Luca Asquini. When we wrote the acknowledgments for our previous book, The Next CEO: Board and CEO Perspectives for Successful CEO Succession,1 we thought we would take a long break from any new book project. But already less than three months later we embarked on a new book, and in addition to that we have yet another one underway. The learnings from the initial research, the numerous positive feedback, and the eagerness to read more that many of you showed motivated us to keep going. Writing this book has meant that our family had to endure again countless instances where we talked about the book or locked ourselves up to write on evenings, weekends, and holidays, taking time away from our children, family, and friends. We would like to thank all who have understood the importance of this new project and forgave us for not keeping our promises to take a break after the first book.

a ck n ow l ed gmen t s

Finally, we would like to thank our parents. It was them who set us on a journey of learning, taught us to be ever curious, and helped us to develop the discipline to complete this book. We will be forever grateful.

Note 1 T. Keil and M. Zangrillo, The Next CEO: Board and CEO Perspectives for Successful CEO Succession (London, UK: Routledge, 2021).

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INTRODUCTION

In today’s world of public scrutiny and social media, we are more obsessed than ever with the leaders at the top of organizations. We tend to view the CEO as the main driver of the company’s performance and as the face of the company to the outside world. When think of Apple, JP Morgan, Netflix, Huawei, or GlaxoSmithKline, many of us would think Tim Cook, Jamie Dimon, Reed Hastings, Ren Zhengfei, and Emma Walmsley. This focus on the leader overlooks how even the most potent leaders cannot lead and even less change organizations by themselves, and how they achieve success: By surrounding themselves with a team which is equally strong. Running a company is a team sport, even with a superstar at the top. An organization is only as good as its entire leadership team and elements that in the past may not have been relevant, such as diversity, the resumes of team members, or their social media presence, are now playing a big role. As a consequence, the process of selecting, building, and optimizing the entire leadership team is the most important task for any organizational leader, to drive their strategic agenda and achieve success in their leadership mandate.

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Take for example Thierry Delaporte at the technology services company Wipro, a $10 billion global information technology, consulting, and business process services company, with 260,000 employees across six continents. Incorporated in 1945, Wipro grew under the leadership of former Chairman Azim H Premji, and more recently Chairman Rishad Premji, into one of the leaders of the IT services sector. Wipro has a powerful brand, and is globally respected in its industry. Yet, by 2020 the group had fallen behind the competition, having struggled to grow market share over the previous 15 years. It was against this backdrop that Delaporte was appointed as Wipro’s first non-Indian CEO, in July 2020. Delaporte, a French national, received his undergraduate training in economics and finance at the elite French university, Sciences Po, and completed a master’s of law at the Sorbonne University in Paris. Following a brief period at accounting and auditing firm Arthur Andersen, Delaporte spent most of his career at the French consulting multinational Capgemini, rising through the ranks and occupying increasingly more senior positions in four different continents around the world. Being a French citizen in a mostly Indian-led company, with no history or network in the organization, Delaporte realized from the beginning that he would not be able to turn around Wipro by himself, and that a renewed and high-performing team was needed. From the moment he had been selected for the position, he engaged with the chairman regularly to understand the roots and the problems in the company. He also connected with the company’s top 70 leaders ahead of his joining. Delaporte wanted to learn about their strengths and weaknesses and understand the organization beyond its organizational charts. He then decided to go even deeper and meet with the first three levels of management, as well as with the high potentials. From these conversations, Delaporte concluded that the leadership team needed a different kind of steering, because they seemed to have lost confidence and their appetite for risk taking; they were slow at decision-making and focused more on cost, rather than revenues. Under a byzantine organizational structure, accountability was at a minimum and despite missed performance targets there were no consequences. Delaporte quickly realized that to transform the organization, a fundamental transformation of the leadership team was needed. Not only would he need to bring in fresh blood, but the ways of working had to fundamentally change. Over the following 18 months, Delaporte embarked on a change program that reshuffled much of the leadership team, reducing the executive

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team from 20+ members to 10. Given the lack of diversity in the management, he decided to bring in new leaders to reflect a better gender balance, diverse backgrounds, and different cultures from outside the company. He rebuilt the operating model, simplifying the 27 units with profit and loss (P&L) responsibility down to 4 units with P&L, two business lines, and four key functions (finance, people, operations, and sales) forcing the management team to work together in a manner they never had to before. He complemented these changes in the composition of the leadership team with a culture transformation program focused on bold thinking, calculated risk taking, accountability, and service excellence, while continuing to reinforce Wipro’s Five Habits of being respectful, responsive, communicating, showing stewardship, and building trust. Describing the intense months of the initial transformation to us, Delaporte said: A year and a half later we’re a different company. confidence is building. It’s still not at the level of ambition that I’d expect from a winning team, but the momentum is different now. Our team is on the way to being best-in-class.

Delaporte’s focus on building a team that allows him to design and execute changes is no surprise for experienced leaders. Most CEOs and executives we spoke to emphasize over and over the importance of building a strong leadership team. In his book Connecting the Dots,1 John Chambers, former CEO of CISCO, succinctly summarizes this challenge as finding the right people and getting them to work together. In the same vein, Peter Vanacker, current CEO of S&P 500 chemicals company LyondellBasell, told us: to drive change, finding the people that are passionate about making a difference, and believe in the change, is central. My belief is that it all starts with people. If you don’t have the right people on board and if you don’t have the right people with the right mindset in the different layers in the organization then it’s extremely difficult to make a change and to position the company new.

While most leaders and their advisors2 will agree that leadership teams matter, there is little agreement on what constitutes a top-performing approach to leadership teams. Rather, our research suggests that how leadership teams

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are selected, built, and optimized in practice varies greatly. Some seem to be referred to as teams only because the members of the team report to the same CEO, whereas in reality they are groups of highly independent individuals, each pursuing their own goal, who meet only to exchange status updates and align on major decisions – or, in the worst cases, just to fight over resources and attention. Others form a closely knit group based on friendship bonds and loyalty to the CEO rather than on merit, making it difficult to evaluate performance objectively, let alone dismiss members of the team. Others again are deeply synergistic groups that solve problems together, where the performance of the individual takes the backseat and the success of the team takes the spotlight. Some teams are characterized by intense competition among their members, while others are focused fully on collaboration. Some leadership teams degrade into “shark tanks” full of politics, while others resemble more a “petting zoo,” where mutual comfort and friendship rule above all else. Given this variance in leadership teams, it is clear that not all will be successful. And when top management teams become dysfunctional, the whole corporation suffers. Take the example of Alcatel-Lucent, which was formed in 2006 from the merger of French telecommunications company Alcatel and its US competitor Lucent. From the outset, there were strong tensions within the leadership team and the management team engaged in intense political power battles3 that led ultimately to the demise of the company and its acquisition by Nokia in 2016. Or take the management team of GE, which for years remained comfortably inside its own executive bubble playing, as one former team member described it, “performance theater,” while business declined to the point where the company was no longer viable, requiring a five-year turnaround4 that, at the time of writing this book in mid-2022, is still not yet complete. At the same time, strong leadership teams can drive success and revitalize a struggling company. In 2014, when Satya Nadella was appointed CEO of Microsoft, the Seattle-based software giant was best described as combatively competitive both toward the outside world and within the company. Over the course of his tenure, Nadella not only transformed Microsoft from a company that had lost relevance in the world of the new tech giants like Apple, Amazon, Facebook, and Google to being one of the most admired firms and the third company (after Apple and Amazon) to reach a valuation of over US$1 trillion; in addition, he transformed Microsoft’s leadership

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approach from what he described as a group of warring gangs pointing guns at each5 other into a focused team, and he instilled a culture of collaboration that inspired employees inside the organization as much as its customers and partners outside. Under Nadella’s leadership, Microsoft reinvented itself into a company that is far more open toward the outside world and fosters an open and cooperative culture inside. The importance of the leadership team is further highlighted by statistical evidence and academic research. Research on strategic leadership and top management teams has produced rich insights into how leaders create, build, and develop top-performing management teams.6 It suggests that the demographic composition of the leadership team, its structure, interaction among members, team power dynamics, and team process can all have a wide-ranging effect on financial performance metrics such as return on assets, or total shareholder return, suggesting that the approach to the leadership team is an important factor for company success.7 Research on leadership teams further suggests that the effectiveness of top leadership teams depends a lot on the situation the organization faces.8 Given the importance of the leadership team and the widely varying performance outcomes it creates, it is only sensible to ask what approach a CEO or senior executive should take to selecting, building, and optimizing the leadership team to drive organizational success. This was the starting point of our work on leadership teams, which led to a five-year research project where we engaged in conversations with CEOs, the executives reporting to them, and headhunters hiring them, exchanging views on what works and doesn’t work in selecting, building, and optimizing leadership teams and trying to capture the essence of their experiences. Our research also developed from our previous book,9 The Next CEO: Board and CEO Perspectives for Successful CEO Succession, for which we had already interviewed CEOs on their transition into the top job. To ground what we heard in our conversations in academic research, we complemented our primary research with in-depth case studies of selected CEOs and further research of academic literature on leadership teams.10 This book draws upon this research and introduces ideas, frameworks, and tools that address and elaborate on two connected themes. On the one hand, we refer to several distinct approaches to the leadership team; on the other hand, we discuss the impact of distinct company types and situations on the choice and implementation of the leadership team approach.

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Different approaches to leadership teams A striking insight from our research is that there is no single best approach to top leadership teams but rather several feasible approaches that can lead to success. This is in stark contrast to much of the existing practitioner advice that often touts a single best solution which is meant to fit all organizations. Take Jan Jenisch’s transformation at Holcim, the Swiss multinational building materials company formed through the merger of two competitors from France and Switzerland. When Jenisch joined the company, he found a team that had been chosen based mostly on their origin in the French or Swiss firm, with unclear responsibilities, and paralyzed by politics. To break this stalemate, Jenisch focused on the power of competition. He explained to us: I created a strong team along with performance management, empowerment and accountability. to use a football metaphor – a team of eleven ronaldos. With such a team you give them each a task, let them run and then follow up.

Other leaders emphasize collaboration and the team over the individual. Juhani Hintikka, for example, the CEO of WithSecure, a publicly listed Finnish cybersecurity company, describes his approach as: Building a strong team. Everyone is an A-player but it is more important that they work well together than that everyone is a superstar.

Third, some leaders carefully try to balance individual performance, competition, and collaboration in their teams. For example, Sara Mela, Head of Personal Banking at Nordea, the largest Nordic Bank by assets, explained: I aim to create a team that leaves room for the strong performers, but also induces them to work together as a team.

The choice of the leadership approach is therefore an important decision that a CEO or executive needs to make, as Jean-Pascal Tricoire, CEO of Schneider Electric, the global producer of digital automation and energy management solutions, explained to us: Your leadership approach is a core choice that you make for your company. As a leader you can set the direction, pick the right team, and create the environment to make the team productive.

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The core idea of our research is that the organization and its leadership team need to be consistent and aware of the preferred style on which the organization is built. This might be a competitive or collaborative style, for example. Consistency across various dimensions and careful implementation are ultimately more important than which style is adopted but, once there is an awareness of how the organization wants to perform, leaders should be selected, and teams can be built and optimized accordingly. The three different approaches to the leadership team of Jenisch, Hintikka, and Mela above create very distinct requirements for how to select team members. They also imply very different ways of how to work together to leverage the unique strength of the approach – and counter its downsides. Finally, the three different approaches pose unique challenges to developing individuals and the team and to optimizing its performance in the long run.

What works depends upon the company type and situation Our second core insight from this research relates to the importance of the situation a company finds itself in, and the resulting mandate of the leader, when selecting and implementing the leadership team approach.11 While several approaches can lead to success in principle, what fits one set of circumstances may lead to disaster in another and any of the chosen leadership approaches need to be adjusted to the situation at hand and to what the leader needs to accomplish. Jacqueline Hunt, former management board member of the German insurer Allianz, explained to us: You need the right team for the circumstances that you face as a leader. there is no one right high-performing approach for a team. It is almost always situational. If you go into a turnaround environment where you need to make very rapid decisions, the team you need is very different from a situation where the mandate is to grow the business in the future. So, in terms of the team approach, the best teams are consciously put together depending on the overall mandate for the business.

Different situations and mandates pose unique challenges for the leader. The CEO or executives need to pay attention to their specific requirements and modify their implementation of the team leadership approach. As the

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situation changes, leaders may even be forced to change their approach, or at least make modifications. This means that CEOs and executives not only need to design a consistent approach for the leadership team but also match and adapt it to the company situation and mandate to achieve a dynamic balance between collaboration, competition, and an evolving organizational context.

The structure of the book The Next Leadership Team aims to provide tangible and hands-on advice to CEOs, executives, leadership team members, and aspiring leaders on how to select, build, and optimize the leadership team. Based on the two core ideas just introduced, the book is organized into four parts and nine chapters. In each of the chapters, we will introduce key challenges for CEOs and executives, drawing upon our interviews, examples, and case studies. For each of these challenges, we then provide hands-on advice and tools to enable leaders to master them. Part I introduces our framework for leadership approaches and situational demands. Specifically, in Chapter 1, we introduce three high-performance leadership approaches as well as three associated low-performance risks. Chapter 2 introduces three types of companies and three distinct classes of situations and mandates that CEOs and executives often face and highlights their implications for the selection and implementation of the leadership approaches. Parts II to IV then utilize this framework to discuss the specific dimensions of the leadership approach relating to the selection of team members, building the team, and optimizing the team over time. Part II focuses on the selection of team members. In Chapter 3, we first introduce the key challenges involved in selecting the leadership team members. Chapter 4 then discusses how different leadership approaches and situations may affect the selection of team members. Part III focuses on how to initially build the leadership team. Chapter 5 introduces the key challenges to building leadership teams. Chapter 6 highlights how CEOs and executives build teams differently depending upon the leadership team approach and depending upon the demands of different situations.

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Part IV focuses on how to optimize the leadership team over time. In Chapter 7, we highlight the most important dimensions of optimizing leadership teams. Chapter 8 then discusses how optimization depends on different leadership approaches and company situations. In the final Chapter 9, we provide a look into the future of leadership teams.

Notes 1 J. Chambers and D. Brady, Connecting the Dots: Lessons for Leadership in a Startup World (New York: Hachette, 2018). 2 See, for example, C. Dewar, S. Keller, and V. Malhotra, CEO Excellence: The Six Mindsets That Distinguish the Best Leaders from the Rest (New York: Scribner, 2022). 3 F. Dangeard, Alcatel’s Merger with Lucent, 2006, Case no. 316-0029-1, INSEAD (Fontainebleu, France, 2016); R. G. Ram and S. P. Gollapalli, Alcatel Lucent: Merger on the Rocks, Case no. 309-025-1, IBS Research Center (2009). 4 T. Grytta and T. Mann, Lights Out: Pride, Delusion, and the Fall of General Electric (New York: Houghton Mifflin Harcourt Publishing, 2020). 5 S. Nadella, G. Shaw, and J. T. Nichols, Hit Refresh (New York: Harper Business, 2019). 6 Since this book is written for a practitioner audience and to facilitate the ease of reading, we keep the references to academic literature to a minimum and mostly focus on references to practice-oriented papers that provide additional depth on the topic. For an overview of the research see, for instance, the following reviews: I. R. Cuypers et al., “Top Management Teams in International Business Research: A Review and Suggestions for Future Research,” Journal of International Business Studies 53, no. 3 (2022); S. Finkelstein, D. C. Hambrick, and A. A. Cannella, Strategic Leadership: Theory and Research on Executives, Top Management Teams, and Boards (New York: Oxford University Press, 2009); Z. Simsek, C. Heavey, and B. C. Fox, “Interfaces of Strategic Leaders: A Conceptual Framework, Review, and Research Agenda,” Journal of Management 44, no. 1 (2018); D. Georgakakis et al., “Four Decades of CEO–TMT Interface Research: A Review Inspired by Role Theory,” The Leadership Quarterly, 33, no. 3 (2022);

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M. Samimi et al., “What Is Strategic Leadership? Developing a Framework for Future Research,” The Leadership Quarterly (2020); P. Bromiley and D. Rau, “Social, Behavioral, and Cognitive Influences on Upper Echelons During Strategy Process: A Literature Review,” Journal of Management 42, no. 1 (Jan 2016); S. Nielsen, “Top Management Team Diversity: A Review of Theories and Methodologies,” International Journal of Management Reviews 12, no. 3 (2010); S. Ma, Y. Y. Kor, and D. Seidl, “CEO Advice Seeking: An Integrative Framework and Future Research Agenda,” Journal of Management 46, no. 6 (2020); R. Krause, J. Roh, and K. A. Whitler, “The Top Management Team: Conceptualization, Operationalization, and a Roadmap for Scholarship,” Journal of Management (2022). B. H. Neely Jr et al., “Metacritiques of Upper Echelons Theory: Verdicts and Recommendations for Future Research,” Journal of Management 46, no. 6 (2020). For an overview see for instance, S. T. Certo et al., “Top Management Teams, Strategy and Financial Performance: A Meta-Analytic Examination,” Journal of Management Studies 43, no. 4 (Jun 2006); Finkelstein, Hambrick, and Cannella, Strategic Leadership: Theory and Research on Executives, Top Management Teams, and Boards (New York: Oxford University Press, 2009). A. C. Edmondson, M. A. Roberto, and M. D. Watkins, “A Dynamic Model of Top Management Team Effectiveness: Managing Unstructured Task Streams,” Leadership Quarterly 14, no. 3 (Jun 2003); C. E. Eesley, D. H. Hsu, and E. B. Roberts, “The Contingent Effects of Top Management Teams on Venture Performance: Aligning Founding Team Composition with Innovation Strategy and Commercialization Environment,” Strategic Management Journal 35, no. 12 (2014). T. Keil and M. Zangrillo, The Next CEO: Board and CEO Perspectives for Successful CEO Succession (London: Routledge, 2021). For reviews of the academic literature on the topic see, for instance, Cuypers et al., “Top Management Teams in International Business Research: A Review and Suggestions for Future Research,” Journal of International Business Studies, 53, no. 3 (2022); Finkelstein, Hambrick, and Cannella, Strategic Leadership: Theory and Research on Executives, Top Management Teams, and Boards (New York: Oxford University Press, 2009); Simsek, Heavey, and Fox, “Interfaces of Strategic Leaders: A Conceptual Framework,

I n t r od u c t io n

Review, and Research Agenda,” Journal of Management 44, no. 1 (2018); Georgakakis et al., “Four Decades of CEO–TMT Interface Research: A Review Inspired by Role Theory,” The Leadership Quarterly, 33, no. 3 (2022); Samimi et al., “What Is Strategic Leadership? Developing a Framework for Future Research,” The Leadership Quarterly (2020); Bromiley and Rau, “Social, Behavioral, and Cognitive Influences on Upper Echelons During Strategy Process: A Literature Review,” Journal of Management 42, no. 1 (Jan 2016); Nielsen, “Top Management Team Diversity: A Review of Theories and Methodologies,” International Journal of Management Reviews 12, no. 3 (2010); Ma, Kor, and Seidl, “CEO Advice Seeking: An Integrative Framework and Future Research Agenda,” Journal of Management 46, no. 6 (2020); Krause, Roh, and Whitler, “The Top Management Team: Conceptualization, Operationalization, and a Roadmap for Scholarship,” Journal of Management (2022). Neely Jr et al., “Metacritiques of Upper Echelons Theory: Verdicts and Recommendations for Future Research,” Journal of Management 46, no. 6 (2020). 11 For the idea of a leader’s mandate, See Keil and Zangrillo, The Next CEO: Board and CEO Perspectives for Successful CEO Succession (London: Routledge, 2021).

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Part I APPROACHES TO LEADERSHIP TEAMS AND SITUATIONAL CONSTRAINTS

1 APPROACHES TO LEADERSHIP TEAMS

In 2019, Sara Mella was appointed head of personal banking at Nordea, the largest Nordic Bank in terms of assets. Mella had pursued a career in banking, rising through Nordea’s ranks with only a short interruption during which she worked for the publishing industry. In her role as an executive team member in charge of personal banking across all Nordea’s markets, she would be leading a large team of professionals tasked with bringing closer together the different markets that traditionally had been managed mostly separately. Mella’s job was to improve the performance of the private banking business and to transform the organization toward a more integrated approach. Banking is an intensely competitive industry, where ultra-competitive individuals are often celebrated and teamwork – beyond the absolutely necessary – is the exception rather than the norm. Against this backdrop, Mella had to consider a new way to lead the team she found upon her arrival. In an interview she explained to us: When I came to this position, there was an existing team. there were very strong individuals and experts, but there were also many strong egos. And

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the team was not optimally coherent in how it worked. there were some individuals that were often colliding and hitting heads against each other. there was also some competition among the individuals, and the ways of working were not always according to the values we have in our group. no doubt I found strong and capable people, but they just didn’t work well together. So, the key question for me was what approach would help me to leverage the individual performance and counter the conflicts? How could I make use of the strong performers, but at the same time make sure they would become a high performing team?

Competition and collaboration in leadership teams The problem that Mella faced is common to many leadership teams, which often reflects a paradox. To get into the leadership team, individuals need to be ambitious, highly confident, and strong individual performers, as they are likely to be responsible for large functions or businesses and, to optimize the performance of their function or business, they also need to be fiercely competitive. However, the higher they rise in the hierarchy, the higher their share of responsibility for the overall group’s performance and, once in the leadership team, their own business or function often comes secondary to the overall corporate performance. For instance, Juhani Hintikka, CEO of the Finnish cybersecurity firm WithSecure, explained: When you consider people for promotion to the leadership team, one of the key criteria is that, are these people mature enough to think beyond their own individual responsibility. I wouldn’t consider anybody mature enough for the leadership team if all they think and can think about is their own position. Being part of the leadership team means that you need to take care of your own job, and then you need to take care of the broader company together with the rest of the team.

To put the organization ahead of individual responsibility requires teamwork and collaboration. Often, the two responsibilities of a leadership team member, and the principles of competition and collaboration that they imply, are in direct conflict. A decision that is optimal for the leadership team member’s unit may reduce the performance of other units and even of the organization at large. And a decision that may be optimal for the organization might have

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negative consequences for the leadership team member’s unit. It is this tension that forces CEOs and executives to make decisions as to what principles to base their leadership approach upon, and how to resolve the tension between competition and collaboration in their leadership approach. While popular books and practical advice are often based on the tempting premise that good leadership is just good leadership no matter what, our research suggests that good leadership can and should be situational, and there is no single best way to resolve the tension between competition and collaboration. Instead, several approaches that strike a different balance between the two can work in practice, as depicted in Figure 1.1 and summarized in Table 1.1. In some ways, these different approaches are a matter of the leader’s personal preference, but they also depend on the type of company, the situation it faces, and the leader’s mandate, as we will discuss in the next chapter. We refer to these approaches as the Team of Stars, the Synergistic Team, and the Stretch Team, and each one functions best with very different and unique leadership characteristics. This becomes particularly relevant in the recruiting of leadership team members, who may have an outstanding track record but may not be suitable or may not be able to perform if the approach is not in line with their leadership style. It is also reflected in what CEOs and executives initially focus on as they build the norms, culture, and processes of their leadership team. Finally, it also influences how leadership teams can be optimized over time through incentives, team development, and team renewal. Competition Team of Stars

Stretch Team Shark tank Mediocracy Petting zoo

Synergistic Team

Collaboration Figure 1.1 Approaches to the leadership team

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Table 1.1 Leadership team approaches compared Leadership approach

Key characteristics

Benefits

Challenges

Low performing variant

Team of Stars

Focus on competition Individual unit’s performance Individual problem solving and decision-making Limited collaboration across units Team for information sharing and alignment Focus on star performers Focus on collaboration Team for problem solving and consensusbased decision-making Focus on team players Little competition among team members

Fast decision-making Ambition of individuals drives performance Avoids overcoordination

Competition degenerates into politics Synergy opportunities not leveraged Egos of high performers get in the way Individuals optimize at the cost of others or the company Too slow decision-making Too little competitive drive Too little challenging of status quo Team members become complacent

Shark tank

Neither individual high performers nor team players willing to join the team Team members neither collaborate effectively nor are competitive Team fractionalizes

Mediocracy

Synergistic Team

Stretch Team

Balances competition and collaboration Selective team problem solving Encourages constructive conflict and debate Mixes star performers and team players

Allows optimizing at company level Diversity of inputs allow for better decisions Consensusbased decisionmaking helps implementation of decisions Combines individual initiative with coordination Limits downsides of competition and collaboration

Petting zoo

Team of Stars approach Some leaders design their leadership team with the emphasis on intense competition among the team members –we refer to this as the Team of Stars approach. Leaders select star performers, set aggressive goals for them, and provide them with strong incentives; they allow them to focus on the function or business under their responsibility, provide them with freedom to

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act, and hold them accountable mainly for these areas of responsibility.1 Collaboration and joint decision-making in this approach is minimal and typically occurs when a short-term benefit for each unit involved is easily measurable. In this context, team meetings are mostly for information sharing and alignment on overall goals. For example, at Netflix, CEO Reed Hastings has created a leadership team approach based on ruthless performance management, focusing on individual performance, where high-performing stars compete with each other in an environment with relatively few rules.2 Similarly, take the leadership approach of Jacques Sanche, CEO of Bucher Industries, a Swiss diversified manufacturer of specialty machinery. Sanche told us: In our multi-business company, we have common values, behaviors, ambitions, and an organizational framework. Apart from that, each division has its own strategy and objectives. It is not so much about bringing together one team that must have one set of objectives. Each division president has different action items and goals. And my role is to watch how each division performs. I set certain priorities, which I believe should be developed or pushed, but there is no need to force collaboration.

Teams of Stars can count on fast decision-making, since each leadership team member is empowered to make decisions for their own unit, while decisions for the company’s overall goals that require coordination – and represent a small percentage of each member’s targets –are often made by the team leader. Teams of Stars also optimally leverage the ambition of high performers because incentives and rewards are focused on the individual unit. In a Team of Stars approach, the leadership team does not need to work as a team in the narrow sense and for most tasks and situations can be regarded as a group of individuals with distinct areas of responsibility. Not every senior leadership interaction is a team opportunity and enforcing collaboration in every situation can be counterproductive.3 In fact, in many situations, a focus on the single leader seems to fit the corporate power structure better and may produce faster and more efficient results. As Jan Jenisch, CEO of Holcim, explained to us: In my leadership team, every member has their own area of responsibility. I give each leader the freedom and the power to choose which path to pursue to reach their goals. Telling them how to solve problems or how to organize

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themselves would not make sense. I also don’t force collaboration on them. When there are topics where it makes business sense they will collaborate.

Leaders need to recognize when a collaborative approach is called for and when an individual leadership approach is more beneficial.4 A Team of Stars approach, as any other, comes with its challenges. Competition among highly ambitious team members can easily degenerate into intense politicking and back-stabbing. Synergy opportunities across units may be purposefully ignored for the advantage of individual performance. Some leaders are also reluctant to create teams out of star players given that egos may take over, the stars may not be willing to work with one another,5 and individuals may optimize their own interests above the company’s good. To leverage the benefits of a Team of Stars approach, therefore, requires an exceptionally strong CEO or executive who can understand the strengths and weaknesses of the stars and the team as a whole, is able to keep them aligned,6 and is also able to detect and quickly address any early signs of dysfunctional behaviors.

Synergistic Team approach While a focus on competition has undeniable benefits, it is not the only possible path to success. An alternative route to high performance is a leadership team approach that emphasizes collaboration among the team members.7 In this Synergistic Team approach, the leadership team focuses on working closely together, joint problem solving, intense and frequent discussion, and decision-making based on consensus. Competition among team members is minimized, or at least not rewarded. For example, Sundar Pichai, CEO of Alphabet, the parent company of Google, recently highlighted in an interview how setting up a collaborative culture has been a central theme of his tenure as a CEO because in his view performance arises from teamwork.8 In the same spirit, Stefan Nöken, former Member of the Executive Board of Hilti Corporation, a global leader in the manufacturing of tools and fasteners for the construction industry based in Lichtenstein explained to us: At the executive level, we are a team. Our task is simply too big to be fulfilled by any individual. We need collaboration and need to work together to successfully address it. Working together as a team has many benefits. It brings more diverse perspective to bear on a problem and leads to better

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decisions. In particular in a world where things become more and more integrated, you need the bigger picture. It is also enriching for the individual to learn from different colleagues.

Working as a Synergistic Team provides several specific benefits. With joint problem solving, the team identifies solutions for the whole company rather than at the level of the individual unit, and individual leaders tend to be less proprietorial about their specific area and can potentially grow into a better-rounded leader. Making decisions drawing on a diverse set of inputs and working toward consensus also fosters the implementation of these decisions, once they have been reached. However, Synergistic Teams may run the risk that decision-making becomes slower, since leaders need time to work toward building consensus. The absence of competition among team members also creates the risk of lack of competitive drive in the overall team. In addition, because Synergistic Teams emphasize collaboration and consensus, they often find it difficult to agree on fundamentally new solutions and team members may easily become complacent. The Synergistic Team approach also faces a number of important challenges in its implementation, including important social and cognitive barriers that leaders need to account for.9 With strong performance being a key driver to rising through the leadership ranks, once an individual becomes a member of the leadership team, they are still likely to look out for their own and their own team’s performance – even if the CEO or executive promotes and rewards consensus – and might bring with them a competitive mindset, which can create tension with other team members. Differences in perspectives and approaches, which are likely to occur when the leadership team consists of a set of diverse individuals, for example, can also create tensions. Working closely with strong-willed leaders, therefore, always requires the CEO or head of the group to manage emerging tensions. Collaborative leadership also requires accounting for the possibility that some team members might silence each other when, for example, a large ego controls the airtime, or when power differences make speaking up risky. Leaders therefore need to be careful when selecting members for a Synergistic Team, be aware of the risks, and ultimately manage them. Finally, Synergistic Team leaders need to allow for the disagreements that are a natural result of open communication which, if kept constructive, can spark positive growth.

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Stretch Team approach Some leaders choose a third approach that bridges competition and collaboration among team members. This we refer to as the Stretch Team approach. This type of leadership team consists of members that are highly competitive but also willing and able to collaborate, engage in selective joint problem solving and do so through intense debate and constructive conflict, and are able to balance competition with collaboration and a focus on common goals. Laurent Freixe, Executive Vice President and CEO of Latin America for Nestlé, the world’s largest food and beverage company explained to us: It is very important for me to bring into my team people who excel along the two dimensions of being strong team leaders but also strong team players. Why? Because they will have to lead a large organization sometimes with dozens of thousands of people, multi-billion business units, working remotely, having responsibility over nestlé’s business and reputation in a given geography. these are huge responsibilities. I need people who are really capable of doing that. But those people need to also work with me and with my leadership team. I want them to be capable of being team players as well because we have topics of common interest that we need to drive together. You have the quality of the individual members, but you can get something more from the team through its interactions, through its own dynamic and creativity, through leveraging the diversity of opinions.

While on the surface the Stretch Team approach seems most attractive because it draws upon both competition and collaboration, our research suggests that it is not generally superior to the other two approaches and has a higher failure rate. There are several reasons for this. First, and most fundamentally, in most situations, competition and collaboration represent a trade-off. Leaders that try to combine both elements will not achieve the full effect of either collaboration or competition – as our Figure 1.1 suggests. A Stretch Team combines elements of both collaboration and competition, but these will generally be less pronounced than in the leadership approaches that focus on either competition or collaboration. For instance, once team members assume a competitive mindset toward other members of the leadership team, it is difficult and often less effective to collaborate at the same time. Similarly, once a team operates in collaboration mode, introducing selective elements of competition can easily shift the mindset away

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from collaboration. Also, selecting individuals for a team that can compete and collaborate sounds good on paper, however, finding such individuals and getting them to work together in a productive way is another matter altogether, as the new team members may work in incompatible ways. The Stretch Team approach is in many respects, therefore, the most difficult to implement. Nonetheless, at their optimum, Stretch Teams combine individual initiative, competitiveness, and entrepreneurial spirit with coordination and collaboration, which are all best employed according to different situations. Stretch teams can also limit the negative sides of competition and collaboration in diverse teams, thereby reducing the risk of ego clashes as well as keeping the team out of its comfort zone. The benefits of a Stretch Team are not easy to achieve, since both star players and team players may be reluctant to join a team that consists of members with a different profile to them. And if they do, there is a high risk of the team becoming unbalanced and dominated by the competitive players. The differences in profile among the team members therefore may lead to a situation where team members neither collaborate effectively nor are individually competitive. Finally, Stretch Teams also often run the risk of fractionalizing, due to the different preferences of competitive players and team players. Given these risks, Stretch Teams pose particular challenges for leaders and require a particularly careful selection of members. In their book Touchpoints, Douglas Conant, former CEO of Campbell Soups and Mette Norgaard, a leadership expert, identify two mindsets that need to be combined for Stretch Teams to be successful. On the one hand, members need to be ready to take on issues related to performance, such as focusing on goals, setting standards, creating a sense of urgency, focusing on the task, and competing to win. This competition-oriented mindset needs to be combined with a collaboration-oriented mindset that focuses on people, providing them with direction and guidelines, and leveraging their talents and passions to achieve joint performance.10

When the three leadership approaches degenerate into low performance When looking carefully at different businesses, it is easy to find successful examples of each of the three leadership team approaches. However, each

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approach often degenerates into low performance (Table 1.1). In fact, for each of the three leadership approaches, we have identified a corresponding low-performance outcome (see the gray configurations in Figure 1.1). We refer to these as the shark tank, the petting zoo, and mediocracy. Shark tank Our research suggests that instead of forming a Team of Stars, leadership teams often degenerate into a “shark tank” where the individual team members spend more energy on sabotaging each other’s performance than driving corporate goals. For instance, Oliver Dohn, CEO of German automotive company Felss GmbH, explained to us: When I arrived as cEO, there was an extremely dysfunctional team. there was almost no communication within the team, the communication towards the board didn’t reflect the reality, and communication to the management levels below was completely absent. the people on the team simply didn’t like working with each other.

Petting zoo While politics and dysfunctional competition are the main reasons a Team of Stars degenerates into a shark tank, the Synergistic Team approach often suffers from complacency, lack of creative tensions, and too little competition. In the absence of some degree of tension and challenging of opinions, the Synergistic Team approach therefore may degenerate into a “petting zoo” that is slow in making decisions and has difficulty challenging an established status quo. Fabrizio Petrillo, CEO of AXA Switzerland, the French insurance company’s Swiss subsidiary, explained to us: We have a very close team like a long-term partnership. no divas allowed. We solve problems together and make all decisions democratically. the problem with our approach is that sometimes things are not said openly because people don’t want to offend each other. So, people don’t challenge each other directly, which means I need to intervene, be more direct, and provoke people a little to get the discussion started and get people out of their comfort zone. to keep us in high performance I need to be pro-active against these risks.

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Mediocracy The main risk with a Stretch Team is that it may degenerate into mediocracy, where the team neither excels at joint problem solving nor has the strong individuals to drive unit performance. For instance, a CEO of a large European services business who preferred to remain anonymous described the leadership team he found upon his arrival: Over the first three months I spent a lot of time evaluating members of the inherited leadership team. What I discovered was that the team was really not fit for purpose. On the one hand the individuals were not strong enough. they didn’t have the competency and skills to run the scalable organization that capita had become. And even more fundamentally, I felt they were not working together as a team and didn’t have a sense of corporate purpose. the word did not even exist in their vocabulary.

Reasons for success and failure of the leadership approaches Why do some leadership approaches lead to high performance and when do the three leadership approaches degenerate into low performance? The teams we observed suggest three main reasons. A lack of awareness or lack of interest to address the key risks of each configuration, inconsistency of implementation, and a misfit of the leadership approach with the situational constraints of the organization. Failure to address the key risks of each conf iguration Each of the three leadership configurations comes with specific risks. One of the prime reasons leadership team approaches degenerate to low performance is that CEOs or executives pay insufficient attention to the key risks of each approach. Take for instance, the Team of Stars approach. One of the key risks is that politics leads to the Team of Stars degenerating into a shark tank. Leaders therefore need to curb this risk early, as Jonathan Lewis, CEO of Capita highlighted: Politics can be almost cancerous. As a leader I need to stop unconstructive political comments or political conversations. I refuse to participate in politics. I refuse to listen to political conversations.

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Or take the Stretch Team approach. This approach is built upon the idea of creating a team with members that feel comfortable with competition and collaboration, but at a lesser level than in the Team of Stars or Synergistic Team approach. We found that Stretch Teams often underperform when CEOs and executives end up mixing stars that are unwilling to collaborate with team players that rely on collaboration, rather than choosing individuals that are comfortable to use both depending upon the situation. Inconsistency of implementation The second reason for failure relates to inconsistency in the implementation of the leadership approaches. Each leadership team approach can be thought of as a configuration of several variables, such as the selection of team members, the setting of the team’s purpose and role, the principles of working together as a team (the team process), the leadership behaviors of the team leader, the team culture, and targets and incentives. For high performance to emerge, these variables need to be carefully designed to be consistent with each other and aligned with the behavior the leader wants to create in the team. For instance, to drive a Team of Stars, a leader may choose a set of team members focused on individual performance and give them individually focused incentives. In contrast, or a Stretch Team, the selection of individual performance-oriented team members may need to be balanced with some joint incentives that foster cooperation. Team performance often degenerates when leaders make inconsistent choices. For instance, a CEO we interviewed that was pursuing a collaborative approach asked us how they could introduce some elements of competition into the leadership team. While this is possible, there’s a risk that you change the dynamic of the team without generating the benefits you hoped for. Similarly, a leader that pursues a Team of Stars approach suggested to us that he wanted to introduce more coordination across the individual businesses or units. Enforcing coordination among individuals that are used to operating independently, however, easily leads to conflict and evasive actions, rather than coordination. We discuss these choices and their mapping on different leadership approaches in more detail in parts II to IV.

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Misf it of the leadership approach with the situational constraints While we have argued that each of the three leadership approaches can lead to high performance, which one is chosen and how it is implemented is contingent upon situational demands and the leader’s mandate. Failure to take these constraints into consideration may lead to low performance. Constraints may arise from the type of business and the situation the organization finds itself in. We will discuss these demands in the next chapter.

Notes 1 M. Mankins, A. Bird, and J. Root, “Making Star Teams out of Star Players,” Harvard Business Review 91, no. 1, 2 (Jan–Feb 2013); A. Elberse, “Ferguson’s Formula,” Harvard Business Review 91, no. 10 (2013); R. Hastings and E. Meyer, No Rules Rules: Netflix and the Culture Reinvention (New York: Penguin Random House, 2020). 2 R. Hastings and E. Meyer, No Rules Rules: Netflix and the Culture Reinvention (New York: Penguin Random House, 2020). 3 J. R. Katzenbach, “The Myth of the Top Management Team,” Harvard Business Review 75, no. 6 (Nov–Dec 1997). 5 Mankins, Bird, and Root, “Making Star Teams out of Star Players,” Harvard Business Review 91, no. 1, 2 (Jan–Feb 2013). 6 Mankins, Bird, and Root, “Making Star Teams out of Star Players,” Harvard Business Review 91, no. 1, 2 (Jan–Feb 2013); Elberse, “Ferguson’s Formula,” Harvard Business Review 91, no. 10 (2013). 7 M. Zangrillo and T. Keil, “The Collaborative Leader,” Edge Journal, no. 4 (2022). 8 R. Sadun, “Google’s Secret Formula for Management? Doing the Basics Well,” Harvard Business Review, 2017. 9 A. C. Edmondson, Teaming: How Organizations Learn, Innovate, and Compete in the Knowledge Economy (San Francisco, CA: John Wiley & Sons, 2012).

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2 MAPPING THE LEADERSHIP TEAM APPROACH WITH SITUATIONAL CONSTRAINTS

The leadership team approach a CEO or senior executive chooses and how that approach is best implemented is not only a question of personal preferences but is most of the time dependent upon the company type, situational demands, and mandates that leaders face. Leadership is always contextual with little or no universals that could be applied to every situation.1 Take, for instance, Adel Al-Saleh at Deutsche Telekom, a Fortune Global 100 company and a European leader in telecommunications. In 2018, Adel Al-Saleh became CEO of T-Systems GmbH and a member of the board of management at Deutsche Telekom AG. Al-Saleh, an American and British citizen, had grown up in the US where he graduated with a BSc in electrical engineering from Boston University and an MBA from Florida Atlantic University. His career had taken him through increasingly senior positions at IBM, IMS Health, and finally to CEO of Northgate Information Solutions, before he joined Deutsch Telekom to lead T-Systems, its digital service provider for enterprise customers. At the time of Al-Saleh’s appointment, which followed a protracted period of disappointing results and declining earnings, T-Systems needed

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an overhaul. Al-Saleh, who is often described by the media2 as a transformation and turnaround specialist, was brought in to stabilize the business and set it back on the road to success. Referring to the appointment, Deutsche Telekom CEO Timotheus Hoettges commented: “Adel has proved that he can get companies on track.”3 Al-Saleh’s work from the outset was cut out to transform how T-Systems worked and he was given a mandate that would allow him to make changes at every level, including the leadership team. He explained to us: I walked into this highly German organization that had been around for 25 years and that was used to doing things in a very hierarchical way. A lot of people were involved in the decisions that were made by the leadership team, which in my view was a very archaic way of working. Every executive had an office on the top floor where they were completely isolated from the rest of the organization. If somebody wanted to come and see me, they had to stand in line and enter through secure doors. And for me to go and see anybody, I had to open at least five doors and go to different floors to find them. From the outset I realized that I had to drive a radical cultural transformation at both the top and the bottom of the organization.

Al-Saleh arrived at an organization that was under pressure to transform and that drove the approach he chose. Compare his situation with that faced by Thomas P. Meier when he became CEO at Ricola in 2019. Ricola is a Swiss manufacturer of cough drops and breath mints that, despite its relatively small size, successfully exports its products to 45 countries around the globe. After obtaining his degree in business administration with a specialization in marketing from the University of St. Gallen and later studies on highperformance leadership at IMD, Meier held leadership positions in the food industry at companies such as Novartis Nutrition, Unilever, Lindt & Sprüngli, and Franke before he took over the CEO position at Ricola. When Meier joined the company, Ricola had been enjoying years of continued success and there was little pressure for change. He explained to us: You have to understand the situation I found myself in. We are not a public company and therefore we don’t have to report quarterly earnings to shareholders and analysts. The owning family has a long-term view of the business. They have sustainability and the long-term development of the company at the heart. They told me not to rush things. To take time to learn about the company and get to know the people.

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While Meier did not face immediate pressure to make changes, he quickly realized that for Ricola to continue to grow internationally and to remain competitive he would need to make changes to the leadership team approach, albeit gradually. He explained: I realized there were issues with the leadership team. There was too little initiative. Some of the people had been there for 20 years and were used to asking the owner what they should do. To any proposal they would answer that they had tried it and failed and therefore it would never work. I eventually had to change some of the leadership team members and shake up how we worked.

Different again was the situation Dave Fredrickson encountered when he became the Executive Vice President in charge of the oncology business at AstraZeneca. After completing his bachelor’s degree in government at Georgetown University, Fredrickson started his career at Monitor Consulting before moving to the pharmaceutical industry, where he held leadership positions at Genentech, Roche, and AstraZeneca. When he was appointed to lead the oncology business at AstraZeneca, the unit was in its infancy. Despite a long history of developing oncology medicines in the 1980s and 1990s, oncology had not been a strategic focus for the company until 2014, when its competitor, Pfizer, made a takeover attempt, nudging AstraZeneca to renew its strategy. Fredrickson thus joined what might be described as a start-up in a large company. He explained: The oncology business unit was formed in 2016–2017. So when I came back from Japan, I took over what was a ‘task force,’ which had just been formalized into becoming a business unit. I took over something that did not yet really exist, and that we had to grow from its infancy.

While the leaders we interviewed described situations that were all somewhat unique and had their own characteristics, the key success factor for the organization was to be aware of the situation the firm was in, appoint a leader which was right for the organization at that very moment, provide them with a clear mandate, and then let that leader drive a leadership approach that fitted the situation.4 While Adel Al-Saleh was under pressure to rapidly transform a large but underperforming business with an existing leadership team, Thomas P. Meier had to first identify the need for change, persuade the board that change was needed, and then gradually introduce

MAPPING THE LEADERSHIP TEAM APPROACH WITH SITUATIONAL CONSTR AINTS

that change. In contrast, Dave Fredrickson had to design a leadership team from the scratch, because the business unit he was leading was new. Each of these situations creates demands that affect the choice and implementation of the leadership team approach. In the words of Greg Poux-Guillaume, CEO of AkzoNobel and former CEO of Sulzer: Depending on the operational model that you want to implement and depending on the nature of the change you are planning you are going to need a different profile of people and a different leadership approach. You can have the most talented people in the world, if they do not fit the organization that you are trying to implement, it is not going to work.

Our research suggests that situational constraints can be divided into two groups, as depicted in Figure 2.1. On the one hand, companies differ in their strategy and operating model and several company types can be identified that affect the selection of the leadership approach best suited for the company. On the other hand, irrespective of the strategy and business model, companies can find themselves in distinct situations and leaders have specific mandates that influence both the choice and the implementation of the leadership approaches.

Company types Company strategies and operating models can be classified along a variety of different dimensions.5 For the selection of the leadership approach, the degree of diversification and the degree of interdependence among businesses play a particularly relevant role. Situational Constraints Company type

Company situation

Leadership approach selection

Leadership approach implementation

Leadership approach

Figure 2.1 Situational constraints on the leadership approach

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Depending upon the degree of diversification and interdependence, leadership teams can be structured so that individual members of the team operate independently, or so that roles are set up to be interdependent, and these structures have important implications for the leadership approach. Diversification and interdependence may relate to the degree to which tasks and responsibilities bear on each other, and the degree to which the members are hierarchical peers.6 For instance, Sami Atiya, President of the robotics and discrete automation business area at ABB, clarified for us: I have held different roles in ABB. I had one where I run the division of robotics and one where I run the business area, which has multiple divisions in addition to robotics. In the business area, I lead a team of individuals that are each in charge of their own business. We meet as a team, comparing results and sharing some knowhow but, as a team, we don’t really work on problem solving that much. In the robotics division, it was different. There we were much more integrated. You have functions, like sales, marketing, and R&D and they have to collaborate because that is the nature of the business.

For the sake of simplification, we distinguish between three company types that affect the selection of the leadership approach: The diversified company, the integrated multi-business company, and the single business company. In the following pages, and as summarized in Table 2.1, we briefly discuss the key characteristics, performance challenges, and suitable leadership approach for each of these company types. Diversif ied company The first company type in our analysis, the diversified company, consists of multiple businesses with distinct technologies, customers, and markets. Take, for instance, the Indian Tata Group, which operates in information technology, steel, automotive, consumer and retail, tourism and travel, and aerospace and defense sectors to name just a few, or the Japanese Sumitomo Group that has business interests in chemicals, electronics, machinery, rubber products, construction, and nonferrous metals mining, among others. Because there are substantive differences across these businesses, synergies across them tend to be minimal, and mostly linked to non-business-specific

MAPPING THE LEADERSHIP TEAM APPROACH WITH SITUATIONAL CONSTR AINTS

Table 2.1 Matching company types with leadership approaches Company type

Key characteristics

Key performance challenge

Recommended leadership approach

Diversified company

Multiple businesses Businesses with distinct technologies, customers, markets Minimal synergies across businesses Few corporate topics Often geographic or productbased structure Multiple businesses Synergies across businesses Common technologies, customers, and markets Often Matrix structure Single businesses Shared technologies and common customers and markets Often functional structure

Competitiveness in the individual market requiring agility and freedom

Team of Stars Stretch Team

Balancing companywide synergies and economies with market focus

Stretch Team Synergistic Team Team of Stars Synergistic Team Stretch Team

Integrated multibusiness company

Single business company

Building advantage in chosen businesses

functions such as human resources, finance, or procurement. As a result, topics that require coordination across the businesses also tend to be few. Diversified companies are often organized into distinct geographic or product-based structures, where each one has a high degree of freedom in designing and implementing a distinct strategy. A “diversified company” type is best applied to businesses where competitiveness in the individual product or geographic market requires dedicated resources, agility, and the freedom to adapt to the requirements of the specific market. Because diversified companies are a collection of relatively independent businesses, the most popular leadership team approach is a Team of Stars, as this approach emphasizes decision authority for the individual business and may go as far as to allow competition among the different businesses. For instance, Sami Atiya, President of the robotics and discrete automation business area at ABB, explained: A key principle we have is that businesses need to run on their own. First you need to take care of your own numbers and if you are smart, you will collaborate if you need something. We try to avoid creating an

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organization where you have so many dependencies that it only performs well if everybody performs well. That is too inflexible and you cannot scale that approach. That is why we say each business needs to perform on its own, a hundred percent.

While the Team of Stars approach has undeniable advantages in diversified companies, it also carries the risk of it deteriorating into a shark tank and missing out on opportunities for cooperation and mutual challenging. For example, Greg Poux-Guillaume, CEO of AkzoNobel and former CEO of Sulzer, pointed out: At Sulzer, I proposed the idea that we work together even in areas where we do not have synergies with each other, because our discussions lead to better outcomes. In the end, there is still only one person responsible, the business head. But that business head has to create an environment where there are solid discussions around the business issues. However, we do not combine that collaborative approach with heavy corporate resources; people should not feel they are being disempowered.

Integrated multi-business company The second company type, the integrated multi-business company, also consists of multiple distinct businesses, however, with some shared technologies, customers, or markets that create interdependencies across the businesses and allow for corporate-wide synergies. Companies such as UK-based Unilever, US-based Procter & Gamble, or Japan-based KAO produce a large variety of consumer goods but have introduced interdependencies in terms of shared upstream technology, or downstream channels to customers that create the potential for synergies. To manage the interdependencies and capture these synergies, a higher degree of coordination is required, compared to the diversified company. Integrated multi-business companies often employ more complex organizational structures including matrix structures or hybrid structures.7 Take, for instance, John Hinshaw at HSBC.Tracing its origins back to Hong Kong, HSBC is the largest bank in Europe by total assets, with assets totaling US$2.985 tn, as of June 2022. It has a footprint in over 63 countries and territories and is a member of the Fortune Global 100 list. The challenge for a bank like HSBC is to leverage its footprint by creating synergies from

MAPPING THE LEADERSHIP TEAM APPROACH WITH SITUATIONAL CONSTR AINTS

scale, despite differences in markets and legislations, while at the same time it needs to be sharply focused on the individual markets it operates in. It is against this backdrop that the board of HSBC appointed John Hinshaw as group chief operating officer. Rather than being a career banker, Hinshaw had accumulated rich experience as a technology and operations executive at a diverse set of companies including Hewlett Packard Enterprise (HPE), Boeing, and Verizon Wireless. Hinshaw told us how the complexity and interdependence in HSBC drove his choice of leadership team approach: My team is very diverse. We have three quarters women and one quarter men with individuals that grew up in China, in Russia, in Sri Lanka, the UK, and the US and some people that have spent their lives moving around the world. Some have had 35-year careers and others are more junior and in their sixth or seventh year. Some have been with HSBC forever and many are brand new, having joined within the last year or two. It is quite a diverse mix from every angle. From gender, ethnicity, background, experience, and industry. I find these are the best teams – diverse teams that bring different perspectives and try to balance competition and collaboration. Balance is key.

Driving performance in an integrated multi-business company requires carefully balancing cooperation to achieve companywide synergies and economies of scale, while at the same time maintaining intense market focus in agility. The leadership team approach that best reflects this balance is a Stretch Team approach. However, some leaders prefer to overemphasize either competition or collaboration and therefore choose the Synergistic Team approach or Team of Stars approach instead. Single business company The third and final company type we have identified is the single business company. Many smaller companies fall into this category but even some well-known large companies such as Uber, Airbnb, or Tesla continue to be essentially single business. As a result, many CEOs lead companies focusing on a single or at least dominant business and executives often lead individual businesses that share technologies, common customers, and address the same market. Single business companies are often organized by function

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or business process and the integration of functions and process steps are central for success. Take, for example, Thomas P. Meier, the CEO of Ricola, from this chapter’s opening examples. Ricola focuses on selling specialist herbal products made from Swiss herbs around the world. This single business focus implies that a tight integration of the different functions is needed to deliver superior value in its business. Driving performance in a single business company requires collaboration among the different leaders to achieve a high level of integration and focus on their chosen business. The leadership team approach that best accomplishes this integration is the Synergistic Team approach. However, given the risk that the Synergistic Team can degenerate into a petting zoo, and that complacency rules instead of integration and working together, some CEOs or executives prefer to combine collaboration with some degrees of competition, thereby pursuing a Stretch Team approach.

Three company situations and leader mandates While the strategy and operating model define the company type and influence the choice of the best leadership approach, they are not enough on their own to fully understand how leaders implement the selection, building, and optimization of their leadership team. Rather, independent of company type, an organization may find itself in very different situations or stages of maturity, which means very different mandates for a leader. For instance, while some leaders may find an organization that is well established and functioning smoothly, others may be tasked to fundamentally transform the organization, or start a new business or unit. Laurent Freixe, Executive Vice President and CEO for Latin America of Nestlé, explained: There are different moments in the life of an organization, different situations, that affect your leadership approach. There are times, especially in times of crisis, where you need the leader to move fast and take a more prominent position in driving the leadership team. At other times when it is smooth sailing for the organization, the leader can be much more in the background.

As this quote suggests, different situations pose unique challenges to the leader and require the CEO or senior executive to modify the

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implementation approach. The company situation may also, over time, require a different dynamic balance between competition and collaboration, as the organization moves from one situation to another, or as parts of the organization operating in one mode need to be integrated into the larger organization. In particular, when building leadership teams for functions or divisions, executives need to balance the situation of that unit with the company’s overall approach to achieving consistency. Leaders that fail to take the specific requirements of the situation into account are likely to experience low performance, even though the chosen leadership approach could otherwise work in the organization. Greg PouxGuillaume, CEO of AkzoNobel and former CEO of Sulzer, explained: You have to be able to implement your leadership approach in different ways based on the challenges you face. It can create a very damaging situation when you have a CEO who implements the same model every time because they believe that they have the absolute answer. You have to allow yourself to alter the parameters so that you implement an approach that is the most suited to the situation at hand.

Our research suggests that it is useful to distinguish three distinct organizational situations that imply different mandates for a CEO or executive: The start-up situation, the continuation and development situation, and the transformation and restart situation. In the following pages and summarized in Table 2.2, we briefly discuss the key characteristics and implications for the implementation of the leadership approach for each of these situations and mandates. Start-up situation In this situation, an executive is brought in to create and lead a new organization. This may be a CEO in a start-up company but could also be an executive in an established firm that has been given the mandate to create a new unit or business. For instance, when Dave Fredrickson was appointed to the position of Executive Vice President for the oncology business at AstraZeneca, he built what was a large scale, start-up business within an established company. Fredrickson explained to us:

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Table 2.2  Company situations and implications for leadership approach implementation Company Situation

Key characteristics

Key implications for implementing the leadership approach

Start-up

New unit or business New team Need for Agility Need for entrepreneurial freedom Absence of processes and culture at the unit and team level Well-functioning unit or business Existing team Need for continuity and gradual development Existing team and unit culture and processes Unit or business in need of restart, transformation or turnaround Existing team Need for drastic departure from the past Processes at team and unit level often dysfunctional Often time pressure

Leader as entrepreneur Possibility to build a completely new team Focus on building new team culture and building new processes Emphasis on independence and flexibility Start-up team may not be the final team Leader as coach Often limits to the ability to change the team Gradual adjustment of team culture and processes Focus on optimization and development of individual and team Leader as decision-maker Using sufficient time to evaluate existing team Need to change at least part of the team Need to change leadership team culture and processes New leadership team approach is often linked to a change in business model Depending on degree of change and time horizon need for multiple changes to leadership approach

Continuation and development

Transformation and restart

After we had almost been acquired by Pfizer, our CEO, Pascal Soriot rather famously made the statement that an independent AstraZeneca was going to be better able to generate shareholder value and deliver medicines to patients than an AstraZeneca that would be part of Pfizer. To achieve that goal, he laid out a vision for growing the number of new medicines that we would launch, and oncology was a significant part of where we thought growth would come from. But to realize this growth we needed to build a dedicated organization that could deliver on the promise. This was my task when I was appointed to my current role in 2017.

In a start-up situation, typically there is no existing team in place, or at least the leadership team is incomplete and needs redefining. And culture, structures, and processes are either non-existent or under-developed, which means team processes and culture can be defined from scratch. Such a situation provides a blank canvas for the leader who can create a new team, but it also requires an extremely high level of agility, flexibility, and entrepreneurship, which are rarely found in stable and large organizations.

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The start-up situation and mandate have several implications related to the implementation of the leadership approach. First, the leader acts as an entrepreneur, often designing solutions on the spot and leveraging the freedom of the situation. The entire leadership team also needs to be entrepreneurial to be able to work with a lack of structure and needs to feel comfortable operating in an environment of independence and flexibility. Given that there is no team to start with, leaders often need to be able to carry out tasks that are more operational in nature, while spending substantive time identifying the right leadership team and creating the new team, culture, and processes. Operating a start-up environment in a corporation unused to that is a very particular task. It requires an exceptional sense for identifying leaders that are capable of acting as if in a start-up, while being able to think corporate. Since a start-up environment is characterized by high levels of dynamism, leadership teams often change over time to keep pace with the evolving organization. In a start-up situation when the path forward may not be initially clear, leadership approaches need to be designed to emphasize learning in addition to execution.8We will discuss these and additional implications in more detail in parts II to IV of the book. Continuation and development situation While start-up situations give the leader lots of freedom in implementing the leadership approach, continuation and development situations and mandates do the opposite and may provide the most constraints. A continuation and development situation also requires the careful consideration of the leader when appointing members to the leadership team, as not all leaders will be able to maintain attention, enthusiasm, and motivation when there is limited room for change or innovation. Often a new leader is brought into an organization like this with the explicit mandate to continue along an existing path, or to develop it gradually.9 In such a situation, leaders often find themselves constrained in their ability to make changes to the organization and its leadership team and will need to choose a gradual evolution path in implementing their leadership team approach. For the continuation and development situation and mandate it is common to have a relatively well-functioning unit or business with an existing team, structures, processes, and culture. Given a mandate to continue along

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the existing path, or only to gradually evolve it, the leader’s task is often one of fine-tuning existing elements of the organization. For example, Herman Anbeek, President of Americas, Europe and Middle East at gategroup, the global leader in airline catering, retail-on-board and hospitality products and services, outlined the constraints in developing the leadership team in one of the regions he is responsible for: In the Latin America region, I need to be very careful about making changes to the leadership team. We have a very well-integrated team that has been outperforming for many years. My challenge is not to disrupt a team that is really very well integrated and organized and coordinated. Succession planning in particular will become very critical because of course once a leader leaves then the team balance is disturbed. And depending on who you appoint as a successor, you risk losing others. That’s been one of my motivations to drive change carefully and in small steps only there.

The continuation and development situation has several implications for applying a leadership approach. In comparison with the start-up situation, continuation and development leaders can be less entrepreneurial and are more like a coach that focuses on the optimization and development of the individual leadership team members. This happens through gradual adjustments of team culture and team processes rather than wholesale changes. The continuation and development situation and mandate are not usually the place for stars and high-powered competition. A continuation and development situation aims to maintain the stability of what is perceived to be a well-functioning leadership team and therefore limits changes to the team composition. We will discuss these and additional implications in more detail in parts II to IV of the book. Transformation and restart situation The transformation and restart situation and mandate tend to occur when an existing organization requires a large-scale change. Transformation may be triggered by a variety of reasons, such as when a company, business, or unit underperform over longer periods of time, or when the environment changes dramatically, or when a new strategic vision requires a fundamental change of strategic direction or operating model. While transformations can differ depending upon the trigger and circumstances,10 they

MAPPING THE LEADERSHIP TEAM APPROACH WITH SITUATIONAL CONSTR AINTS

often have in common that new leaders are brought in to fundamentally change the company, business, unit, or function. Take for instance the appointment of Kaz Hirai at Sony in 2012. Sony had been suffering from declining financial performance for several years when Hirai was appointed to stage a financial turnaround and transformation. In the years that followed, he carried out a major restructuring of the company that reduced the business scope, simplified the organization, and reemphasized the focus on innovation. The challenge of transformation is that the organization has an existing culture, leadership team, structure, and processes, yet these are dysfunctional and often underperforming. Leaders therefore may need to change all elements of the organization often over a relatively short period of time. When leaders are charged with restructuring, transforming, or even staging a turnaround, they will need to carefully plan a process for transforming or even restarting the team alongside the other organizational elements, while maintaining the ongoing business without losing knowledge and key talents in the process.11 Let’s look at the situation that Christophe Catoir, President of the Adecco business within the Adecco Group, faced. When Catoir was appointed to the position, Adecco had been organized strictly by country, with limited synergies between them. Following a strategic change to emphasize different branded products and services and focus less on geographical dimension, Catoir was tasked with integrating the different country organizations and identifying synergies. He had to do so, however, within the context of running a large organization and without causing disruption to the business. He told us: Driving short term results while simultaneously setting up the company for future long-term success through change management is a delicate balance. People is our most important asset at Adecco, and keeping people engaged and motivated by what we need to build together is key. And you need to have a leadership team in place that strikes a good balance between enabling functions to drive integration and operational functions to deliver for clients.

In extreme situations, a transformation may put the leader into something not dissimilar to a start-up situation. An example is the appointment of the division president of a large consumer goods company that preferred to

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remain anonymous. The appointment was the result of an overall reorganization of the whole corporation. She described the situation: When I was appointed, we had a rewiring across the entire organization. Every single individual in the organization was impacted and had to be interviewed for potential roles in the new organizational structure. This was the first time every single person was impacted and given the opportunity to opt out and leave the company, or stay and accept change to a potentially new role.

Such extreme cases of restructuring may allow for the creation of a leadership team approach from scratch. While the magnitude and pace of change may differ across different transformation and restart situations, the leader always takes a central role as decision-maker and agent of change. They are always placed in the ­ driver’s seat. To drive successful change requires the leader to take sufficient time to evaluate the existing organization and in particular the existing leadership team. Transformation and restart situations often require changes to at least part of the leadership team and these often need to be pursued alongside changes to the leadership team culture and processes. That needs careful analysis and planning to avoid chaos and loss of motivation across the organization. Often, transformation and restart situations may involve fundamental changes to the leadership approach itself, since changes to the business model, or in the degree of integration among existing units, may be required. Depending on the magnitude of the necessary change, change processes can take several years and involve multiple changes to the leadership team approach. We will discuss these and additional implications in more detail in parts II to IV that follow.

Notes 1 R. Goffee and G. Jones, Why Should Anyone Be Led by You? (Brighton, MA: Harvard Business Review Press, 2019). 2 https://www.reuters.com/article/uk-deutsche-telekom-movesidUKKBN1CE0IL. 3 https://www.reuters.com/article/uk-deutsche-telekom-movesidUKKBN1CE0IL.

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4 T. Keil and M. Zangrillo, The Next CEO: Board and CEO Perspectives for Successful CEO Succession (London, UK: Routledge, 2021); T. Keil and M. Zangrillo, “Don’t Set Your Next CEO up to Fail,” MIT Sloan Management Review 61, no. 2 (2020). 5 View, for instance, R. P. Rumelt, Good Strategy, Bad Strategy: The Difference and Why It Matters (New York, NY: Crown Business, 2010); M. Reeves, K. Haanæs, and J. Sinha, Your Strategy Needs a Strategy (Boston, MA: Harvard Business Review Press, 2015); P. Leinwand and C. Mainardi, The Essential Advantage (Boston, MA: Harvarde Busienss Review Press, 2011); P. Puranam and B. Vanneste, Corporate Strategy (Cambridge, UK: Cambridge University Press, 2016); R. Amit and C. Tucci, Business Model Innovation Strategy: Transformational Concepts and Tools for Entrepreneurial Leaders (Hoboken, NJ: Wiley, 2020). 6 D. C. Hambrick, S. E. Humphrey, and A. Gupta, “Structural Interdependence within Top Management Teams: A Key Moderator of Upper Echelons Predictions,” Strategic Management Journal 36, no. 3 (2015). 7 Puranam and Vanneste, Corporate Strategy (Cambridge, UK: Cambridge University Press, 2016). 8 A.C. Edmondson, Teaming: How Organizations Learn, Innovate, and Compete in the Knowledge Economy (San Francisco, CA: John Wiley & Sons, 2012). 9 for a discussion of how well leaders mandate may define the degrees of freedom to change and evolve the organization see, for instance, T. Keil and M. Zangrillo, The Next CEO: Board and CEO Perspectives for Successful CEO Succession (London, UK: Routledge, 2021). 10 C. L. Pedersen and T. Ritter, “4 Types of Business Transformation,” Harvard Business Review Blog, June 21, 2022. 11 For further insights on how to lead change and transformation, See D. Rowland, N. Brauckmann, and M. Thorley, “How to Get Your Team on Board with a Major Change,” Harvard Business Review Blog, August 4, 2022; M. Iansiti and S. Nadella, “Democratizing Transformation,” Harvard Business Review 100, no. 5, 6 (2022); J. P. Kotter, V. Akhtar, and G. Gupta, Change: How Organizations Achieve Hard-to-Imagine Results in Uncertain and Volatile Times (Hoboken, NJ: John Wiley & Sons, 2021); A. White, M. Smets, and A. Canwell, “Organizational Transformation Is an Emotional Journey,” Harvard Business Review Blog, July 18, 2022.

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Part II SELECTING MEMBERS TO THE LEADERSHIP TEAM

3 HOW TO SELECT LEADERSHIP TEAM MEMBERS

Ferrari is one of the iconic global brands in the luxury car industry. However, the changes that pervaded the automotive industry in recent years weren’t without their difficulties and raised new questions on how a car company known for their internal combustion engines could stay relevant in a world of electronics and software-dominated products. These challenges were compounded by several years of leadership changes following the untimely death of Sergio Marchionne in 2018. Against this background, in June 2021, Ferrari announced the appointment of Benedetto Vigna as the next CEO. Vigna, a physicist by training, was not from the automotive industry, or from a luxury goods company, which many industry observers had expected for the new CEO. Instead, he claimed a successful career at STMicroelectronics, one of the global leaders in semiconductor electronics, where he had made his mark by establishing and leading the business of micromechanical systems, which then expanded to become ST Microelectronics’ largest and most profitable operating business. In fact, Vigna’s background in electronics was seen by some

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observers as a strength in driving the necessary changes at Ferrari. Vigna himself explained to us: I see myself not as an industry specialist. I am first and foremost a driver of change in the organizations I lead together with the team.

Preparing for his first day as CEO, Vigna reflected on the role that he would require his management team to play. It was clear that success at Ferrari would require a strong team to develop and drive a new strategy for the company, and possibly call for a departure from past ways of thinking. As an external appointment, coming from outside the industry, it was also clear to Vigna that he would need to rely partly, at least initially, on the experience of some of the existing leaders. At the same time, the need for change had never been greater and new capabilities were clearly required. How should he change the leadership team? Should he change the size of the team and the roles on the team? Which of the existing management team members should he keep on board? Who should be replaced? Should he hire mostly from outside the company to bring in new ideas, or rather promote internally to leverage experience? Clearly, these would be among the most important questions during his first months of tenure. What Vigna had to consider were just some of the questions that CEOs and executives often ask regarding the selection of their leadership team when they begin a new role. As we hear new leaders asking themselves the same questions, it seems evident that a systematic approach for the selection of the leadership team is needed.

Leadership team composition The first question to be answered relates to the overall composition of the leadership team. To answer this question, leaders need to think of the role of the team and how it should look. Once the role of the team is clear, the leadership team’s size, which organizational roles to include, and diversity of members can be considered, alongside other aspects. The role of the leadership team When discussing the composition of a leadership team, the role it has to play is a central consideration.1 Some leaders view the leadership team mostly as a mechanism to exchange information about the business from inside and

H ow to selec t leader ship t eam member s

outside the organization and to align on broad goals. By exchanging information, each member of the leadership team becomes better informed and aligned and can work toward their own goals, and all the leaders’ goals together constitute the organization’s overall goals. Other leaders view the leadership team as a consultative body that provides information, debates issues, and advises the CEO or executive.2 The third group views the leadership team as a coordination mechanism, where leadership team members come together to manage interdependencies across the different units through coordination. Finally, the fourth group views the leadership team as a place to make decisions that are consequential for the whole organization. Size of the team Depending on the view of the role of the leadership team, as well as other considerations, CEOs and senior executives need to decide which leaders should be part of the top team3 and the optimal size of the leadership group. In particular, CEOs and executives that focus on coordination, problem solving, and decision-making as the key role of the leadership team often view only their direct reports or even a subgroup of these as their leadership team. For instance, Juhani Hintikka, CEO of the Finnish cybersecurity firm WithSecure, explained: I keep my leadership team small. the leadership team’s product is decisions. A leadership team that doesn’t produce decisions isn’t productive. We focus 80 percent of the team meeting time on decisions and only 20 percent on information sharing. You cannot do this in a large team.

Small leadership teams have the advantage that they allow for intense discussion and debate that includes all members of the team. However, if the size of the organization increases, small leadership teams also imply an increase the number of hierarchical levels, which may isolate the leadership team from the rest of the organization, and from a more diverse set of views. Jan Jenisch, CEO of Holcim, global leader of the building materials industry, explained: I often talk with my peers about how to organize. And then they say that they have long implemented flat hierarchies and lean management. But when I ask them how many direct reports they have, they often answer six

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to eight. If you have six or eight direct reports, then you’re not flat. that’s classical hierarchy. I have, for example, 15 direct reports.

Leaders that focus more on information sharing and consultation often have a more expansive view, which incorporates the leaders of all units and functions that have strategic importance. For example, in an interview, Laurent Freixe, Executive Vice President and CEO of Latin America for Nestlé, explained to us: My total leadership team is large. I have 27 people reporting directly to me. there are regular meetings where we are all together, typically monthly, which I increased to once a week during the pandemic. Because of the size of the group, it is not very interactive but it is an opportunity for me to share critical issues and we can have some limited interaction.

As we can see from this example, large leadership teams operate differently compared with small leadership teams. Bringing a large group together regularly allows for efficient information sharing and alignment, but it is not effective for coordination or decision-making. To manage the trade-off between size and the opportunities for discussion and decision-making, some leaders create multiple teams for these distinct roles, with members only partially overlapping between the teams. For example, Erwin Mayr, CEO of the Wieland Group, a Germany-based manufacturer of semi-finished products in copper and copper alloys explained: It is important that it is clear where decisions are being made and where information is shared. We make the decisions in the executive committee – with the business unit heads and the key functional heads. then I have a broader group of people with whom I regularly share information. For instance, I typically take the time after executive team meetings to brief those of my direct reports who are not part of the executive committee, so they can align their activities with the decisions that have been made.

Leaders need to be clear on which of the different roles the leadership team should play and which of these roles are taken outside of the team into other groups, or into one-on-one relationships.4 Which organizational roles to include Along with the size of the team, another central question of leadership team composition is which organizational roles to include. While

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the answer to this question depends at least in part on the leadership team approach and situational demands, such as the type of organization and the situation the organization faces (which will be discussed in the next chapter), some general observations can be made. Over time, the organizational roles of top management team members have changed.5 In the past, leadership teams at the corporate or divisional level have often focused on business unit leaders. People, legal, procurement, supply chain, and even the finance functions have often been viewed as mostly administrative in nature and their heads have often not been included in the leadership team. However, increasingly functional roles have started to play a larger role in the top leadership teams. In a more complex world, CEOs and executives need a set of trusted advisors, and leadership teams need to take a broader range of different perspectives into consideration in their discussions. And it’s the corporate functions that often bring these necessary perspectives and knowledge to the team. As a result, most modern corporations have a mix of functional and business unit roles on the leadership team.6 The question of power distribution is also relevant in deciding which organizational roles to include in the leadership team. While there may be many roles, the real power often lies with a limited number of members. In many leadership teams, for example, the CFO holds more power than other members. In other teams, power may be concentrated at the head of a large division. Alternatively, some CEOs prefer to formalize this power distribution by appointing a COO as a second-in-command. Often the rationale for this decision is that CEOs wish to focus externally, putting their emphasis on portfolio decisions. Or they might lack operating experience. However, this arrangement has risks. While proponents of explicitly appointing a second-in-command stress the potential benefits of having two heads dealing with problems rather than one, and the advantages for the leader of focusing on a more limited set of activities, opponents highlight that the potential separation of high-level strategy and implementation, and the additional layer created between the leader and the rest of the organization, can be costly and often reduces financial performance.7 By the same token, any concentration of power with a limited subgroup of leadership team members carries the risk of limiting contribution, demotivating other members of the team, and reducing the potential benefits of including a wider and more diverse group.

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Diversity of the leadership team One central topic of leadership team composition that has received increasing attention is diversity. Traditionally, leaders have tended to hire individuals that are like-minded or similar to themselves, which leads to limited diversity.8 A rich literature in sociology on this human tendency to hire like-minded individuals tells us that leaders may find it more comfortable to surround themselves with others that are similar to themselves, and because most individuals simply find it easier to spot excellence when that excellence looks similar to their own.9 As a result, the composition of leadership teams in terms of age, gender, nationality, race, sexual orientation, academic background, and other demographic characteristics, often doesn’t change over long periods of time. The outcome is that many leadership teams continue to be populated with individuals that are “stale, pale, and male.”10 However, in the past decade, the importance of diversity in leadership teams has moved increasingly into the foreground across the world. On the one hand, cumulative research suggests that diverse leadership teams often perform better and, on the other hand, there is increasing societal pressure for organizational leadership teams to reflect the communities in which they operate, which often culminates in legal requirements for gender or ethnic diversity. As a result, there has been a substantial increase in the appointment of foreign nationals in management teams, in some countries11 at least, and some companies have started to embrace a truly global approach for their leadership teams. For instance, in the Indian telecommunications provider Tata Communications Ltd., a member of the Tata Group, less than one-third of the top 50 leaders are Indian and the headquarters has been dispersed across the globe.12 There has also been a gradual increase in diversity along key dimensions such as gender, race, and sexual orientation, and this trend is likely to intensify because reporting upon key metrics around diversity and inclusion has become requisite for most stock-listed companies and has also moved into the focus of traditional investors. Finally, a number of countries have introduced legislation for quotas, such as pink quotas, for boards of directors and executive teams, providing further impetus to this trend toward diversity. Because diversity in the composition of leadership teams has become a legal requirement in many countries and has been the focus of proxy advisory firms, and also investors increasingly include it as part of their

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company evaluations, it is unfortunately often viewed as a compliance issue rather than a strategic topic. When a diverse candidate is brought in because the law requires it or because it looks better, the likelihood that the right candidate will be hired is low. Our research suggests that CEOs and executives should not view diversity as simply a matter of compliance, with rules or norms, but rather should view diversity as a potential strategic advantage. Only when diversity is genuinely appreciated and understood as a strategic advantage, candidates who are truly diverse and capable will be recruited on the understanding that they will challenge the traditional ways of the organization and that their integration will take time.Thierry Delaporte, CEO and Managing Director of Wipro, explained: When we talk about diversity, it’s not a political statement. It’s not to look good – it makes business sense. Without diversity you don’t understand your clients. to understand the world we live in, we need to have diversity of thought. Diversity drives innovation.

Similarly, Heiner Thorborg, a headhunter that has been emphasizing the advantages of diverse leadership teams for years, explained to us: You need a leader who views diversity strategically and not as a compliance topic. Only then can they form an objective judgment. What do I mean by this? If a leader interviews a woman and you ask them the question, ‘If this woman was a man, would you have interviewed him?’ all too often they look at you and say, ‘Of course not.’

Diverse leadership teams provide several specific advantages. In international organizations in particular, the diversity of top management teams is linked to less groupthink and reduced myopia.13 More generally, diverse management teams tend to engage in more comprehensive discussion and therefore make decisions that are better justified and consider a broader range of arguments. Diverse management teams are also more likely to create innovative solutions, given the breadth of different ideas that may arise, and are more likely to behave entrepreneurially. The public discourse on diversity tends to focus on gender, to achieve the strategic benefits of diversity. However, it is important to look into any and all aspects of diverse thinking. Jacqueline Hunt, former management board member at German insurance firm Allianz, explained to us that diversity is

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often only on the surface, and she cited an example from a leadership team she encountered: When I met the leadership team of a business I worked with for the first time I asked to see the cVs of the senior people I was about to meet. they looked good in some ways because there was some diversity. there was gender diversity. And there were a couple of different ethnicities. But in every single cV I read, they had come from an East coast or West coast background in the uS. And had gone to one particular university to do an MBA and then had come from the MBA directly into the business and had spent most of their working lives with that business. And I thought it was really fascinating that on the face of it, you could have said they had a very diverse team whereas in practice, their life experience was all the same.

To Hunt, this was a good indication of how an organization can appear on paper to be driving change and diversity when, in fact, the people are just too similar in terms of background, how they view the world, and the training they’ve had. In creating diverse teams, leaders also need to understand the potential cost and risks of diversity. One cost is clearly the speed of decision-making. A team of similar people is more likely to come to an agreement quickly and make faster decisions. However, a fast-moving team of similar leaders may also find themselves, like lemmings, all running off a cliff together.14 Getting a diverse team to work together is likely to take more time and require a longer phase of initial team building before the team works effectively. Diverse teams are also clearly more difficult to manage because the very differences that can improve the discussion can also lead to misunderstandings, tensions, and sometimes outright conflict. CEOs and executives thinking of building a diverse team need to ask themselves if they have the right skills and capabilities to appreciate and leverage that team. Leaders who have not lived, studied, or worked in diverse environments often find it difficult to lead a diverse team.15 Selecting team members with very different backgrounds can also lead to the formation of subgroups. While these groups can be beneficial in some situations, they can lead to a fractionalized team that is characterized by difficulties in communication and political infighting.16 To leverage the advantages and reduce the risks inbuilt in diverse teams, the leader therefore needs to assume an additional role of integrator and bridge builder to bring the different groups together.

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FOUR QUESTIONS FOR SELECTING LEADERSHIP TEAM MEMBERS17 Are changes to structure, roles, and people in the leadership team needed? Some changes are the norm when an outsider joins as a cEO or executive. However, big changes hold risks. they may isolate the leadership team from the rest of the organization. cEOs also need to keep in mind that the existing team has important know-how and relationships may be lost through leadership team changes. At the same time, not making changes could slow down or even derail a transformation, as leadership team members may block or delay change. Sometimes, changes are also needed to signal a break with the past.

Who to replace? the key consideration is to identify individuals that leaders can trust, who are collaborative and appear to be an asset, but also to retain individuals who are willing to voice dissent and challenge the cEO, even though  they may be more difficult to work with. It is also essential to remove toxic individuals who can torpedo any planned transformation. to do so, cEOs and executives should consider performance and competence, the personality of team members, their relational assets, their disruptiveness, and the degree of association with the past. And keep in mind that some leaders can change or adapt, while some will not be able to. understanding that is crucial.

How quickly should you replace leadership team members? the pace of change should balance the necessity to quickly remove toxic individuals with the uncertainty that fast changes may create, and the need to spend enough time to distinguish constructive dissenters from individuals that delay change.

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Who to hire instead? C

Process for selecting new leadership team members Once the key parameters of team composition are set, CEOs and executives need to decide on how to fill the roles that will be on the team. In many companies, this is often driven by personal preferences and chemistry rather than by an analytical process. For instance, Jacqueline Hunt, former management board member at Allianz, explained to us: there can be little doubt that leadership appointments should be driven by the mandate of the business. But do I think that often happens? no. Because often the decisions are being made, not actually by the board or the leadership team but by one or two dominant personalities. And as a result, the process around that appointment is very seldom in my experience an analytical process. People may talk about it being analytical. But from everything I’ve seen and participated in, often it just comes down to pure chemistry. So, the same types of people are appointed in those leadership roles when sometimes different people might actually have been more beneficial and more appropriate in terms of what was needed by the mandate itself.

Our research suggests that leaders may be better served by a more analytical process that involves multiple stages and answers several crucial questions.

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Assessing people already on the team and determining the need for change In most situations, a new CEO or executive will find an already existing team. The first step is therefore to assess existing team members for their fit with the roles that will be part of the leadership team, based on the analysis of the team composition. In doing so, leaders should follow the “structure follows strategy” principle;18 that is, they should start from a strategic diagnosis and vision for the overall direction of the company and use this analysis to define the roles that will be required, and a clear mandate for each role, rather than taking a generic role profile as the starting point.19 Such a mandate then allows for a more focused profile to be defined for the different roles within the leadership team and helps to analyze existing team members and potential new candidates more systematically.

USING LEADER MANDATES TO DEFINE THE PROFILE OF LEADERSHIP TEAM MEMBERS, EVALUATE INCUMBENTS, AND SELECT NEW LEADERS Often leaders evaluate current leadership team members and select new leadership team members based on existing role profiles or generic role expectations. However, such profiles are frequently outdated and poorly aligned with the current needs of the organization, especially, when the circumstances change or new capabilities are needed. Instead, we propose starting the review of existing leadership team members and the selection of new members with defining leader mandates. Leader mandates should identify the strategic challenge that the unit or function and its leader need to address in the coming years. they should be set based on a strategic diagnosis of the organization and a deep understanding of strategic development needs. Depending upon the mandate, the cEO or executive can define a leader profile that fits not only the position in general but is also designed for the specific challenges of the years ahead. the leader mandate then allows to evaluate the fitness of the current leadership team members for the future challenges the company is facing and to define the detailed requirements for new members to be

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selected. Finally, the leader mandate can be used also as a performance measurement tool once a new leader has been selected. For a business area leader, the strategic diagnosis may include the external environment business area (including strategic position, industry trends, etc.), the firm’s capabilities in the business area, the financial situation, and the firm’s strategic ambition for the business area. For a functional head, a similar analysis would include the role of the function in the corporation, current capabilities, the maturity of the function in comparison with industry and best-in-the-world benchmarks, trends in the environment that may change the role of the function, financial boundary conditions, and the strategic ambition for the function. For an in-depth discussion of the concept of leader mandates see our previous book, The Next CEO: Board and CEO Perspectives for Successful CEO Succession.20

When assessing team members, the approaches taken by leaders differ. Andreas Joehle, for example, former CEO of German medical supplies firm Hartmann, explained: Everybody has their own way. I prefer not to come in and just fire people within the first couple of weeks as some of my colleagues do. I’d rather give every leadership team member some time. I give everyone a six-month period. that doesn’t mean they have to reach perfection in six months, but I do want to see improvement. I want to see the willingness to implement what I am trying to accomplish. If that is not there, then the question is how do we move forward? And that might mean parting ways. Of course, during those six months I need to have a continuous dialogue with them. I cannot tell someone, ‘I don’t like what you do, you’ve got six months to improve’ and then just leave them alone.

Similarly, Adel Al Saleh, CEO of T-Systems and management board member of Deutsche Telekom, told us: First of course, you make a general assessment of the team. How good are they? How motivated? Where are their strengths and weaknesses? What is their domain of expertise? What is their ability to execute things? You

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could have a lot of people who can articulate very clearly what needs to be done but who struggle in executing it. that is not a weakness, per se. It is just where their strength is and isn’t. that phase typically takes up to six months to a year because everybody will tell you a great story in the beginning. What you need to do is observe and then engage with the team in a much deeper operational manner to understand how they work, how they think, and how they translate their ideas into execution.

While such an assessment will take place informally whenever a new leader starts a new role, we suggest that it should be always done in a systematic manner and new CEOs or executives should ideally formalize the process for the sake of transparency. Take for instance Nokia as an example. Stephanie Werner-Dietz, Executive Vice President and global head of human resources, ArcelorMittal and former Chief People Officer, Nokia, explained the change process following the appointment of Pekka Lundmark as President and CEO of Nokia: First we developed a new mode of operation and defined what the new positions would be. then we decided what capabilities would be required to make that position successful. And then we interviewed the incumbents. When we thought they did not fulfil all the criteria, we added candidates from the external market. As part of the process every candidate including the incumbents and even our cEO, Pekka Lundmark, went through an assessment. the process was fairly heavy but very transparent.

Whether assessment is formal or informal, central to the period of assessment is to gain a deep understanding of the existing team members and to identify which members to retain and which members to replace. In doing so, the key challenges are to understand the level of knowledge and capability of the existing team members and also their willingness to work in the new leadership team, contribute to its success, and their fit with the new role mandate. This process is often a challenging task in particular for leaders that come from outside the organization, as an executive who preferred to stay anonymous, explained to us: When you first arrive, it takes time to get to know people. Some people do not speak openly in the meetings. they just say yes to all you say

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because you are the new boss. Others may repeat what they learned over the last ten years and you need to be careful not to draw conclusions too fast. When people have a view that is different to yours, it doesn’t necessarily mean that they may not be ready to change. You need time to develop a solid, unbiased view, so that you do not make wrong decisions.

In identifying the team members to replace, several criteria stand out. First, CEOs need to replace leadership team members that clearly do not have the skills and capabilities for the role, or the ability to acquire them in a reasonable time and manner. As a new leader may change the roles and profiles of the members of the leadership team, new skills or capabilities may be needed that an incumbent simply does not possess and cannot acquire. The replacement of leadership team members may also be warranted to signal change, or to follow a specific strategic direction, and to signal a change in the mindset and leadership qualities expected of the senior team. For instance, when Thierry Delaporte joined Wipro as CEO and Managing Director, he wanted to bring in more diversity and he voiced his views right from the start. In this case, the replacement of members of the leadership team was not based just on the skills and competences of the incumbents but also to signal a departure from the past. The third rationale for leadership team replacements relates to an incumbent’s potential unwillingness to adjust to the new direction a leader is pursuing. Some leadership team members may be unwilling to change or support the new leader and identifying them is often central to breaking any resistance to change. Adel Al Saleh, CEO of T-Systems and management board member of Deutsche Telekom, told us: Of course you will have cases where a member of the leadership team is entrenched and cemented in how they want to run things and that is for the cEO to figure out as quickly as possible. You give them directions and milestones but if they are resistant, you had better move quickly and put the right people in.

Finally, sometimes leadership team changes may also be necessary due to clashes of personality. Members of leadership teams need to work closely

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together with each other and with the leader. When personalities are simply incompatible, the resulting tensions may lead to a toxic situation in the team and a leader may have no other option than to change some of the team members. Once the leader has made the decision on who to replace, the next topic on the agenda will be the pace of change. Here, CEOs and executives are well advised to keep a few points in mind: • • •

They should act fast on toxic individuals that poison the team and team members that resist change, as they can severely hamper the team and the implementation of any strategy. In all other situations, it is recommendable to balance the desire for quick change with the potential uncertainty that may arise from changes that happen too fast and the risk of rushed decisions. Additional considerations concern the signal that is sent by the pace of replacing team members. John Dacey, Chief Financial Officer of the insurance firm SwissRe, explained: When a new senior executive comes into a role, I’ve seen two different mistakes made on the people front. One is a hair-trigger approach to taking out existing executives and replacing them with former colleagues from their previous roles. this sends out an awful signal. And those former colleagues may not be as successful as you think they are, because you have too long a history with them to be truly objective. the other mistake is to wait too long before making changes: 12, 18 or even 24 months to make leadership changes, for fear of upsetting the organization. that also sends out the wrong signal.

•

Finally, the pace of change may also be influenced by the role that is to be replaced plays in the organization. For example, Greg PouxGuillaume, CEO of AkzoNobel and former CEO of Sulzer, explained: Starting with functional team leaders carries less risk than swapping out P&L leaders. no business has ever failed because you fired the Head of Hr. It might cause long-term repercussions but none in the short to medium term. And having a functional team aligned with the new operational model gives you great leverage before tackling operational changes.

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WHEN SHOULD A LEADER DISMISS EXISTING LEADERSHIP TEAM MEMBERS? Building a strong team often requires letting go of existing team members. While that is never an easy decision, there are some situations that may help leaders guide their decision: •

•

•

•

Incompetence. A strategic mandate often requires new competencies from the organization and management team. A dismissal may be needed when existing leadership team members do not have the required competencies for, say, a strategy that takes the company on a new path, such as digitalization. Signaling change. change and transformation often requires the removal of individuals who symbolize the past, in order to signal a new direction. One example might be where an executive has been too close to the previous cEO and is defensive of past strategies. Disruptive high performers. If individuals are not willing to align with the corporate direction and the cEO, they may start disseminating rumors and create bad feelings, so even if they perform well, they may need to be replaced. toxic individuals who work against the common goal can poison the whole team. Personality misfit. A high-performance team needs a set of personalities that fit at least to the extent that they can work together. When this is not the case, dismissal may be the only option.

Internal promotion or external hire Once the decision has been made over which leadership team members to replace, the next question is where to search for new team members. There are two options – internal promotion or hire from outside, which means looking at where to source candidates. Internal hires have the advantage of being well known to, and within, the organization. How they fit into the organization and their effectiveness within it is already established. The fact that they know the business and the organization means they can be effective from day one. Promoting from inside has also the advantage that the rest of the organization receives the message that a career within the organization is possible. Finally, leaders often find it easier

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to promote socio-demographically diverse executives from inside than from outside because the fit with the group and organization is less of a problem; diverse candidates hired externally come with a perceived risk.21 Some of these points were nicely summarized by Laurent Freixe, Executive Vice President and CEO for Latin America at Nestlé, in a conversation we had: the question of insiders and outsiders depends a lot on the capacity of the organization to develop strong leaders. If the organization is capable of doing that then I would always give the opportunity to an internal candidate. It sends out a signal of a meritocracy. You give the impression that talent can grow in the organization, which creates more retention, more interest. You also know the people that come from within much better.

However, internal promotions are not always recommended. For example, when it is change that is needed, internal candidates are not ideal. A focus on internal promotions may also lead to less strong leaders being promoted because the pool from which the leader can tap is limited; if the organization does not engage in robust talent development practices, the bench of candidates may simply be not the best quality line up. Internal promotions can also limit the inflow of new ideas. Greg Poux-Guillaume, CEO of AkzoNobel and former CEO of Sulzer, highlighted this difficulty: If you only promote from within you end up with a shallow leadership gene pool. Diversity matters in all its forms, including diversity of professional experience. You need a mix of internal and external hires to get that.

External hires exhibit a diametrically opposed profile. External hires bring the advantage of new ideas, signal change, and allow the organization to tap into knowledge and expertise from other organizations and industries. However, evaluating candidates from outside the organization is always more difficult and the risk of candidates not fitting the company and its culture is therefore much higher. External candidates need more time to become effective, since they not only need to learn about the business and the organization itself, but also need to build their own networks.22 For instance, Christophe Catoir, President of Adecco, explained: For one of our leadership team positions, we hired an external candidate. this came with the challenge of learning to understand the company, our

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culture, how we serve customers, the way we get work done, the informal rituals. there is no shortcuts to success without understanding these principles first. the person we recruited was highly experienced and didn’t want to underdeliver, but wanted to act immediately – without investing time in understanding what makes us tick. the relationship was, unfortunately, not successful.

Finally, hiring predominantly from the outside has the risk of signaling to internal talent that there are limited opportunities for advancement. Jonathan Lewis, CEO of Capita, explained: When you appoint someone from outside it is important that the people at the next level are going to regard that individual as someone who is tangibly more experienced and competent than them. So that there will not be an emotional response with people in the organization wondering why they didn’t get the job. If they are tangibly stronger, most people in most organizations respect that decision because not only does it give the business higher probability of succeeding, the individuals concerned recognize that there is a rich learning opportunity for them.

External recruitment at the top level does carry more risk but, when big changes are required, or when the internal talent pool is limited, external hires do come with a better chance of long-term success. Given these trade-offs, leaders often aim for a mix of internal and external hires when selecting new members for their leadership team, unless the need for change dictates that fresh blood is required. A chief human resources officer, who preferred to remain anonymous, explained: I believe every senior leader needs a team that he or she knows, trusts, and knows how to work together, because you need to build momentum right away. Obviously, you must not just bring your old buddies along. It is about having a good balance. Keeping some people in place that are strong performers, promoting some from within, and adding complimentary skills from outside.

What this mix looks like often depends upon the leadership team approach and the situational constraints, as we will discuss in more detail in the next chapter.

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THE PROS AND CONS OF HIRING INTERNALLY AND EXTERNALLY In selecting members of the leadership team, cEOs and executives need to balance the pros and cons of internal and external hires. Internal hire Pros - Better known to the organization. - Known fit with the organization. - Positive signal to the organization. - Possess organizational knowledge and experience. - Effective from day one. Cons - Limited gene pool may pose limitations. - Difficult to send a signal of change. - Limited inflow of new ideas. External Hire Pros - New ideas. - Signals change. - Allows leader to tap into a broader gene pool. - Possess knowledge and experience from outside the organization. Cons - More difficult to evaluate. - High risk of misfit with the organization. - Steeper learning curve. - Need longer to be effective.

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Where to source candidates If CEOs and executives choose to hire from outside the company, the next question will be where to source candidates. Many leaders tend to prefer people they have worked with in the past, who they believe are very capable. Juhani Hintikka, CEO of the Finnish cybersecurity firm WithSecure, juxtaposed some of the advantages and disadvantages of this approach: One of the challenges was that some of the people from my former organization approached me proactively, ‘Hey, I’m available. I can leave my current job immediately and join you if you wish.’ I ended up hiring four or five members of my previous team. I gave it a lot of thought because of course you’re open to criticism that you only hire your own buddies, and that you have some kind of an inner circle and, if you’re not in, you won’t get hired. On the other hand, though, the positive side is that you can be operational very quickly when you have people who know you and there’s trust between you.

Hintikka suggests that such appointments rely on the importance of familiarity, trust, and loyalty, while they may not be well perceived by others in the organization. However, hiring from the existing network of the leader – especially from the few people they have worked with in the past – fundamentally limits the gene pool of the new leadership team, just as hiring internally does. Therefore, some leaders are reluctant to hire leadership team members from their past organizations and instead aim to search more broadly. Mario Greco, CEO of Zurich Insurance, for example, values professional skills and capabilities over loyalty and commitment. While many CEOs like to work with the people they trust – bearing in mind that CEOs are often in a relatively insecure position and wide open to criticism – Greco argues that choosing people for their loyalty and selecting people because they are on your side makes others feel excluded. It creates an inner circle within the organization – and a circle of outsiders. He explained: this is just not my style. I do not have any inner circle. I work with everyone in the same way, and no one knows more than the others.

A broader search can be managed without external support, by utilizing the personal networks of both the leadership team members and the board.

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In some cases, job search platforms are useful, although the higher the role, the less common it is to see it advertised publicly. More typically, leadership team appointments are supported by executive search firms that may have better access to candidates and can keep the process confidential. In retaining executive search firms, the hiring organization needs to be mindful of the tradeoffs between specialized boutique firms and larger search firms as well as the inherent incentive conflicts that exist between the search firm and its clients.23

Stages of the selection process In selecting leadership team members, CEOs and executives should follow an analytical multistep process as we highlighted above. Often new searches start from a general job description or tend to look for a candidate with similarities to the person being replaced. However, our research suggests that the first and pivotal step of the selection process is to define a clear mandate for the role and define the profile based on the mandate. Rather than taking an existing profile, CEOs and executives should engage in a diagnosis of the strategic challenges that the role will face in the years to come and design a detailed profile based on these challenges. Once the profile has been designed, the first goal is to develop a broad list of candidates inside and outside of the organization. In doing so, the organization should use as many different channels as possible, unless confidentiality is required, for example when the person to be replaced is unaware of the upcoming change. This longlist can then be reduced in multiple rounds, first through a detailed evaluation of the CV, other publicly available information (for example press and social media presence), and initial interviews. A shortlist of three to five candidates should ideally be interviewed in multiple rounds by the leader and other members of the leadership team. Peter Terwiesch, President, process automation business area at ABB, highlighted the advantages of such a broad process: I’m a firm believer in participative recruiting and hearing different perspectives. I’m not shy about making decisions so it’s not always a majority vote, but it does often turn out to be a process where more eyes and ears pick up weak signals which I am happy we do not ignore. We simply make better hiring decisions like this.

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In addition to providing a broader set of perspectives into the hiring process, this approach may also increase the commitment of other leadership team members to the new members. Jonathan Lewis, CEO of Capita, pointed out: I am very inclusive in engaging members of my top leadership team on decisions to appoint new members. It avoids Monday morning quarterbacking on the choice when you involve people in the decision. And then, ’there’s almost a sort of moral commitment and ethical commitment to them helping that new member of the team get up to speed, be effective, become part of the team, build relationships.

For members of the CEO’s leadership team, hiring processes typically also involve a presentation of a limited number of candidates to the board of directors. In some instances, the board may act mostly as the formal decision-maker for these appointments. However, boards increasingly view the staffing of the senior appointments as one of their key levers for value creation and therefore get more involved in the selection. In fact in some legislations, like in Germany, the board may play a key role in selecting the members of the CEO’s leadership team. While this gives the board a strong say and may allow to balance the power of the CEO it also may lead to a situation where CEOs are limited in their ability to create a coherent leadership team and may lead to a fractionalized leadership team.

Criteria for selecting new leadership team members A central concern in selecting the top management team is to avoid being blinded by any particular characteristic of a candidate. Rather, leadership team members should be hired on the basis that they come with the majority of criteria needed for the position, including the soft skills that are harder to evaluate, in particular with external candidates. Often, leaders fall into the trap of being swayed by individual characteristics such as operational proficiency, sales skills, public speaking ability, or simply raw ambition.24 To avoid this pitfall, we suggest to define a detailed position profile that is derived from a leader mandate and complemented by general criteria for senior leaders.

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Leader mandate The definition of the position profiles should start from the mandates the different members of the leadership team will get.25 Depending upon the company type, the situation it faces, and the CEO’s or executive’s mandate, the strategic challenges for different leadership team members will vary and as a result also the profile of different leadership team members should look differently. Leader mandates, albeit broad given the wide responsibilities of leadership team members, need to identify the strategic challenge that the unit lead by the leadership team member faces and that they need to address going forward. Leader mandates define the key challenges that need to be addressed and set the direction and boundaries for action. They will differ in the degree of change required and the time horizon for that change. Leader mandates are derived from the overall situation the company faces and direction that the CEO or executive wants to take given their own mandate. In other words, leader mandates break the CEO’s or executive’s mandates down to the leadership team. To do so they should be set based on a diagnosis of the business or unit lead by the leadership team member and its strategic challenges going forward. Based on the leader mandates, CEOs and executives can define detailed profiles for the different members of the leadership team. A detailed profile based on the mandate makes it easier to distinguish candidates objectively and thereby reduces the risk of falling victim to their charm and sales capabilities. While the perfect candidate – one that matches all the requirements – does not exist, it is important to aim for one that meets the majority of the defined requirements rather than compromising too much. Additional standard criteria While the detailed criteria and their importance for a specific leadership team position depend on the leader mandate, our conversations with various executives suggest that in addition there is a relatively standard set of criteria for the selection of leadership team members that play into almost every selection process, in varying degrees. For instance, John Chambers, the former CEO of CISCO, highlights a set of six characteristics that are central for top leadership team members and must always be considered as key

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hiring criteria. These include a track record of overachievement, how well the candidates have built their own teams, industry knowledge, communication skills, being team players to the extent that they are comfortable with open debate without getting into personal conflicts and, finally, fit with the team and organizational culture.26 Similarly, Jacques Amey, former partner at executive search firm Heidrick & Struggles, explained: When we search for a senior leader, we look at several buckets. the first bucket is the experience that person will bring on board. their toolkit. Do they bring restructuring experience, brand building experience, international experience. these are things you can see on the cV. the second bucket is leadership capabilities. Is that person able to mobilize, to execute, to transform and be agile? the third bucket is what we call the leader’s shadow. this is the cultural dimension. What kind of leader is that person? What are their values? What are the cultural ingredients, the behaviors that the person will promote when entering into your organization? As a team you need to have an open conversation to make sure that you are all aligned on what kind of leadership you want to bring into your organization.

While the weight of a particular set of characteristics differs across organizations and leadership roles, Chambers and Amey highlight the importance of considering at least some key hiring criteria for most senior positions, in addition to position-specific criteria. These can be divided into four groups: • • • •

Experience and track record. Specific skills and capabilities. Personal characteristics. Fit with the leadership team and organization.

Experience and track record. When hiring leadership team members, CEOs and executives tend to look for track record and experience in specific functions, tasks, or industries. Prior experience suggests that candidates are familiar with the specific challenges they are likely to encounter in the role and have successfully solved them in the past. For instance, an executive who preferred to stay anonymous explained to us: I think people need to have experience. I have developed the view that you can have people who are super smart, but smartness is not a surrogate for

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experience. You may have brilliant people from consulting companies with an understanding of the business but they have not gone through tough decision-making themselves.

However, while experience is certainly important, it is fundamentally backward looking and as a sole criterion may be a poor predictor for performance in the future, in particular in a changing environment.27 In fact, in the long run, CEOs and executives may benefit from investing in underdogs that lack experience, since they may be less constrained by the taken-for-granted wisdom held by peers with a longer track record.28 While all leadership team candidates will have a successful track record to varying degrees, it is important to recognize that past success is not always a predictor of future success, in particular if the role and challenge for the candidate change. Therefore, leaders should carefully evaluate the match between the nature of the experience, the track record, and the mandate of the leader in the role. Specific skills and capabilities. A second set of characteristics that are central to selecting leadership team members are specific skills and capabilities. Some of these skills and capabilities, for instance turnaround skills, or M&A negotiation capabilities, relate to experience. However, for leadership teams there are additional abilities such as leadership skills, communication skills, people skills, and analytical skills, which play an even more important role in the success of a leadership team member.29 It is important to note that the requirements regarding the skills of modern leaders have increased dramatically. While in the past it was enough for a leader to possess analytical intelligence and maybe business acumen, modern leaders also need to possess emotional intelligence and maybe even spiritual intelligence and systems intelligence.30 Personal characteristics. The third group of characteristics can be summarized under the heading of personal characteristics. These personal characteristics include personality traits, temperament, character, general human qualities, values, and social behavior. Our conversations with CEOs and executives suggest some common personal characteristics that are worth considering when selecting leadership team members. For instance, Laurent Freixe, Executive Vice President and CEO for Latin America at Nestlé, highlighted the importance of openness, open-mindedness, agility,

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curiosity, and a sense of the common goal and purpose as important personality characteristics for leadership team members. Jan Jenisch, CEO of Holcim, added the importance of ambition to this: there is one single criterion that I never compromise and that surprisingly few people have on their list. It is how hungry and ambitious the person is. this is the most important criterion in my mind. I want people who wake up in the morning and they are not happy with what they have. they want to achieve something. this is so important.

In selecting leadership team members, it is important to understand what drives and energizes the individual. Doing so allows the leader to align the individuals and their dreams and ambitions to the organizational purpose or the top team purpose.31 Maurice Zufferey, an experienced executive search consultant, explained: When I execute a recruitment mission for a top leadership position, I typically, among others, try to understand what it is that drives the candidates to be executives and act as such. A famous business leader told me once that he distinguishes himself among five different motivational drivers motivating executives. He mentioned money, power, sex (see Donald trump throughout most of his lifetime), recognition and a deep sense for a mission (see ronald reagan or Margaret thatcher). I have always found these five motivational drivers quite useful, in spite of their obvious limitations. And I invite my client to think if the candidates can, in this light, fit with their personal drivers into the team.

John Hinshaw, group chief operating officer of the UK headquartered banking giant HSBC, highlighted the importance that leadership team members should be well-rounded personalities: One thing I find important is that my leadership team members have activities beyond the bank. Some have charitable interests or serve on other boards, or have other passion projects r beyond the company they work for. I find this adds additional perspective and rounds out individuals in a way that positively impacts their performance

Equally important to screening for these characteristics is to screen for those to avoid in a leadership team member. Two in particular stood out as being frequently mentioned in our conversations: Outsized ego and lack of

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values. Leadership teams need to work together even if the leadership team approach is based on competition. An outsized ego often gets in the way of that. Mohsen Sohi, CEO of Freudenberg, explained to us: One of my criteria for selecting leadership team members is that I prefer to work with people whose talent is bigger than their ego. People who are talented, high energy, ’don’t have a lot of baggage, who are not worried about the size of their office or the personal trappings of management but rather are focused on the market and on the business. It makes the work so much more fun for everyone. Over time ’I’ve learned to assess how big someone’s ego is. If you have gone through multiple interviews with someone and you keep asking the same question, the natural tendencies come to the surface. People with big egos tend to talk more about themselves and their results and less about their teams.

Also, lack of values can be highly toxic for a leadership team and the organization at large as Greg Poux-Guillaume, CEO of AkzoNobel and former CEO of Sulzer highlighted: I do not compromise on human values. I do not work with people that I find unpleasant, who treat people badly, or about whom I have ethical doubts. that is a red line. Because it sets the tone, and it is really important for the culture beyond my personal preferences.

Fit with the leadership team and organization. In addition to experience and the individual characteristics of a leadership team member, the fit of a candidate with the organization and the leadership team is an equally important criterion. In fact, several CEOs and headhunters highlighted that the fit with the team and the organization may often be the most critical factor in the future success or failure of a candidate. Often leaders seek team members that complement themselves or the team in areas where they have weaknesses or gaps. These could be gaps around task, expertise, cognition, and social role.32 For instance, Herman Anbeek, President Europe, Americas and Middle East of gategroup, explained to us: In building the team I try to find personalities that complement each other. I have a regional president in one of my key regions, who has been in the

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business for 40 years, knows all the details, understands the challenging (external) business environment of his region like high inflation, currency devaluation, volatile industrial relations, government involvement etcetera. He has dealt with these conditions multiple times throughout his career and managed to build a stable, profitable business despite the difficult external environment. He’s very people oriented and has an extensive network. So, when I needed a new cFO, I tried to find someone who is kind of the opposite. Somebody which process oriented and has a fresh look at the business.

While there are a number of different characteristics, many leaders summarize these in statements such as hiring only A-players for the leadership team.33 The idea underlying this statement is that A-players want to work with other A-players and will therefore hire top talent and build strong teams, whereas B and C-players will hire even less competent employees to protect themselves. While this idea is intuitive and frequently voiced, leaders are often not clear what constitutes an A-player. As we will discuss in the next chapter, the characteristics that are important in making a leader an A-player for the leadership team differ according to the leadership team approach and the situational constraints. SELECTION CRITERIA T

Experience and track record: Track record and experience in specific functions, tasks, or industries and its relevance for the organization. Skills and competence: General skills and competences such as leadership skills, communication skills, and analytical skills as well as role-specific skills and competences. Personal characteristics: Personality traits, temperament, character, general human qualities, values, and social behavior. Team and organizational fit: Degree to which a candidate fits the organization and the leadership team.

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Notes 1 For a discussion of these four roles see, for instance, R. Wageman et al., Senior Leadership Teams: What It Takes to Make Them Great (Boston, MA: Harvard Business Review Press, 2008). 2 M. Zangrillo and T. Keil, “The Changing Role of Corporate Functions – from Administrative Backwater to Trusted Advisor, Decision-Maker, and Candidate for Ce,” Thinkers50 Blog, 2022, https://thinkers50.com/blog/ the-changing-role-of-corporate-functions/. 3 These different conceptualizations are also reflected in the research on top leadership teams and has led to highly fragmented research with limited practical implications. See, for instance, Krause, Roh, and Whitler, “The Top Management Team: Conceptualization, Operationalization, and a Roadmap for Scholarship,” Journal of Management (2022); Hambrick, Humphrey, and Gupta, “Structural Interdependence within Top Management Teams: A Key Moderator of Upper Echelons Predictions,” Strategic Management Journal 36, no. 3 (2015).

6 Guadalupe, Li, and Wulf, “Who Lives in the C-Suite? Organizational Structure and the Division of Labor in Top Management,” Management Science 60, no. 4 (Apr 2014). 7 D. C. Hambrick and A. A. Cannella, “CEOs Who Have Coos: Contingency Analysis of an Unexplored Structural Form,” Strategic Management Journal 25, no. 10 (2004). 8 H. Ibarra and M. T. Hansen, “Are You a Collaborative Leader?,” Harvard Business Review 89, no. 7, 8 (Jul–Aug 2011). 9 Chambers and Brady, Connecting the Dots: Lessons for Leadership in a Startup World (New York: Hachette, 2018).

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4 SELECTING TEAM MEMBERS FOR DIFFERENT LEADERSHIP TEAM APPROACHES AND SITUATIONAL CONSTRAINTS

In the previous chapter, we discussed general principles of team composition and the selection of leadership team members. However, team composition and the selection of team members may play out differently depending on whether a CEO or executive aims to build a Team of Stars, a Synergistic Team, or a Stretch Team. The team composition and selection will also differ depending on whether the leader is building a brand-new team in a start-up situation, developing an existing team in a continuation and development situation, or needs to radically change an existing team in a transformation and restart situation. Take for example the situation that Kai Konola found when he was appointed CEO at Halton, a family-owned Finnish manufacturer of demanding indoor air quality systems across industries. Konola, an engineer by training, joined Halton in 2015 after a career at Nokia and Vaisala. He described the situation he faced upon arrival: Halton had had the best year ever before I joined. It was still the height of the oil and gas boom and one section of the businesses at that point was

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highly dependent on that. I came into a situation where my predecessor had retired after 13 years, and I was only the fourth cEO in the company’s 53-year history. Also, the leadership team was long standing. Some of them had been in their role for 10 years or more. Halton is a family company, so there’s an appreciation for long careers. Everybody seemed quite satisfied because the company was nicely profitable. But the owners had given me the task to expedite growth. I saw very quickly that I had some very strong contributors on the team but also some people who would not be in the right position if you wanted to scale the business. And I had one of the owners on the team. I had to think of how I could start to make changes, how to slowly move the pieces of the puzzle one by one.

Compare this to the situation the division president of a large consumer goods company who preferred to remain anonymous found herself in when she was appointed. Upon her appointment, she was given the opportunity to build a completely new leadership team, as the company was undergoing a full reorganization. She explained: there was nobody in the team. In fact, some of us had never performed these roles before. I had to fill new roles for leaders of operating units and category presidents. this not only required hard work on the selection of team members from me but also reflection on the type of team I wanted to create. What kind of environment would make us successful? How would the team connect and come together? I decided to look for people that would be committed and that would work closely together and support each other. People that could really think about how the team could stretch our company’s vision further. What legacy would we want to leave for our company?

The situation was further complicated because some of the categories were new for everyone and success would depend upon that they approach them collectively as a team whereas others were established but required a change in approach: Some of the categories were new; some would require resets; some would require acceleration. So, I spent a long time thinking about what the right team would look like. I wanted to create a team that had enormous passion for these categories. A team that had the ability to take a little bit of risk and get comfortable with being uncomfortable.

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These are just two examples of how different the situations are that a new leader can encounter, and it is not surprising that it takes an experienced and alert leader to understand a company’s situation and consistently apply different leadership approaches. In the words of Mario Greco, CEO of Zurich Insurance: You do not have the right or wrong team, you have the right or wrong team depending on what you want to achieve and how. I mean, the people are not right or wrong in general. It depends on what you want to accomplish and what your approach is.

While this is rational and self-evident, it is not always easy to systematically select leaders without the risk of reverting back to personal liking or personal chemistry, or biased beliefs. In the coming subsection, we discuss how a careful thinking process can help with guiding decisions and lead to a final leadership team composition that will work for the organization as well as for the leader.

Selecting members for different leadership team approaches A rational, structured, and reasonable way to select leadership team members can be found in the three leadership team approaches we identified in Chapter 1, which reflect how the selection of a team may be different depending on whether the team is a Team of Stars, a Synergistic Team, or a Stretch Team. This discussion is also summarized in Table 4.1. Selecting members for a Team of Stars Leaders that follow a Team of Stars approach often build larger leadership teams, some as large as 15 or more. Larger teams work in a Team of Stars approach because of the specific role and composition of the team. The Team of Stars’ role is mostly information sharing, alignment, and advice, while decision-making takes place outside of the team. Depending on the situation, decisions can be made by the individual team members for their own area or unit, or in agreement with the CEO. Or in some cases, a small part of the leadership team holds the power to make decisions, while the rest of the team plays a secondary role.

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Table 4.1 Implications of leadership team approach to the selection of team members Leadership team approach

Implications

Team of Stars

Team Composition • Larger teams • Mostly focused on information sharing, alignment, and advice • Diversity less central Selection Criteria • Individual performance track record • Ambition • Watch out for ego and political behavior

Synergistic Team

Team Composition • • • •

Smaller teams Focus on coordination and decision-making Diversity important High importance of the fit with the leadership team

Selection Criteria • • • • Stretch Team

Low ego Focus on collaboration orientation High importance of the fit with the leadership team Complementary strengths

Team Composition • Medium size • Team can play all roles (information sharing and alignment, advice, coordination, and decision-making) • Diversity very important • Risk of balance shifting toward competition or collaboration Selection Criteria • • • • •

Low ego Mix of ambition and collaboration orientation Individual expertise Complementary strengths High importance of the fit with the leadership team

With the focus on information sharing and one-way communication, intense discussion and debate are less common in a Team of Stars, partly because of the limitations of its large size. For the same reason, diversity of team members also plays a less central role. Coordination, also, is often minimal in a Team of Stars, as this leadership approach is often chosen for

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organizations that are diversified by business or geography and may have limited synergies across the different business units, therefore little need to coordinate. In selecting team members, leaders who believe in the power of having a collection of stars in the leadership team often place a lot of focus on the individual track record of the team members, as well as on their ambition as an individual, both when hiring them and during their tenure. This focus on individual track record and ambition comes with the risk of the Team of Stars deteriorating into a shark tank. Leadership teams that focus on stars often end up with a collection of leaders with alpha male behavior which, historically, has been one of the most common types of top leaders. In these teams, each member tends to have a strong leadership ambition and takes a domineering role in social situations. While alpha leaders are often smart, ambitious, and driven, they often also lack emotional competencies and do not excel in personal relationships. As a result, alpha leaders in a top management team may require coaching and guidance to be effective team members.1 Furthermore, the focus on star performers may lead to misguided behavior, given that star performers will only be productive if the role enables them to fulfill their own dreams.2 Otherwise they can easily become disruptive and problematic for the team and toxic for the organization. Selecting star performers therefore requires careful matching of the individual with the mandate, the rest of the team, and a leader that is able to lead and control potential challenges arising from their ambitions.3 Finally, a focus on individual performers also carries the risk of ending up with a management team of divas that compete for attention and engage in political behavior to achieve their goals; they may all be aiming for the top job, which is not going to happen. Therefore, when selecting for a Team of Stars, it is important to watch out for outsized egos and political behavior. Selecting members for a Synergistic Team While CEOs and executives choosing the Team of Stars approach might create large leadership teams consisting of individual high performers with limited connectivity, leaders creating Synergistic Teams prefer to create smaller but tightly connected teams, where complementarity and fit play a more important role. In our research, we noted that synergistic leadership teams often – but not always – consist of as little as four to five members, even within sizable businesses or companies.

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Leaders that believe in the power of a tightly integrated Synergistic Team choose smaller teams because this makes it easier to coordinate activities and engage in joint decision-making. The roles of the team are often more emphasized in Synergistic Teams. Coordination and decision-making require the ability to have intense and controversial discussions to make high-quality decisions. To enable such discussions, some of the leaders we interviewed highlighted the importance of diversity. Diverse teams can rely on a broader set of skills and incorporate a wider variety of information in their decision-making4 and diversity therefore often plays a positive role in Synergistic Teams. However, while diversity might be an extraordinary asset, we often see a countervailing force limiting it in practice, because it is easier for homogeneous groups to form a tight and deeply integrated team. Teams that can combine both by showing, for example, diversity along some dimension of their background and homogeneity along another, may experience particular advantages.5 When selecting members for Synergistic Teams, CEOs and executives typically emphasize the importance of fit with the leadership team and complementary strength. They often focus on candidates that exhibit low ego and have a track record of teamwork and collaboration rather than raw individual achievement. In Synergistic Teams, building a team that is collaborative becomes priority, with less emphasis on competencies – provided the job requirements are met – which can mean a trade-off between capability and individual performance, and the ability to work in a team. Some leaders highlight that, in practice, such trade-offs are common. For instance, Juhani Hintikka, CEO of WithSecure, places values and culture over competence, where people’s behavior is more important than skillset because, he said, it’s much easier to learn new skills than change behavior: If you have people with the wrong values but high competence, they will very competently lead the organization in the wrong direction. If you have to compromise, then it’s better to take on the people with the right values and lower competence, because they can learn.

Ideally, he said, you try to find a combination of the two, so you have high competence and high values, but this is often difficult, so he then prefers to choose people with the right values. However, other leaders question the validity of this trade-off. For example, Steve Jobs was famous for his statement that A-players may collaborate with other A-players but may be reluctant to work with B or C-players.6

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In other words, strong individuals may not be eager to collaborate with weaker team members but may cooperate easily with equally strong others. In our view, these two view-points raise two related issues. First, the ability to identify individuals that are strong performers and collaborate well often depends upon the access to high-quality candidates. One CEO we interviewed, who preferred to remain anonymous, told us: Initially I tried to hire people that are A-players and collaborate well. But we simply couldn’t attract these. We are not Apple.

More fundamentally, this topic raises the question of what constitutes an A-player. The traditional view emphasizes track record and often relevant technical knowledge, or strong product market knowledge. However, in modern organizations, a more fitting view of an A-player is an individual that learns fast and is a high performer but is also able to adjust to working in a team, and is someone who strengthens the team. In this definition, a candidate would be evaluated less highly if their performance was against the values of the organization and potentially at the cost of others. Selecting members for a Stretch Team The third leadership team approach, the Stretch Team, tries to find a middle ground between the other two approaches and combines elements of each. Team size is more varied but, typically, is smaller than Team of Stars and larger than a Synergistic Team. The size of the Stretch Team is determined by a mix of team roles, where some topics are the responsibility of individual leaders and therefore are mostly for information sharing, alignment, and advisory, while other topics are resolved through intense team discussion and joint decision-making. Not all team members are necessarily equally involved in all of these roles. Since Stretch Teams aim to strike a balance between competition and collaboration and engage in all team roles, diversity plays the largest part in this leadership team approach and needs to be promoted by CEOs and executives selecting team members. They also need to carefully ensure that the composition of the team indeed allows for the balance between competition and collaboration to be maintained, as Stretch Teams are always at risk of shifting toward one or the other.

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In a Stretch Team, the criteria for selection are more varied because leaders may deliberately choose to drive diversity. For instance, Dave Fredrickson, Executive Vice President of the oncology business at AstraZeneca, prefers to have a mix of people, including drivers and achievers who are perhaps less collaborative. He explained: If my whole team is comprised of people that are all just collaborators and diplomats that’s actually not so great for the organization. So, I like to have a composition where we combine transparency, candor, trust, healthy tension, and inclusion. I want to have planners and dreamers mixed with hardnosed deliverers, and I look for a mix rather than just one type of person.

Urs Riedener, former CEO and current board chair at the Swiss manufacturer of dairy products, Emmi, extended this argument toward the need for complementary strengths in Stretch Teams when he told us: I believe in a mix of people. Because if you have a football team and you don’t have defenders, you will lose. It’s nice to have a set of ambitious people. For instance, in the divisional functions, I need people who are a bit pushier and more ambitious. While on the functional side of the business, I need team players. Because if the people on the functional side are also very entrepreneurial, then I have a mess. they are the people who should be looking into structuring things, engaging in discussions how we can fundamentally change some things, like the planning and supply chain or the marketing strategy.

While Stretch Teams are often diverse and consist of a mix of people, this should not be misunderstood as combining completely incompatible individuals. It is not advisable, for example, to combine highly competitive, individualistic people who are unwilling to cooperate with highly cooperative team players who may not be willing to fight to get their voice heard. Such a setup is unlikely to lead to a Stretch Team but rather will lead to low performance. All members of the team, therefore, need to be able and willing to engage in both competition and collaboration, so that the team can be both competitive and collaborative at different times. Given the diversity of individuals and the need to balance competition and collaboration, limiting ego is even more important in Stretch Teams than with the other leadership team approaches. Mohsen Sohi, CEO of

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Freudenberg, explained to us that even with talented people, if they have too big an ego, they become net negative for the organization: they always want to get most of the credit. they have such a negative influence on everybody else, and they cause the performance of everybody else to decline. Which means that their net effect is negative.

Situational constraints and the selection of leadership team members The selection of the leadership team members also depends on the type of organization, its strategic challenges, and the leader’s mandate. For example, John Chambers, former CEO of CISCO, highlights in his book “Connecting the Dots” that the skills that are important for an outstanding leadership team member in a recession may hold the leader back during a period of growth.7 The choice of leaders should therefore be based on the situation of the organization and the mandate a leader is tasked with.8 Specifically, the three situations we identified in Chapter 2 are useful to identify key constraints for the selection of leadership team members, as Table 4.2 summarizes. Selecting members in a start-up situation In start-up situations, CEOs and executives have the opportunity to create a new team from the scratch, since by default the organization has no or at least no complete leadership team. This allows for the most latitude in selecting members, in accordance with the leadership team approach chosen by the leader. Start-up situations often place an emphasis on the independence of the individual team member to act entrepreneurially, but often combine this with the need to coordinate for the common good of the organization. Research from small entrepreneurial firms suggests that in start-up teams, more homogeneous teams have the advantage of faster decision-making and focused execution.9 On the other hand, the more complex the environment and the organization, for instance in a start-up unit that operates within an established company, the more diversity in the start-up team is beneficial.10 Start-up situations require individuals with can-do attitude and a strong learning orientation because the organization and its challenges change

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Table 4.2  Implications of situational constraints on the selection of team members Situational constraints

Implications

Start-up

Team Composition •• Most or all members are new •• Allow for entrepreneurial behaviors while coordinating for the common good •• Team may need to change over time as organization matures •• Homogenous teams excel at fast decision-making but with increasing business complexity the diversity of the team needs to increase •• Often external hires Selection Criteria •• Entrepreneurial individuals •• Learning orientation

Continuation and development

Team Composition •• Existing talent should be largely retained •• Gradual changes in team •• Hiring often from inside Selection Criteria •• Fit with the existing team. •• Willingness to work in a framework. •• Focus on leaders that can maintain and develop rather than transformation. •• Reflective individuals.

Transformation and restart

Team Composition •• Large scale change in team •• Changes often at the beginning of the transformation •• Hiring from outside Selection Criteria •• Transformation experience •• Hiring leaders that can build or transform rather than maintain

rapidly as the unit develops. As we discussed in Chapter 2, start-ups may initially lack existing culture and processes at the team and organizational level and therefore members of the start-up team need to feel comfortable operating in an unstructured and fluid environment. In fact, they may prefer to operate in such an environment and often feel less comfortable to operate in a more structured environment. As a result, as the organization moves over time from the start-up situation toward a more mature situation with

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structures and processes, the team members that built the organization may no longer fit and a change in the team may be needed. For instance, Darrell Bracken, CEO of Logitech, explained to us: I have some of my people who are former entrepreneurs. they love working for me as long as I treat them like entrepreneurs. they have had a lot of freedom. But now we need to look much more for the needs of the overall company and prioritize them above the needs of their direct area of responsibility. not everyone of them is going to like that and some may decide to leave.

One central challenge in creating a start-up team is that it is often difficult to attract the best candidates, given that the company has a limited track record compared to established high-performing units. While some people might be willing to take a risk, others could be more reluctant; they may be top performers but not necessarily risk-takers when it comes to their own job, given the uncertainty on the type of peers they may find in the new company. For instance, Jonathan Lewis, CEO of UK-based Capita explained: It’s like sports. If you’re playing on a team that you believe has great players, then people want to join your team. And I don’t think business is any different. People want to feel they have a learning opportunity. People feel they want to be part of a winning team.

CEOs and executives creating a start-up team therefore often find it difficult to attract the best talent and may have to settle for less capable individuals, or people who may be potentially outstanding but do not yet have a solid track record. Dave Fredrickson, Executive Vice President of the oncology business at AstraZeneca, explained to us that high-performing teams need to be composed of top talents – something that was an important evolution for him over the course of five years: In 2017 I hired, I think, very good talent, but there have been times where I had to take some people on board that were B or B plus level talent. We were simply not the most attractive address in town at that time. I would not do this again. I have come to a point where I am a firm believer that A talent hires A talent, and B talent hires c talent. And so I’ve become pretty religious in wanting to make sure that we’re always hiring the best talent.

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Leaders hiring for start-up teams may therefore need to work harder since A-players may be more inclined to go to established and successful organizations, where they are more likely to find other A-players and the remuneration could be higher. This problem faced by start-up teams also extends to smaller organizations. For instance, Norbert Klapper, the CEO of Swiss textile machinery producer Rieter, explained: I can buy into the idea that in a big organization, like GE or Siemens, you have a group of maybe 20 to 50 very senior executives that can do any leadership team job. then it depends on how you interact with them, how you get along, how you work together with them. It is not a question of capabilities but personal fit. You find the right set-up with the five people you want to work with that have the same mindset as you. But in small to midsized companies, it’s a different situation. You are much more constrained and really need to look hard to find someone with the right capabilities and the right fit for the company. It requires much more effort.

Selecting members in a continuation and development situation In a continuation and development situation, the leader usually arrives at an organization that has an existing leadership team, structures, processes, and culture. When a new CEO or executive is tasked with running an existing and relatively well-functioning organization, latitude for large-scale changes in the leadership team is often limited and may be simply not needed or appropriate. In such a situation, leaders often need to engage in gradual and selective changes of the team. Fabrizio Petrillo, CEO of AXA Switzerland, explained: there is relatively little turnaround in the leadership team and that’s our choice. I say we can digest maximum one new member to the team per year. there is so much potential for development in every human being so we would rather focus on the development of the existing team members.

While more incremental and slower paced, such gradual changes over time may nonetheless change the nature of the leadership team. Take, for instance, Andy Jassy, CEO of Amazon. Jassy was appointed in July 2021

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to succeed Jeff Bezos, the founder of Amazon, who had decided to retire from day-to-day operations and become executive chairman. While Jassy continued the strategic direction chosen by his predecessor, he exhibited a stronger operational focus. Initially, he made just a few select changes to the top leadership team rather than institute a radical overhaul. However, with his particular focus on operations, Jassy changed the nature of the leadership team, which led to further departures and allowed him to evolve the team gradually, to fit his leadership approach. In continuation and development situations, hiring happens more often from inside the organization, promoting existing talent and complementing it only selectively with outside hires. While the logic of gradual leadership team change through internal promotion seems intuitively appealing, it comes with a risk, as an executive who preferred to stay anonymous explained to us: I came into an organization where people had experienced 15 years of uninterrupted success. If you’ve been extremely successful, why change a model that works? Why rock the boat? People simply don’t see that it’s time to change and continue in the old model until it fails badly. the only way to break this cycle is to change and renew the people even if you have been successful.

As this quote highlights, a major risk in the continuation and development situation is that the leadership team remains in its comfort zone and fails to see when change is needed. In fact, all too often success breeds the seeds of destruction, as it focuses on what worked in the past and often leaves little room for new ideas. Success also tends to reinforce managers’ beliefs in their capabilities, independent of whether the success was due to luck or clever management. So, while change for the sake of change is not necessary, it could be important that a leader over time rocks the boat and infuses new blood into the organization, for the sake of a sustainable future. The selection criteria for a continuation and development situation often need to focus on balancing the need to bring new ideas into the leadership team with fitting in to the existing team, and the willingness to work within a given framework. In these situations, new members of the leadership team are often selected based on their ability to maintain and develop rather than fundamentally transform an organization. This requires

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individuals that are reflective and capable of making an impact within a preset framework, in line with the existing needs of the organization. For instance, Mohsen Sohi, CEO of Freudenberg, told us: I like to believe, and I like to claim that we are, a team of ordinary people who together achieve extraordinary results. the extraordinary performance comes from the teamwork and not individual performance. I would rather take someone into the team who is less of an individual but who is less of a superstar but makes the team stronger. It’s very important: how does the individual complement the team? How does he or she make the organization stronger?

Selecting members in a transformation and restart situation The last company situation is transformation and restart, which could in many ways be considered the most challenging situation for a new leader, with an existing team in place but an underperforming organization. To drive the transformation of an underperforming organization requires a strong team with the necessary capabilities and energy to engender change.11 The CEO or executive in charge, therefore, needs to quickly assess the existing team and have the courage to make large-scale changes to it. A worst case scenario is that a new leader may have to change the entire leadership team. Such an extreme approach should, however, be the exception rather than the rule, as Jacqueline Hunt, former management board member of German insurance firm Allianz, pointed out to us: In a turnaround situation, I don’t think that everyone in a leadership position is necessarily not fit for purpose. I think it really depends on the circumstances of the turnaround. If the question is a strategic one, and the business has been overtaken in a critical way by external events, then I think many of the individuals would need to be changed. If the circumstances are more specific, such as a misbalance in the balance sheet, then I think some of the leadership team would be perfectly adequate and fit for the future. You’d be looking maybe at changing only your risk and your finance people. You need to be mindful that there are risks and cost involved in changing these people.

There are several reasons that could justify the need for changing leadership team members during a transformation. First, the current leadership team

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members may be reluctant to change structures and processes that they created themselves. Mario Greco, CEO of Zurich Insurance, explained: You can’t ask the same person who built something to destroy it. they simply won’t be able to do it. Wherever you want real change, you have to have some different people. And that does not mean that there is anything wrong with the person you are replacing; they could be very valuable in a different job. I changed the assignments of some of my top leaders. I trusted them but I needed to gear up the pace of change because it is very important to get change under way quickly.

Second, existing team members are often associated with the underperformance and therefore removing them from the leadership team could send a strong signal to the organization. The CEO of a European industrial corporation who preferred to remain anonymous explained to us: We need to transform our company. And one element that is central to the transformation is a change in the leadership team. Some of the leaders who were here when I arrived not only have made little contribution to the transformation, they hold it back. By replacing these leaders you’re sending a strong signal to the organization that the change is inevitable.

When a transformation is needed, hiring of new leadership team members often focuses on outside appointments. Internal candidates may not have the capabilities or experience necessary to turn the organization in a new direction or to support a new strategy. Jan Jenisch, CEO of Holcim, global leader in the building materials industry, explained: If a company is not successful for a long time period, you lose a generation of managers. the leaders were not able to grow the business. they were not able to increase profit. they did not have the right instincts, the right decision making, the right attitude. In this situation you have to hire from outside. I don’t like doing that because I normally prefer to promote from inside, since there is a big downside to hiring from the outside. the success rate is as low as 50 percent because you have a limited evaluation of the person on the one hand, and on the other the person does not know the company’s strengths and weaknesses, and might not even come from the same sector. So, you have quite a high risk of failure.

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In extreme cases, this may lead to a leadership team that is completely sourced from outside the organization. A CEO from a large US-based services business who preferred to remain anonymous told us in an interview that 100 percent of his top leadership team was externally sourced – over a three-year period – which might sound extreme but, he said, it was an exceptional situation and in a turnaround you have finite time or you run out of cash; it is incredibly important that you build a leadership team that quickly wins the support and respect of the broader organization: that brings us back to purpose, values and behaviors. In turnarounds, it’s slightly easier to do that because most people in the organizations know and have a view as to how well leaders are leading the business. And, when you create a leadership team that is more principled or value driven or purpose driven, you get the rest of the organization behind you. But it requires a leadership team that has clarity around what you are trying to achieve and is very effective at communicating and engaging.

The difficulties that arise with a leadership team that is exclusively externally sourced are one reason why many CEOs and executives prefer a mix of internal and external appointments in a transformation and restart situation, especially if they have themselves been hired from outside. For instance, Timo Ritakallio, CEO of Finnish bank OP Financial, explained: When you build your top leadership team, it is also important to have some members who have corporate memory. Who know that this and that has happened earlier. It is important when we are making decisions especially when you come from the outside and lack this knowledge.

Central to making changes to the leadership team in a transformation and restart situation is the pace of change. While the continuation and development situation might allow or even call for a somewhat slower pace, transformation and restart situations require quick changes to kickstart the transformation. Jonathan Lewis, CEO of Capita, explained: How fast can you make decisions on people in a turnaround? I think you can make decisions in thirty to sixty days. Quite frankly, in a turnaround, I think you have to, because prioritizing decisions on who the players are and who the players aren’t in your business is fundamental to the success of any turnaround. You very quickly get a sense of who is good. In some

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cases, even within days. Of course, you have to be very disciplined in terms of not jumping to conclusions on people and give them a little bit of the benefit of the doubt early on. But you do not have the luxury to wait when you want to turn around a company. It is therefore important to assess leaders for their fit with the situation rather than hiring them based on their performance in another situation.

Notes 1 K. Ludeman and E. Erlandson, “Coaching the Alpha Male,” Harvard Business Review 82, no. 5 (May 2004). 2 Chambers and Brady, Connecting the Dots: Lessons for Leadership in a Startup World (New York: Hachette, 2018). 3 Mankins, Bird, and Root, “Making Star Teams out of Star Players,” Harvard Business Review 91, no. 1, 2 (Jan–Feb 2013); Elberse, “Ferguson’s Formula,” Harvard Business Review 91, no. 10 (2013); R. Hastings and E. Meyer, No Rules Rules: Netflix and the Culture Reinvention (New York: Penguin Random House, 2020). 4 C. M. Beckman, “The Influence of Founding Team Company Affiliations on Firm Behavior,” Academy of Management Journal 49, no. 4 (Aug 2006); K. M. Eisenhardt and C. B. Schoonhoven, “Organizational Growth Linking Founding Team, Strategy, Environment, and Growth among U.S. Semiconductor Ventures, 1978-1988,” Administrative Science Quarterly 35, no. 3 (Sep 1990). 5 Eesley, Hsu, and Roberts, “The Contingent Effects of Top Management Teams on Venture Performance: Aligning Founding Team Composition with Innovation Strategy and Commercialization Environment,” Strategic Management Journal 35, no. 12 (2014).

8 T. Keil and M. Zangrillo, “Don’t Set Your Next CEO up to Fail,” MIT Sloan Management Review 61, no. 2 (2020). 9 S. L. Brown and K. M. Eisenhardt, “The Art of Continous Change: Linking Complexity Theory and Time-Paced Evolution in Relentlessly Shifting Organizations,” Administrative Science Quarterly 42, no. 1 (1997); Eisenhardt and Schoonhoven, “Organizational Growth - Linking Founding

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Team, Strategy, Environment, and Growth among U.S. Semiconductor Ventures, 1978-1988,” Administrative Science Quarterly 35, no. 3 (Sep 1990). 10 D. C. Hambrick, T. S. Cho, and M. J. Chen, “The Influence of Top Management Team Heterogeneity on Firms’ Competitive Moves,” Administrative Science Quarterly 41, no. 4 (Dec 1996). 11 T. Keil and M. Zangrillo, “Transformation Is a Team Sport,” in Transforming Beyond the Crisis: What Organizations Need to Do Now to Seize Tomorrow, ed. Thinkers 50/Brightline (Newtown Square, PA: The Project Management Institute, 2020).

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Part III BUILDING THE TEAM

5 HOW TO INITIALLY BUILD THE LEADERSHIP TEAM

In 2020 Floris Wesseling was appointed as President Europe for Danone, the French food company known best for its dairy products. The appointment was part of a major reorganization that had been planned over months with the intent to move from a category-based business toward a more geographically oriented organization.1 With the appointment, Wesseling became one of five regional presidents. Wesseling, trained in law at the University of Amsterdam, and following various prior companies, joined Danone in 2000. He has worked for Danone in Europe, Africa, and Asia in various leadership positions as General Manager and regional president roles. In his new role as President Europe, his task was to reduce duplication across the different businesses of Danone in Europe, strengthen the country focus, and simplify Danone’s operating model. Although the appointment was part of a major reorganization, the leadership team Wesseling found had already been mostly set as part of the reorganization planning; many of

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the people on his team were already appointed as part of the organizational change, which meant they knew the organization well but they did not all have a shared history. Rather than building a team from scratch, Wesseling was faced with the task of building an effective team out of a group of leaders he had only partially selected himself. When we interviewed him shortly after the appointment, he explained: One of my biggest challenges in putting a functioning team together is the differences in background and culture. to illustrate this, in our previous model, the people used to be working with different level of centralization and autonomy, and this needed to be streamlined. Also, the performance culture was different, some were more focused on individual performance and others more on collective performance. So, I need to carefully manage the dynamics of this team and think how I can capitalize on the differences rather than having them get in the way. Building interdependence (through common priorities and a shared vision) is a key success factor of the team journey. In a way, going from good to great is when we capitalize on our differences and amplify our commonalities to build a stronger team performance.

How can leaders build an effective team from a group of new or disconnected leadership team members? What are the key tasks related to building the team? What are the levers for success and what are potential obstacles to look out for? When a CEO or executive leader is appointed, they often have the opportunity to select a new leadership team and build it from scratch. Even if a leadership team is already in place and opportunities for changes to it are limited as in the example above, when new appointments are made, this tends to make an organization, including the leadership team, more open to changes, which provides an opportunity to create a new way of operating in the leadership team. Stefan Nöken, former Member of the Executive Board, Hilti Corporation, explained how he used such an opportunity to introduce his leadership team approach from the outset: I brought the team together and the first thing we did was to establish our working principles. How do we want to work together as a team? Why it is important to invest in this? And by the way, why it is important to work together as a team is a part of that: we achieve more when we work

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together on certain topics. Key principles are that we want to focus on impactful business relevant topics and address the right topics on the right level at the right time. We hold each other accountable for agreed targets and support each other especially in tough times. We foster vigorous debates, are open and bring things straight to the table and not hold back. At the same time, we are fair, respectful and constructive to each other. We can discuss everything within the top leadership team but outside of the team we have one voice and one opinion. this is the set of principles we worked on establishing.

Our research shows that a broad range of levers exist, and in this chapter, we will discuss seven topics central to building effective leadership teams: • • • • • • •

Team purpose. Setting the team environment. Defining team structures and processes. Managing discussion. Making decisions. The leader’s role. Development tools.

Setting the team’s purpose To function as an effective team, the leader and their leadership team should start by identifying a meaningful team purpose, one that clearly establishes why the leadership team is needed2 and that provides team members with the motivation and energy to engage. CEOs and executives are often vague about the purpose of a leadership team. Frequently, the purpose is confused with general goals such as leading the organization, setting and accomplishing corporate objectives, driving corporate performance, or the company purpose. Instead, the top team should have a dedicated purpose that clearly indicates why the team exists and sets out its specific contribution to the organization.3 Otherwise, members of the team may not understand the need to be a team, might not get a sense of belonging, and potentially consider team meetings to be a waste of time.

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COMPANY PURPOSE, VISION, STRATEGY, AND TEAM PURPOSE T

Kai Konola, CEO of Halton, explained his leadership team purpose to us: Our team’s purpose is super important. Because it helps to clarify why we are here. And for us it is that we want to expedite fast and furious growth for the organization. that’s the purpose for our team. All our tasks and priorities really flow from that.

A strong purpose, one that appeals to the individual team members, should be challenging and transformational rather than oriented toward the status quo, define a legacy for the team, and be strongly connected to, yet separated from, the organization’s mission and vision.6

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Creating the team environment To build a leadership team that can act upon the team purpose, CEOs and executives also need to create an environment that enables high performance and is aligned with the team purpose. From our interviews, we identified four dimensions of the team environment that are of particular importance in terms of their positive effect on leadership teams:7 • • • •

Trust. Psychological safety. Agreed-upon behavioral norms. Commitment and accountability. Trust

Trust is a key element for a team culture that is conscious about others.8 Without trust, information and problems are not shared openly and fear prevents engagement and creativity. Some consultants suggest that building trust is the first step in creating a successful leadership team.9 Juhani Hintikka, CEO of WithSecure, explained to us what it means to have trust: It means that you accept that your colleague in the team may make a decision without consulting you that will impact you personally and your unit – and you’re fine with that. And that is the ultimate test. Because it means that I trust that you have spent more time on this than me; I trust your judgment and that you will make the right decision for me and for the company. that’s the kind of requirement I have for my people in the team.

Conceptually, we can distinguish between types of dimensions of trust that are increasingly demanding for the individual: Trust in knowledge, trust in commitment, trust in intentions, and trust in being vulnerable.10 Trust in knowledge suggests that I believe you have the knowledge and are competent to do what you promise to do. Trust in commitment goes one step further and suggests that I believe you will in fact do what you promise. Trust in intentions suggests that I believe you have good intentions and therefore will not act against my interest. From these three levels of trust a fourth yet deeper level of trust may emerge, trust in being vulnerable, which suggests

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that I believe I can expose my weaknesses and vulnerabilities without fear of being hurt or exploited. For a leader and the team to build these increasingly deeper levels of trust takes time. Time alone is not enough, however. It also requires a behavioral profile from the leader and the other team members that includes doing what you say, being approachable, and transparent.11 Equally important is that leaders do not engage in and prohibit behaviors in the group that destroy trust. Fabrizio Petrillo, CEO of AXA Switzerland, also highlighted to us that trust requires some degree of vulnerability of the leader: If you want to gain trust, you have to give up control. And if you give up control, you can be hurt. You have to accept that.

The absence of trust is often connected with an artificial harmony in the team that hides differences of opinion and underlying conflicts. In these situations, it’s relevant to distinguish between tensions among members of the top team and the absence of constructive conflict. When personal tension in the team exists, team members may hold back their points of view, become reluctant to engage in debates, and avoid arguments so that disagreements do not occur in the open. As a result, they do not challenge each other and, as a consequence, ideas do not get challenged and refined. More importantly, this absence of conflict may also reduce the commitment of team members to make decisions and plans. While trust is important for every leadership team, an overemphasis on trust may carry its own cost, as it can lead to inertia.12 Leadership team members may focus on appearing trustworthy rather than challenge the status quo. For instance, to maintain trust in their competence, a leadership team member may withhold information or even share inaccurate information when things aren’t going well. Leadership team members may prioritize information from members they personally trust over new information from a less trusted source. Leaders therefore need to carefully strike the right balance between trust and challenging the status quo, even if it undermines trust on some of the dimensions discussed above. Psychological safety Closely related to the concept of trust but yet broader is the idea that leadership teams should be environments characterized by psychological safety.13

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Psychological safety describes team environments in which team members feel they can make mistakes without being penalized or losing the respect of others; where they can ask for help or information without the risk of losing status. In other words, psychological safety is a taken-for-granted belief about how others will respond to you in a group. Fabrizio Petrillo, CEO of AXA Switzerland, explained the importance of psychological safety in his leadership team: It is always very important how we interact with each other in the team. How we discuss. the way we say things. no one should ever get personal. It’s about how you say things, how they are expressed. It is about the communication and the attitude of the person concerned. But it is also about the receiver. that they do not become so attached that they feel personally attacked when someone criticizes their idea. For that it is important to create safety around their professional identity. For example, if I am head of sales then that is part of my identity. If I constantly live in fear that I will lose my job and will lose that identity, then I can’t have that distance. We are also very careful on how we talk about mistakes. If a mistake happens, we never talk about this looking backward pointing out who made the mistake. We only talk about it forward-looking, what we have learned from it. What can be done in the future? So that we reduce the fear of making mistakes. those things are important to create an open culture in the team.

In her work on teaming,14 Amy Edmondson argues that psychological safety encourages team members to speak up, helps to express clear ideas due to reduced fear, supports productive conflict, mitigates failure, promotes innovation, allows team members to focus on goal achievement, and increases accountability. To cultivate psychological safety in the leadership team, leaders need to be accessible and approachable, acknowledge the limits of their own knowledge and display fallibility, invite participation, highlight learning opportunities, use direct language, set clear boundaries for team members, and hold those that cross these boundaries accountable. Agreed-upon behavioral norms The third dimension of the team environment relates to agreed-upon behavioral norms. Establishing norms of behavior in the top leadership team is

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important to tackle tasks effectively and ensure that the behavior of the team members is aligned with the chosen approach to the top leadership team. Kevin Sharer, the former CEO of Amgen, identified a set of leadership behaviors including providing honest and constructive feedback, establishing high-performance standards, and conducting operating reviews, that are fact based and lead to quick corrective actions. Defining these behavioral norms allowed him to role model and shape behaviors of his leadership team members.15 Being clear-cut about the norms of the team allows not just the leader but also every team member to identify breaches of these norms and thereby shape the behavior of all team members. For instance, Juhani Hintikka, CEO of WithSecure, gave the following example: We are very systematic about this in the meetings. We try to engage in value-creating behaviors like active listening, open questions, summarizing, challenging, clarifying, time out, review and feedback. But we also have a list of value destroying behaviors like holding back the group, blaming or accusative tone, dismissive or diminishing feedback, gotcha moments, cynicism, discouraging feedback. When somebody sees that somebody else engages in value destroying behavior they can hold up a red card and say, “Look, I felt that this was this type of behavior.” those are the rules we play by in the meetings.

While many norms differ according to the leadership approach, some such as transparency, participation, and integrity are useful in all approaches.16 While the leader may directly impose some norms, their creation should be an iterative process to ensure that team members buy into all rules and norms. Being clear about the implications of the rules is important since different individuals may interpret the same rule rather differently. For instance, while for one executive coordinating hiring may mean a joint decision-making process, for another it may imply simply informing others about one’s choices. To ensure that norms stick in the team, it is quintessential that the leader role models the expected behaviors. A leader that expects the attention and focus of all members in the team meetings should not be seen on the phone or computer during the meeting. In particular when a top team is new, in addition to role modeling, the leader might also need to actively shape behavior by pointing out actions that are in line with the norms, and those that are not.

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Commitment and accountability The fourth dimension of an environment that supports the effectiveness of a leadership team relates to the commitment of the leadership team members to the team. To drive company-wide performance, leadership team members need to make decisions that prioritize the good of the overall company over the interests of their own area of responsibility. For members of the leadership team, the value and meaning of leadership team membership therefore needs to take precedence over their individual responsibility and the team of direct reports they lead.17 However, in reality, leadership team members often prioritize their own area of responsibility and when asked what is the most important team they are part of, often point to the team of direct reports they lead, rather than to their leadership team, and view the activities of the leadership team only as a necessity of their position, rather than a priority. If team members prioritize their own responsibility area and their own team, they will invariably make trade-offs that sub-optimize the benefits for the organization at large. It is therefore important that CEOs and senior executives instill a sense of commitment to the leadership team so that the team itself becomes its first priority.18 For example, Laurent Freixe, Executive Vice President and CEO of Latin America for Nestlé, explained: It is important that your leadership team members put the interest of the group before personal interest. It reflects commitment. And it reflects on the whole organization. It is important that the people see that the leader or the person in the leadership team isn’t just centered on their own interests and areas.

Commitment needs to be accompanied by high standards of accountability. While it is partially the role of the CEO or executive leading the team to hold team members accountable, team members also need to play a role in establishing standards of accountability. In other words, leadership team members need to hold each other accountable, even if this means nudging a peer to follow up on commitments, or pointing out behaviors that do not comply with the agreed-upon norms. However, leaders often find it easier to hold their own reports to high standards than challenging peers on their low standards. This in turn can lead to a gradual deterioration of commitment by the overall leadership team, unless countered by the CEO or executive leading the team.

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TEAM STRUCTURES AND PROCESSES T

• • • • • • •

tasks of the team. How to run meetings and have a clear agenda. Participation. roles and responsibilities of the team members. Decision-making process. conflict management. team goals and performance measurement.

Team structures and processes In addition to defining the team’s purpose and setting an environment conducive to achieving the purpose, CEOs and executives also need to define the team structures and processes. Team structures and processes refer to defining what tasks belong to the team, creating clarity on roles and responsibilities, defining decision-making processes, defining meeting-related processes, conflict management, participation, and measurement of team effectiveness.19 Through setting the team processes, the leader defines the work to be done in the team and also how this work is done.20 In this section, our main focus will be on defining the tasks, roles and responsibilities, and agenda management. Discussion and decision-making will be discussed in a separate subsection below and measurement of the team in part IV of the book. Tasks of the team Deciding what tasks belong to the team and what tasks do not is central to the functioning of the team and one of the early decisions that a CEO or executive should make for his or her leadership team. All too often leadership teams waste valuable time with tasks that are of limited importance and should not belong to them.21 It is not unheard of that management teams spend considerable time in a meeting discussing the dinner menu at the next strategy retreat, or whether fruit baskets should be offered at the

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headquarters’ reception, only to find themselves short of time to discuss a strategic decision further down on the meeting agenda. Given these risks, leaders should focus on carefully managing the list of tasks of the team.22 Over time, often unimportant operational issues occupy the attention of the full leadership team and it is the leaders’ task to challenge this. They should also learn to delegate tasks that are not central to the top leadership team’s purpose. On the other hand, it is important to ensure that all those tasks that do require the full leadership team attention are not broken into disconnected parts and interdependencies are therefore explicitly managed. To avoid such crowding out of strategy discussion, some leaders therefore clearly separate operational tasks and strategic tasks and review these separately. For instance, Urs Riedener, former CEO and current board chair of Emmi, explained to us: In the regular business meetings, we need to solve the operational business issues and if you have an executive board meeting you easily have 20 points to decide on so you have to be quick. On the other hand, I also want the management board to align on priorities and strategies. For example, I want them to make a strategic review of a subsidiary, for instance the uS. I want them to discuss the best way to approach the challenges we have there and how the functional people can support, for example, the divisional or the local people. these tasks cannot take place in the same meeting. We tackle them separately.

Some leaders take this separation of operational and strategic issues one step further and even separate the groups that discuss these. For example, Kai Konola, CEO of Halton, suggested: I separate the more operative follow through of the execution plans and financials from the strategic agenda. the operative team is small and only a subgroup of the overall leadership team. It’s just myself, the cFO, and three business area heads. the team that looks at the strategic agenda is wider, it is the complete group leadership team of about a dozen people, including regional and functional leaders.

While such a separation of teams and topics might create focus on the topic at hand and keep the people required in the respective meetings to a minimum, in practice there is a risk that the smaller group that is part of strategic and operational meetings becomes the de facto center of power, since all too often the two types of issues cannot be clearly separated.

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Agenda setting Connected to the tasks of the team is the setting of formal meetings and their agenda. Leadership teams typically meet formally weekly, monthly, or even less often, depending upon the size of the team, the team role, and the distribution of tasks. In setting the agenda,23 CEOs and executives should reflect on what topics are tactical versus strategic, and what topics are mostly about sharing information, consulting with the group versus coordinating tasks and making decisions, and therefore may or may not belong to the agenda. The leader needs to ensure that every agenda item is meaningful and has an impact on the organization and should therefore limit the agenda to a few important rather than multiple operational items. Also, it is important to define clear outcomes for each agenda item and define the follow-up required for each one. For instance, when it is clear what items are for information sharing and which are for consultation, it may be easier to keep discussions shorter. Agendas should start with the most important items. All too often, informational and seemingly easy items appear at top of the agenda and discussion of those eats into the time of the more important items. Similarly, the agenda should be future focused and minimize time spent on information about the past. As part of the agenda management, leaders also need to ensure proper preparation and participation of the members of the top leadership team. Often, some members might actively participate only when items are to be discussed that are of particular interest to them, either so they can support them or push back on them. In both situations, the leader needs to manage the discussion to ensure active and respectful participation as well as balance. For example, Stephanie Werner-Dietz, Executive Vice President and global head of human resources, ArcelorMittal and former Chief People Officer, Nokia, explained: Pekka (Lundmark, the group President and cEO of nokia) is very clear in how we run meetings. Presentations need to be handed in beforehand. Meetings are structured and everybody has equal airtime. You can’t opt out, you can’t play the silent observer. Everything that needs to be discussed is discussed very openly and, in the end, we always come to a decision.

Finally, equally important to agenda management is that leadership team members follow up on items discussed during meetings and collaborate on

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the implementation of decisions outside of meetings. This implies that leadership team members should work together outside of meetings as well, to identify possible collaboration opportunities, as well as for knowledge sharing and joint growth. Only collaboration outside the formal meetings allows the team to accomplish the tasks set by the team in the meeting.24 Without such follow-up and deeper building of collaborative relationships, leadership team meetings often degenerate into discussions that are perceived to be a waste of time, since they fail to have an impact on operational activities. Setting responsibilities While formal meetings may be useful to align on a topic, discuss alternatives, and make decisions, the implementation of decisions needs to take place outside of meetings. To be effective, as part of the team process, leadership teams need to have clear responsibilities for tasks. A commonly used model is the RASCI (or RACI) model, which separates who should be responsible (R), accountable (A), supporting (S), consulted (C), or merely informed (I) in the execution of a task.25 However, a large number of alternative models exist for specific organization types and situations.26 Which specific model a CEO or executive chooses to clarify the ways of working is not so important, provided that roles are clearly assigned and follow-up takes place. Jan Jenisch, CEO of Holcim, explained: Even before you think about how to facilitate teams, you have to make sure that for every project, topic, every task, there is one responsible person. If something goes wrong or if something goes right you know who is responsible. this is very important. the worst situation you can have in a business is if you delegate responsibility to a committee. nothing ever gets done by a committee.

Managing discussion Good discussions are the central instrument to align individuals, coordinate activities, solve problems, and ensure that good decisions are made in any team, including the top one. Good discussions spell out the positions of individuals and clarify opposing arguments. To make this happen, it is important for top teams to be able to hold constructive conversation, handle constructive disagreement, debate on the end game and course of

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action – without making any of it personal. While issue-based conflict is productive, interpersonal conflict is often highly destructive and can derail a management team.27 Productive conflict supports the consideration of different arguments and allows for a deeper consideration of alternatives and issues, a richer set of solutions and, ultimately, better decision-making.28 To nurture productive conflict, top management teams can utilize multiple levers: Diversity of the leadership team, frequent and intense interactions, clearly defined and distinct roles within the team, and the application of specific decision tools.29 For instance, a CEO or executive might assign the role of devil’s advocate to a member of the team or ask a team member to take the perspective of a competitor, to bring out alternative positions. Productive conflict is also nurtured when a leader requires multiple decision alternatives for a proposal or requires the creation of different future scenarios as part of the decision-making. While conflict is important, CEOs and executives need to steer discussions carefully so that disagreements stay constructive and do not deteriorate into interpersonal conflict. To do so, leadership teams should be advised to focus on factors and information rather than opinion, develop multiple alternatives to enrich the discussion, agree on common goals, inject humor into the process, maintain a balanced power structure, and resolve issues without forcing consensus.30

Decision-making Also central to the effectiveness of the leadership team is how the team makes decisions. We distinguish between three different decision-making approaches. Command-and-control-based decision-making In some organizations, decision-making is firmly in the hands of the CEO or executive, with leadership team members mostly providing information and perhaps being consulted on select topics. Such command-and-controlbased decision-making is based on the role of the leader in the corporate hierarchy and the authority that comes from the position. It often assumes that the leader is the top expert in the organization and therefore able to

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make the best decisions. However, in an increasingly complex world where no individual leader can hold all the knowledge necessary for each decision, let alone have the monopoly on the best ideas, this approach gives too little weight to the expertise of team members, or to the ideas that may come from others in or outside of the team.31 DECISION-MAKING APPROACHES While cEOs and executives often engage in the decision-making approach they personally feel most comfortable with, we advise leaders to choose an approach that fits with their organization. In doing so, leaders can choose from five distinct ways, which differ in the degree of involvement of all members of the leadership team and how much consensus is required. 1.

command based – cEO or executive decides unilaterally, with little input from the leadership team. 2. Advisory – cEO or executive decides with input from the leadership team. 3a. collaborative vote – leadership team decides by majority vote. 3b. collaborative compromise – leadership team works toward a compromise solution (possibly followed by majority vote). 3c. collaborative consensus – decisions are made unanimously by leadership team. Decision-making approaches should be matched with the leadership approach and the situational constraints but also take in broader considerations, such as the organization’s culture and the national culture in which the unit operates. A leadership team may employ different decision-making approaches for different types of decisions.

Advisor y decision-making The second decision-making style that gives the leadership team a more powerful voice in making decisions is an advisory model in which the leadership team acts as an advisor to the CEO.32 While the CEO or executive retains the final decision rights, the views and arguments of the leadership team are brought into the decision-making process.

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Collaborative decision-making In our third model, decision-making is a team effort, where all leadership team members participate equally in all stages of the decision. This decision-making style is collaboration based and involves a broader range of leaders drawn from different functions, regions, and businesses.33 In a collaborative decision-making model, the leadership team usually decides from the start how decisions are to be made, given that people might have different positions within the team. In this approach, decision-making can be based on voting, compromise, or consensus. Fabrizio Petrillo, CEO of AXA Switzerland, explained to us: In my leadership team, there are no divas, there are no prima donnas. not even the cEO. We live this principle by expressing it in the way we work. We make all decisions democratically. I do have a right of veto, and can overrule my management team but I then have to inform the chairman of the board. And it has never happened in the five years I have been cEO here. And if we have a contested decision, every team member can call for a time out if they feel that they cannot represent the decision to the outside world. then we put the decision on hold. It does not happen often, but it does sometimes. And it is incredibly effective psychologically and emotionally.

Even if a decision-maker aims for consensus in team decisions, the question arises whether leaders should always do so. Our research suggests that too much consensus can be counterproductive and even reduce the quality of the decision-making. While the idea of reaching consensus is intuitively appealing, as it suggests that everybody’s opinion really counts, achieving consensus may lead to protracted debates and may require or end up with politically motivated compromises. Our research suggests that enforcing consensus may even increase political and horse-trading behavior, where team members trade agreements with each other. This is more likely to reduce the quality of decisions rather than increase them. When consensus is not possible, discussions can be resolved in two ways, either by allowing team members to resolve the issue by themselves or by the decision-maker making a tie-break decision. While the CEO and executive role often call for such tie-breaking decisions, it is important that leaders manage the potential disappointment of the team members.34 This is important because when trust among the team members, and trust with

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the leader, is limited, any tie-breaking decision by the leader can be misperceived as playing favorites. If there is no urgency, it is advisable to leave team members the time to resolve the conflict on their own.35 In other words, a trade-off exists between quick decision-making to conserve valuable time, and the potential disappointment and interpersonal conflict those quick decisions might create.

Leader role The role of CEOs and senior executives is crucial in many ways, from setting the team purpose, creating the team environment, defining the team structures and processes, and managing team discussions all the way to making decisions. In fact, it could be said that the role of the leadership team's leader has been fundamentally transformed in recent decades and, in recent years in particular, has become both more complex and more difficult.36 Modern leaders, as Hubert Joly, former CEO of Best Buy, summarizes in his book The Heart of Business have to “be purposeful, be clear about who they serve, be conscious of what their true roles is, be driven by values, and be authentic (p. 24).”37 Rather than running a company as a mercenary and being primarily concerned with figures and profits with little consideration for the people involved, today’s leaders need to inspire, mentor, motivate and lead by example.38 Generally speaking, the profile of a modern leader is very demanding. In creating a top team that works closely together, leaders need to avoid any tendency to show others that they are the smartest person in the room, that they always win, and can solve every problem.39 Modern leaders increasingly see themselves as aggregators, facilitators, and coaches, who create and drive a process that enables the top leadership team and the organization at large to excel.40 Jan Jenisch, CEO of Holcim, described what this means for his role as a leader: I see myself as the lowest person in the company. I turn the hierarchy upside down and say: I’m at the bottom and I have to make sure that the framework conditions – vision, strategy, KPIs, goals - are in place so that

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everyone can find their way around. And then I want everyone to use their own creativity, expertise, and energy to achieve the best possible results. In other words, my job is not to direct people. My job is to multiply myself. I want my 200 top people around the world to be top performers and to be fully informed. A boss should not be the information hub. As a leader, you have to know who is best informed and be an enabler or facilitator, albeit with a very clear framework of vision, strategy, goals, and principles of leadership.

As an aggregator, the leader keeps the team and the organization together, and as a coach, enabler, and facilitator, the leader plays a central role in building the leadership team by role modeling and setting the tone.41 For instance, Laurent Freixe, Executive Vice President and CEO of Latin America for Nestlé, told us: the leader has a critical role to play because he sets the tone. How can you expect your people to be open about what is happening and share information if you do not do it yourself? If you want the team to be transparent then you have to be transparent and collaborative. It is as simple as that. You have to create that trust platform. I put in place a monthly meeting where I share key discussions and key decisions from the executive board with our senior leaders, so they know what the priorities are for the group, and their expectations. this makes them feel that they are entrusted with important information and creates a trust platform for sharing.

Setting the tone is particularly important in connection with topics such as trust and avoiding politics as Greg Poux-Guillaume, CEO of AkzoNobel and former CEO of Sulzer, highlighted: I try not to use information in tactical ways. For example, I tell the executive committee openly in team sessions what my interactions with the board are. Information is power and people try to build their power base by sharing only part of the information and only with part of the people. But when you do that, you encourage a lot of gameplaying and foster tensions within the team. I give everybody the same information. And I filter very little. that takes a lot of politics out of the team.

Because modern leaders need to work by influencing others rather than enforcing their own views, the consistency of their own behavior is

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becoming more and more important. People throughout the organization watch very carefully for any discrepancies between what leaders say and what they do; peers are not easily swayed unless a leader’s behavior has credibility.42 Take, for instance, the subject of admitting failure. While many organizations emphasize the importance of a failure-tolerant culture, how many CEOs or executives publicly admit their failures? Jonathan Lewis, CEO of UK-based Capita, provided the following example: It is important that you are willing to admit mistakes. I’ll give you a very tangible example: Black Lives Matter, summer of last year. It was six days after the death of George Floyd before I issued a communication to the organization about it. I should’ve been out with a condemnation within 24, 48 hours. However, I said two things. I apologized – very publicly in my written communications and in my town halls – for not saying something sooner. And I also admitted that we were not fulfilling our purpose in relation to our black colleagues because they continued to experience racist behaviors, and microaggressions. I think part of modern leadership is admitting publicly when you’ve got something wrong and just being open and honest about it. If you are not doing that, you cannot expect your organization to do so.

DEVELOPMENT TOOLS FOR THE LEADERSHIP TEAM C

Workshops C

• • •

Setting team rules, norms, etc. team building and development workshops. thematic development workshops.

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Individual and team assessments Improvement often starts from understanding the status quo. cEOs and leaders are advised to assess the team members and team along several dimensions to be able to approach building and developing the leadership team more analytically: • •

Assessment of individual personality, leadership style, and leadership capabilities. Assessment of team dynamics.

Training and education to develop the skills and capabilities of individual leaders and the team as a whole, education and training programs can be useful: • • •

Leadership training. team training. customized trainings on specific team skills.

Individual and team coaching cEOs and executives often employ coaches to work with themselves, individual team members, and the team as a whole: • • •

Leader development coaching. Individual interventions. team dynamics.

Development tools Given the ever-more demanding role of leaders, CEOs, executives, and their teams need development tools, organizational support, and coaching. We tend to think that the top leadership team is staffed with individuals with enough experience to do well under any circumstances. That is, however, not a realistic view of the situation and not a realistic expectation, in particular in a world that is changing rapidly and poses ever new requirements from leaders.

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The smooth functioning of top teams does not happen by itself and should not be left to chance. Since situations change, no one ever encounters the very same situation again. New expectations arise and senior leaders need to update their knowledge to perform their duty, whether in the form of formal education and training or in the form of coaching and support on the job. Similarly, leaders need to coach their own team to improve the team’s ability to fulfill its purpose. This may involve hands-on coaching by the team leader but may also involve developmental coaching by another member or an outside consultant. Such coaching can happen alongside normal teamwork, but it is useful to set aside dedicated time to focus on team process and increase effective working.43 While the tools and methods of development may differ, what is important is that leadership teams as a whole, and their members as individuals, engage in a constant learning and development journey that keeps their knowledge and mindset up-to-date and attuned to the challenges of tomorrow.

Notes 1 https://www.danone.com/content/dam/danone-corp/danone-com/ investors/en-all-publications/2020/pressreleases/PR_Danone_ InvestorUpdate.pdf. 2 Katzenbach, “The Myth of the Top Management Team,” Harvard Business Review 75, no. 6 (Nov–Dec 1997). 3 Wageman et al., Senior Leadership Teams: What It Takes to Make Them Great (Boston, MA: Harvard Business Review Press, 2008). 4 For the changing role of company purpose see, for instance, R. Henderson, Reimagining Capitalism in a World on Fire (New York: Hachette, 2020); C. Mayer, Prosperity: Better Business Makes the Greater Good (Oxford, UK: Oxford University Press, 2018); Joly and Lambert, The Heart of Business: Leadership Principles for the Next Era of Capitalism (Boston, MA: Harvard Business Review Press, 2021); R. Gulati, Deep Purpose: The Heart and Soul of High-Performance Companies (New York: Harper Business, 2022). 5 For the role of vision in strategy see, for instance, Reeves, Haanæs, and Sinha, Your Strategy Needs a Strategy (Boston, MA: Harvard Business Review Press, 2015). 6 R. J. Vargas, Chief Executive Team (Fresno, CA: Ignite Press, 2021).

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7 Environments that are conducive to effective leadership teams have been discussed by several authors focusing on coaching leadership teams. Noteworthy are for instance P. Lencioni, The Five Dysfunctions of a Team (San Francisco, CA: Wiley, 2012); Wageman et al., Senior Leadership Teams: What It Takes to Make Them Great (Boston, MA: Harvard Business Review Press, 2008); R. J. Vargas, Chief Executive Team (Fresno, CA: Ignite Press, 2021); Goldman, Breakthrough Leadership Team (Carson City, NV: Lioncrest, 2020). 10 R. J. Vargas, Chief Executive Team (Fresno, CA: Ignite Press, 2021).



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22 Wageman et al., Senior Leadership Teams: What It Takes to Make Them Great (Boston, MA: Harvard Business Review Press, 2008).

27 A. J. Ward et al., “Improving the Performance of Top Management Teams,” Mit Sloan Management Review 48, no. 3 (Spr 2007). 28 K. M. Eisenhardt, “Conflict and Strategic Choice: How Top Management Teams Disagree,” California Management Review 39, no. 2 (1997). 29 Eisenhardt, “Conflict and Strategic Choice: How Top Management Teams Disagree,” California Management Review 39, no. 2 (1997). 30 K. M. Eisenhardt, J. L. Kahwajy, and L. J. Bourgeois, “How Management Teams Can Have a Good Fight,” Harvard Business Review 75, no. 4 (Jul– Aug 1997); Ward et al., “Improving the Performance of Top Management Teams,” Mit Sloan Management Review 48, no. 3 (Spr 2007). 31 H. Ibarra and M. T. Hansen, “Are You a Collaborative Leader?,” Harvard Business Review 89, no. 7, 8 (Jul–Aug 2011).



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6 HOW LEADERSHIP APPROACH AND SITUATIONAL CONSTRAINTS SHAPE LEADERSHIP TEAM BUILDING

In the previous chapter, we discussed the general principles of building a leadership team (either a top team or a leadership team within a business or function) once members have been selected. However, these general principles need to be adapted to the demands of the leadership approach and the situational constraints to implement a consistent approach that creates high performance. Take, for instance, John Hinshaw, the group chief operating officer at HSBC. When Hinshaw was appointed to the role, he was tasked to transform the operations of HSBC by bringing to the bank a different perspective from his own background in technology. To implement this transformation agenda, Hinshaw started by creating a leadership team with high diversity along multiple dimensions, reflecting what we discussed in Chapter 2. The members of his team differed in gender, came from different nationalities and ethnicities, had worked in different industries, and varied in their age and tenure. A very comprehensive picture of what diversity means and should look like.

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To forge the group of diverse individuals into a team that could effectively balance competition and collaboration and make an impact in the bank, Hinshaw was adamant that creating trust among the individuals would be a central first step: to build a team it’s super important that people trust each other. Because when you trust each other, you get things done a lot faster – and it makes for a better place to work. If I ask you to do something, or you ask me to do something, we don’t want to be second guessing each other or wondering about hidden agendas. We just want to get it done. to build that trust you need to spend time together, to get to know each other. People in general don’t care what you know, they need to know that you care. When somebody comes into a team with a great track record, a great background, the team might worry about them. Who is this person? Are they going to dominate the team? Are they going to be all about themselves? As soon as that person connects and gets to know the other team members and shows that they care about them and want to help them – that’s really important for building trust.

Among the first steps he took, Hinshaw focused on creating opportunities that would create familiarity and build trust among the highly diverse members of his team. Compare this with the situation that Mohsen Sohi, CEO of Freudenberg, faced upon his appointment. Freudenberg is a global diversified technology group headquartered in Germany, with over 49,000 employees operating in 60 countries. Following a career in AlliedSignal, Honeywell, and NCR in the US, Sohi started to work for a joint venture owned by Freudenberg and became CEO of the company in 2012. At that point, Freudenberg was performing well, and his mandate was to further develop what was considered to be a well-functioning organization. Nonetheless, Sohi quickly realized that the existing leadership team and the broader management structure would not be able to fulfill future needs. He explained: there was something a bit old style in the way the company was structured. the leadership positions were often viewed as little kingdoms to be protected. And information was power, so leaders would keep things to themselves, which is the opposite of today’s effective management style, which favors a free flow of information. the organization was not transparent and too political, and a lot of the people thought that headquarters was the most important part of the organization, which makes no sense.

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It’s the farthest from the customer. I had to change the perception that we at the headquarters serve our businesses and not the other way around.

To further develop the leadership team approach, Sohi focused on gradually changing the nature of communications in the leadership team, creating more transparent and less political information sharing. He explained: One of my early observations that I will never forget was from an early management meeting. We talked about a controversial topic, and in the meeting itself not much was said, people didn’t speak up. then after the meeting was over each executive came independently to talk to me in private, and tell me things which they should have raised in the meeting in the presence of everyone. to me that was a signal that the organization was somewhat political and lacked transparency. I had to make it clear that there could not be any hidden agendas within the management team. You do what you say, and you say what you do. All conversations must take place in the meeting. And you must have the courage to speak up even if you’re the only voice in the room that has that opinion. there is no room for side conversations and secret meetings.

As these two examples show, even in the board room the issues are not always the same and each CEO or executive needs to think of what needs to be done at the start of their tenure, because each leadership team will have different development opportunities, based on the leadership approach which works for them, and the situational demands they find themselves in given their mandate.

Building the team for different leadership team approaches While building the team is important for every leadership approach, the emphasis and critical challenges differ across our three approaches. The key implications of each leadership team approach on the building of the leadership team are summarized in Table 6.1. Building a Team of Stars In the Team of Stars approach, CEOs and executives aim to drive performance through the largely unfettered competition of highly ambitious and strong-willed individuals, who focus mostly on their individual areas of

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Table 6.1 Implications of leadership team approach to building the leadership team Leadership team approach

Implications

Team of Stars

Manage attention among multiple divas Manage politics Direct ambition to corporate goals Limit conflict in discussions Leader as decision-maker, referee, and visionary Focus on building trust Create psychological safety Create strong dialogue Challenge members out of their comfort zone Increase controversy in discussions Leader as coach facilitator and challenger Focus on strong behavioral norms Psychological safety Integrate individuals with different behavioral preferences Leverage diversity for discussion Establish balanced discussion culture Leader as facilitator, enabler, referee, and decision-maker

Synergistic Team

Stretch Team

responsibility. To make this approach value creating rather than degenerating into a shark tank, the leader needs to carefully manage attention among the different individuals, in particular, if these individuals have a very different relationship with the leader. Greg Poux-Guillaume, former CEO of Sulzer and current CEO of AkzoNobel, for example, likes to have in his team a combination of people he has worked with before, people that he has promoted from within, and people that he has hired from outside and not worked with before. However, that does not mean that he treats everybody the same as he explained: I treat people based on behavior and performance. If you make your numbers and you deliver your objectives in a way that is transparent and in line with our values, I give you more leeway. If your recent track record has been choppy and things are not really working as they should, you get less. But I do not make it personal. My decisions are not linked to my relationship with people, they are linked to objective criteria. And probably, at least to start with, it’s the people that I have known the longest that I am hardest on. It is my protection mechanism against playing favorites.

When building the team, in addition to managing attention to the different members of the team, CEOs and executives need to focus on curbing

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any tendency that individual team members may have to utilize politics to advance their individual agenda. Our research shows that such tendencies are particularly prevalent in the Team of Stars approach. It is also important to carefully direct individual ambition toward corporate goals without, however, constraining the individual leader too much. To do so, the CEO or leader will first of all need to have and show a strong vision and provide a clear direction and then ensure that individual members of the leadership team align with that vision, so that the individual efforts support overall corporate performance. According to Jan Jenisch, CEO of Holcim, the leader of a Team of Stars is more like a referee, working within a clear framework of vision, strategy, goals, and principles of leadership: You have to let the people run with it. You may think you can micromanage but that doesn’t work. You need to have people who can run themselves.

In addition to providing a vision and direction, CEOs and executives should provide reinforcement to signal positive and negative behavior. Within Teams of Stars, we observe the highest level of conflict and CEOs and executives building such a leadership team need to be able to tolerate strong diverging opinions and, eventually, channel those disagreements into energy toward positive performance. For example, Sami Atiya, President of the robotics and discrete automation division at ABB, told us in an interview: You know, I like to have people who are strong individuals. And I tolerate strong opinions. A country head recently came to me after a meeting and said he wanted to apologize for being so direct in the meeting. I said that I didn’t remember that he was. that is just how discussions should go.

In addition to a tolerance for diverging opinions, CEOs and executives in this approach to leadership teams need to carefully manage the level of conflict so it doesn’t escalate and become personal. Building a Synergistic Team Where the Team of Stars operates through individual ambition and competition, the Synergistic Team operates with a strong emphasis on joint effort toward shared goals and collaboration. To build a successful

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Synergistic Team, every member needs to focus on the collective group rather than themselves and their own responsibilities. As a result, a Synergistic Team needs to be an A-team rather than a collective team of individual A-players. That can only happen with the dedicated effort and support of the leader, who needs to play the role of coach, facilitator, and challenger, rather than giving strong direction as leaders in Teams of Stars often do. Leaders focusing on the Synergistic Team approach need four particular skills:1 They need to be global connectors, with strong networks beyond the leadership team that they are able to connect to the team. They also need to engage with talent beyond the core to tap into the ideas pool inside the organization and create information flows beyond the leadership team, to ensure that the team does not become isolated. Third, they need to be able to establish a culture of collaboration among the team members. And finally, they need to shape collaboration. This means being able to encourage collaboration when it is needed and also being able to pull it back when, for example, it slows down decision-making. The Synergistic Team approach also poses specific demands on the team members themselves. To be effective at collaboration, team members should exhibit four distinct behaviors:2 Speaking up, collaboration, experimentation, and reflection. First of all, they need to be able to speak up, with honest and direct communication between team members by asking questions, giving feedback, and discussing errors. Second, they have to be able to collaborate with a mindset that emphasizes mutual respect and shared goals. Third, they need to be keen to experiment and eager to learn, so that better results can be found over time. Finally, they must be reflective, and critically examine the results of all actions with the intent to improve and create new insights. Even though teams focused on collaboration often engage in joint problem solving and decision-making and may emphasize consensus in their decision-making, they nonetheless need to have clarity on authority and responsibility so that collaboration does not lead to a situation where no one has authority. For that reason, when building a Synergistic Team, leaders need to focus on establishing strong processes around responsibility and accountability. To create value in a Synergistic Team, leaders rely on joint discussion and problem solving. Also, to achieve high-quality discussion, they need

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to put particular focus on building trust and psychological safety among the different team members early on.3 Juhani Hintikka, CEO of WithSecure, highlighted: You want to quite quickly build a feeling of trust and safety among the team members. For that it is important to understand what behaviors in a team are trust-creating and what behaviors are trust-destroying. Why is this important? We want to have quality dialogue that leads to quality decisions and that requires trust. It’s not for the sake of everybody feeling nice and cozy. But to create a high-quality dialogue.

Some leaders have suggested close relationships as a foundation to create trust and psychological safety. For instance, Fabrizio Petrillo, CEO of AXA Switzerland explained: In the team, we are very different people, but it is a long-term partnership. We are supposed to learn to like each other’s quirks a little bit. there is an emotional component. Even though I have team members that are totally the opposite of me, or say something that drives me nuts, you just take it with a lot of goodwill and acceptance. It’s just like a friendship. You need to like each other a little. One does not have to spend time together privately, but nevertheless you need to think of them as nice people.

However, such strong personal relationships carry the risk that a leadership team mixes professional and personal relationships, loses the capability to make objective performance evaluations, and the team degenerates into a petting zoo. To reduce these risks, CEOs and executives need to challenge members out of their comfort zone and occasionally may need to increase controversy in discussions. Given the particularly high risk of developing personal relationships that are too close, we suggest an alternative approach to creating trust and psychological safety. The organization could place more emphasis on structures and processes that reduce unnecessary tensions, and on leader behavior that is able to create and deal with those tensions, which are necessary for productive discussions. At the same time, the leader needs to be able to maintain a reasonable distance between the leadership team members by, for example, keeping interactions and evaluations formal.

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In line with this idea, Georg Müller, CEO of German energy company MVV, suggested: As a leader, I have no close relationship with any of my colleagues on the Board of Management; there is an equidistance among all of us. Everyone knows that. And I value this equidistance a lot because I don’t want to compromise myself. I need to be able to lead this team to a solution. I don’t mind conflict if we are having difficulty finding a solution, but it must be perfectly clear that I am not biased towards one or the other. that must never be the case.

This approach of equidistant relationships can be combined with management structures that reduce unproductive conflict as Juhani Hintikka, CEO of WithSecure, explained: to maintain trust and avoid politics is sometimes difficult, and to get there you need to have supporting management structures and ways of measuring and working that don’t pitch people against each other in terms of, for example, allocation of costs, and avoid those topics that are contentious among the team members. With something like cost allocation, the more it can be activity-based the better. It needs to be totally transparent. It’s also an issue of discussion culture. You need to be clear that you do not want to spend time on internal costs discussions, because that’s not focusing on the customers. People need to understand what topics you are willing to discuss, and what topics you are not.

Finally, Thomas P. Meier, CEO of Ricola, highlighted the important role of the leader in shaping and role modeling the quality of the necessary discussions: When I joined ricola, there wasn’t much reviewing of sales and profit data. I therefore instituted a process that allowed us to look at the data every month and then ask questions. People quickly got defensive, and I had to tell them that this was not about challenging them or attacking them personally; it was about having an opportunity to address any issues together, rather keeping them hidden under the table. this approach is very much about role modelling. At the end of the meeting, I check in on each person, how they are doing and what their take aways are. Of course, change did not happen immediately, and I needed to help the team members to adjust. One of my reports, an American gentleman, came and said that he had waited for this for the last 10 years. He was keen to ‘load the shotgun, put it on the table, and fight it out.’ On the other hand, one of the European leaders felt uncomfortable with this approach. A conflict started

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up between the two of them, so I had to intervene and pull one of them back a bit and encourage the other to step in a bit more. I think it’s important that I don’t just lead the business, instead I also lead the people.

The importance of leading people is surprisingly often underestimated, and we still see many leaders in top positions who are more doers than leaders. This is something that will be less and less acceptable in the future as complexity keeps increasing and younger generations become more aware and demand better leaders. Building a Stretch Team Building a Stretch Team is probably the most difficult task of all three approaches, given that a leader needs to integrate members who, despite their willingness to work in different ways, may have diverging leadership preferences. This means the leader needs to help them learn to operate with, and balance, competition and collaboration. It is therefore central that the leader from the outset sets very clear expectations regarding behaviors. Sara Mella, head of personal banking at Nordea, explained: How do you lead that team once you have the people? I think it’s very important to be open, transparent, and explicit about sharing with the team what you think, and where you see the development needs. And then do the same with each individual: what is your starting point? What do I expect from you in this team? For me, it is not just that you perform in your own area of responsibility, but also that you contribute toward an overall team performance. It is also important to be clear about how you will support someone. And what you will do for the team. What can the team and each individual expect from you?

In addition to setting clear expectations, CEOs and executives need to establish behavioral norms that support this leadership team approach, because the behaviors required in a Stretch Team rarely come naturally to all team members. Sara Mella again: to get the team off to a good start, both positive and constructive feedback are important. In our first team meetings, I often went back to certain individuals to provide positive feedback on their participation in the meeting. not necessarily in relation to their own area of responsibility but rather on how they had supported another person, or how they had added perspectives on

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a topic which was not directly linked to their own. this was to enforce the idea that it adds value to build on top of someone else’s opinion. At first, people were positively surprised. then they started to emulate that type of behavior. After a while I started to give that sort of feedback in front of the whole team, to show others how this person was doing something good for the team. then when individuals really started to up their contributions to the team, I moved up a level, asking them to take a role in steering the discussion more. Giving them a bigger responsibility for the whole team.

In a Stretch Team, it is also very important to highlight what tasks belong to the team and what tasks will fall to individual responsibility in order to maintain a good balance, because Stretch Teams run the risk of focusing too much on individual responsibility, or too much on coordination, instead of balancing the two. Erwin Mayr, CEO of the Wieland Group, explained: We meet once a month for one day and have a standard agenda and we have time allocated for free discussion. Opportunities and problems are discussed globally and across all business units and functions, so that we can exchange ideas. Everyone realizes how other business unit do things, so you learn from each other. You also learn from the mistakes of others. this way the entire team learns. But the problems are not solved by the management team. they are usually solved by a business unit in collaboration with one or two central functions. It’s not that team is everything. Yes, a team is important because we need a common vision and strategic direction. But the execution is then no longer in the team but in the business units. But take for instance the topic of sustainability. the question is, how do we introduce this. this kind of discussion, how high is sustainability on our agenda? Are we the sustainable company, are we the profitable, are we the global company? Which of these is the first priority? that alignment needs to happen as a team. Because otherwise, no matter how we organize ourselves, we won’t get there.

Also, when building an effective Stretch Team, which is typically characterized by the diversity of its members, a strong discussion culture and psychological safety are important; the leader needs to leverage that diversity of individuals to allow for robust discussion. Sara Mella again explained: there are different characteristics, different personalities, different ambitions, and then people in the team are also driven by different motivations.

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I therefore need to work with the individuals and take time to get them aligned and share their views. It’s a better-quality discussion when you have different perspectives, although you need to steer it more.

Decision-making in Stretch Teams tends to be more difficult than in a Team of Stars, which focuses on top-down and individual decision-making, or in a Synergistic Team, which emphasizes joint decisions and consensus. Given the different preferences of various team members and that each team member operates differently in different situations, leaders of a Stretch Team need to break decision stalemates more often but need to do so carefully, in order to strike a balance between individual ambition, flexibility, and collaboration for the greater good. Erwin Mayr provided an example of this difficulty: Sometimes we have conflicts between the business unit heads and the functions. I don’t like it when the functions try to play ‘the cEO said’ card. It should be good arguments and a business case that convince. But sometimes I simply need to put my foot down and enforce a decision. I cannot do this too often, though, because the business unit heads need to have maximum freedom and that means they need to be able to make decisions. I can only overrule them so often without damaging this spirit.

Finally, to build a functioning Stretch Team, the leader needs to seamlessly switch between the role of facilitator and enabler – which is central for collaboration – with the role of referee and decision-maker, which is sometimes necessary to guide individual initiatives.

Building the team under different situational constraints Different situations and mandates often call for different ways to build the team. The key implications of the situation and mandate for the building of the leadership team are summarized in Table 6.2. Building leadership teams in a start-up situation In the start-up situation, CEOs and executives have the opportunity to build a new team over a relatively short period of time. When a new business or unit is created in an established organization, the team may be assembled

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Table 6.2 Implications of situational constraints for building the leadership team Situation

Implications

Start-up

Building trust among new members Creating new behavioral norms and team culture Creating team processes, discussion approach, and decisionmaking approach Emphasis on independence and flexibility combined with coordination Leader as an entrepreneur Understanding current behavioral norms and team culture Gradually adjusting team processes, discussion approach and decision-making Leader as the optimizer Identifying dysfunctional behavioral norms Changing existing norms or establishing new norms Adjusting team processes, discussion approach and decisionmaking to new team approach Leader as a change agent

Continuation and development Transformation and restart

from individuals unknown each other beforehand. In this situation, building familiarity and trust among the team members is of the utmost importance. Before a new team engages in problematic discussions or decisions that may require the trade-off of individual interests for the interest of the overall organization, trust in the knowledge, commitment, and intentions of the other team members is needed. In an independent start-up, the founding team often consists of individuals that knew each other before and therefore arrive with a certain level of trust in each other.4 However, the challenge here is to integrate additional team members that were not among the founders of the start-up and ensure that there is a similar level of trust among all members of the team. Take, for instance, the initial leadership team of Intel: Robert Noyce, Gordon Moore, and Andy Grove. All three knew each other from their previous employer, Fairchild Semiconductors. However, as Intel grew rapidly, they needed to not only recruit additional leadership team members but build an integrated team where trust extended beyond the initial team members.5 In a start-up situation, it is also important to set behavioral norms and create a team culture from the outset. CEOs and executives, therefore, should provide sufficient opportunities to do so, for example through dedicated workshops early on in the life of the new team and through role modeling and coaching during normal meetings. The norms and culture of

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the team in a start-up situation should emphasize entrepreneurial behavior, flexibility, agility, and learning. A start-up situation could easily become quite a taxing environment, in the sense that leadership team members need to be able to operate often with limited structures and organizational guidance; in fact, they almost need to derive energy from the lack of those. Rather than being driven by policies and rules, such organizations function best when driven by a strong purpose that guides both leaders and employees’ behaviors. Dave Fredrickson, Executive Vice President of the oncology business at AstraZeneca, told us: to provide guidance and motivate people, I spend a huge amount of time making sure that the work that we are doing collectively is purposeful and meaningful. It gives direction and motivation.

Similarly, CEOs and executives should make choices regarding team structures and processes, discussion and decision-making approaches, and introduce them early to the new team. Given that start-up situations are highly fluid and require agility and learning, in establishing these elements of the leadership team approach, leaders should emphasize independence and flexibility, albeit balanced with the coordination necessary to build the overall organization. Fredrickson summarized this succinctly when he said that he tries to create an environment of flexibility, transparency, candor, inclusion, and healthy tension. Given the overall situation, both in terms of building the organization as well as the new leadership team, leaders in a start-up situation need to act as entrepreneurs, experimenting and acting rapidly but with an awareness that some of the initial solutions might need to be adjusted or changed if they fail, or as the organization matures. Building leadership teams in a continuation and development situation In a continuation and development situation, CEOs and executives are appointed into a role with an existing team, existing organization, and a relatively well-working function or business. As a result, the leader has less leeway in making changes to the top leadership team and needs to take an optimizer role, conserving what is working well and making adjustments to what is not.

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Given that an existing team is encountering a new leader, it is important to set expectations for any changes from the outset. Morten Wierod, President of the electrification business area at ABB, explained: When I started with the team and also now, when I onboard new team members, I am very clear about my expectations. For instance, I told my team that one of the few ways to risk getting fired is to hide issues from me. If you have a problem, raise it early and then ask for help. When people try to sweep things under the carpet or try to deal with it themselves, then we often end up with millions in costs. I always offer people help, but what I do expect is that they are proactive and don’t wait to be told. And never hide a problem.

When making changes, the leader needs to be mindful of how the existing leadership team has been run previously. For instance, in a continuation and development situation, the existing leadership team will have established behavioral norms and a certain team culture. To adjust the working of the leadership team toward their chosen team approach, leaders therefore need to first understand these norms and culture and then gradually adjust them to be better aligned with what they are trying to build. The introduction of new behavioral norms therefore happens more gradually and, in the process, team culture also develops gradually. Mohsen Sohi, CEO of Freudenberg explained to us: Initially we had some workshops, where we clarified how the team has worked together and finally discussed how we wanted to work with each other going forward. And we asked ourselves: What is acceptable? What is not?

As this example suggests, a continuation and development situation does not imply that a leader is unable to make changes, just that any changes need to be more gradual than in the other situations. While behavioral norms and culture change slowly, team processes can be changed more rapidly and may, in fact, become a foundation for the more gradual change of behavioral norms and culture. CEOs and executives can start changing discussion and decision-making approaches early on but need to be mindful that the change will be visible only once behavioral norms and team culture have been adjusted.

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Building leadership teams in a transformation and restart situation In a transformation and restart situation, a CEO or executive is appointed to an underperforming organization or an organization with challenges of some sort, typically with an existing team, and he/she has a mandate to radically change or turnaround the organization. In some respects, this situation is one of the most challenging because it is likely to require changes to all elements of the leadership approach; however, it could also be one of the most enjoyable situations to tackle, especially for the most visionary or entrepreneurial leaders if they are given a free rein to kick-start something radically different from the past. As with the continuation and development situation, the transformation and restart leader needs to begin by understanding the current behavioral norms and team culture, although with a focus on identifying dysfunctional elements. Since transformation and restart situations often involve largescale changes in the leadership team, understanding the behavioral norms and team culture may rely on a bottom-up approach drawing upon leaders throughout the organization to understand the status quo. For example, Oliver Dohn, CEO of German automotive company Felss GmbH, explained to us: to kick-start the changes in our leadership approach, we took a bottom-up approach and involved people from all levels of the organization to help us move forward rapidly and transform the organization.

It must be noted that changes of behavioral norms and culture in this situation often need to be more radical and driven by strong role modeling behavior from the CEO or executive. For instance, Jonathan Lewis, CEO of Capita, explained: One of the things I did very early on, was to define a set of values and define a set of behaviors that would be manifestations of those values. And then I defined a set of management commitments for the team. If you are a leader, these are the things we expect of you. And then we very quickly followed with a cross-sectional group of people from across the company to work on defining our purpose. I then executed what I call deeds that demonstrate my commitment as a leader to our purpose.

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CEOs and executives also need to adjust team processes, discussion approach, and decision-making to improve the performance of the existing leadership team. In a transformation and restart situation, all elements of the leadership team approach should be up for discussion and potentially changed. Such radical changes are often facilitated through large-scale replacements in the leadership team, which are common in this situation as we discussed in Chapter 4, but do require intense work with the team. Given the large-scale changes required in a transformation and restart situation, the leader plays the role of a change agent and must act relatively quickly to rebuild the leadership team. With the need to transform or turnaround the organization, leaders have limited leeway to act gradually; rather they need to emphasize quick change. Under these circumstances, CEOs and executives need to create positive energy and momentum within the top leadership team by projecting inspiration and hope. For instance, when Hubert Joly started his turnaround at BestBuy, the US electronics retailer, reenergizing the leadership team and generating momentum, was central to the turnaround. To do so, he chose a principle of “people first” and growing the top line rather than cutting costs, and he focused on engaging in many small decisions that would produce positive results and momentum rather than on designing the perfect strategy.6 In a turnaround situation, lack of momentum in particular could become a key challenge for the leadership team, which must therefore quickly increase the quantity of decisions to avoid any stalling. Once momentum has been achieved, it is easier to adjust the course of action over time.7 In doing so, CEOs and executives need to be particularly mindful of individuals that may not align with the change and swim against it. Laurent Hebenstreit, former CEO of automotive company Sogefi, explained: In a turnaround situation you need a really closely aligned management team. For example, I had to face the situation that one of my direct reports had been a candidate for the cEO job. And he was very vocal about how the company had made the wrong choice by hiring me instead of promoting him. After three weeks I called him into my office and told him there are two options: Either you change your communication and you’re allowed to think what you want, but need to align in public, or you have to leave the company. A week later he left. Another internal candidate behaved very differently and aligned well during the turnaround. He eventually left the company but with him there was never a problem.

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While transformation and restart situations call for fast and decisive action, CEOs and executives need to be mindful that every transformation is a journey and not an individual episode. As a result, it is important that efforts to rebuild the leadership team continue over longer periods of time, because it is always more difficult to change existing behaviors than create a new leadership approach from scratch. Stephanie Werner-Dietz, Executive Vice President and global head of human resources, ArcelorMittal and former Chief People Officer, Nokia, highlighted this philosophy: not only did we initiate one or two team building efforts from the start, but we want to make this a continued, ongoing effort, what we call a leadership team’s journey. We conduct regular team development meetings to talk about how we work as a team. We also survey the top 100 leaders to check how we are viewed as a team and if we are making progress. We will continue this process as the leadership team develops.

The ongoing development and optimization needed for any organization to succeed, remain relevant, and evolve to meet new and changing demands, will be the topic of the next part of this book.

Notes 1 H. Ibarra and M. T. Hansen, “Are You a Collaborative Leader?,” Harvard Business Review 89, no. 7, 8 (Jul-Aug 2011). 2 A.C. Edmondson, Teaming: How Organizations Learn, Innovate, and Compete in the Knowledge Economy (San Francisco, CA: John Wiley & Sons, 2012). 3 A. C. Edmondson, “The Competitive Imperative of Learning,” Harvard Business Review 86, no. 7, 8 (2008). 4 M. Ruef, H. E. Aldrich, and N. M. Carter, “The Structure of Founding Teams: Homophily, Strong Ties, and Isolation among Us Entrepreneur,” American Sociological Review 68, no. 2 (Apr 2003); P. H. Kim and K. C. Longest, “You Can’t Leave Your Work Behind: Employment Experience and Founding Collaborations,” Journal of Business Venturing 29, no. 6 (Nov 2014). 5 M. S. Malone, The Intel Trinity: How Robert Noyce, Gordon Moore, and Andy Grove Built the World’s Most Important Company (New York: Harper Business, 2014).

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Part IV OPTIMIZING PERFORMANCE

7 OPTIMIZING LEADERSHIP TEAM PERFORMANCE OVER TIME

Selecting the right members of the leadership team and building these individuals into a well-functioning team are the foundation for a strong performing leadership team. To realize this potential, CEOs and executives need to systematically develop their teams over time and adjust them to changing circumstances in the firm and the environment. For this they need empathy, and a firm hand to leave no room for personal preferences and friendships. Take Hubert Joly at Best Buy.1 Joly, a Frenchman who had followed a varied career that covered consulting (McKinsey), IT (EDS, France), gaming and entertainment (Vivendi), and travel (Carlson), was appointed in 2012 to lead the well-known US electronics retailer Best Buy as an industry outsider, when the company was seen by many as heading to oblivion in the face of overpowering online competition. Given his lack of electronics retail experience, Joly moved fast to select and build a top management team that complemented his skills and could help him to stage a turnaround that would make Best Buy relevant again. However, selecting and building this team was only the beginning of a

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journey that took several years, as these processes are complex and a number of variables need to be considered. Over the following seven years, Joly was forced to rethink the process of establishing and adapting performance goals, metrics, and incentives, as Best Buy moved from a turnaround toward renewed growth. Because the retail environment and Best Buy changed so much over the course of his tenure, Joly had to constantly reflect if the leadership team was up to the task and how he could keep the team relevant by developing the individual members and the team, or by changing members of the team. Sometimes this required changes in how the team worked together. For instance, Joly initially played a strong part in decision-making, to push a quick-change agenda. However, as Best Buy moved from a turnaround situation into the phase of new growth, he decided to adjust his leadership approach and give the whole team more space in the decision-making. As the only thing which doesn’t change is the need for change, he was also faced with the need to replace leadership team members. And the question of how to do so without disrupting the overall team. Eventually, as Joly’s tenure progressed, he started think about grooming a successor for his own position. What Joly experienced at Best Buy will sound familiar to any experienced CEO or executive. Over time, optimizing the performance of the management team implies keeping the team aligned and focused on the key priorities, adjusting to change, and eventually preparing for succession. In this chapter, we discuss what considerations should be made and how to potentially execute the necessary changes.

Keeping the leadership team aligned One of the central challenges of CEOs and executives is to keep their leadership team aligned on a set of priorities.2 Constant change and a neverending flow of new issues, challenges, and opportunities often lead to a disconnect of priorities across members of the leadership team and, over time, a divided team. CEOs and executives therefore need to work with the leadership team to maintain a common understanding of the industry challenges they face, and the direction the organization has to take relative to these challenges. Only against such a common understanding can the leadership team identify gaps and misalignments that need to be resolved.

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Bringing out these misalignments is important because, when unresolved, they lead to disconnected decisions and could freeze the organization in the status quo, rather than allowing it to implement its strategy and respond effectively to challenges in the environment.

Performance management Performance management is a necessary tool at any level of the corporate ladder, including leadership team level. In some companies, performance management is the central mechanism to align leaders and other employees with corporate goals. For instance, the Chinese Telecommunications company, Huawei, has become famous for its aggressive performance management approach that specifies detailed goals and measures, and gives lavish rewards to those that achieve strong results aligned with these goals but also cuts rewards for those that underperform, and rapidly removes underperforming leaders.3 Performance management starts from identifying clear goals and performance expectations, supported by incentives that are aligned with these goals. Traditionally, performance management has often emphasized financial goals with associated incentives to drive the desired behaviors but, in his book The Heart of Business, Joly argues that this approach works less well than expected. In sophisticated and creative tasks, financial incentives are often counterproductive and may reduce performance rather than increase it. That certainly holds true for leadership team members from younger generations, for whom the meaning of the goals is often as important as the financial rewards. As a result, tasks and goals need to be intrinsically motivating and financial incentives should mostly play the role of communicating what good performance looks like, and sharing the outcomes of it, rather than aiming to drive behaviors that might be de-motivating for the leadership team members.4 This point was further highlighted by Greg Poux-Guillaume, former CEO of Sulzer and current CEO of AkzoNobel: I don’t rely on high powered incentives to get people to collaborate, because I try to systematically hire people that collaborate well to begin with. I believe in accelerating things through incentives, not forcing them.

Whether accompanied by financially powered incentives or not, the setting of performance expectations plays a central role in performance management. Performance expectations should be based on clearly measurable

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metrics and should force leadership team members to stretch toward demanding goals but, at the same time, be realistic and achievable. Dieter Zümpel, CEO of the travel provider DER Touristik Suisse, highlighted this balance: the performance bar must be hung high enough, that with the greatest effort it can be overcome. If the bar is too low, I am not motivated to try hard. If it is too high, I may not even try. For instance, if I have previously managed to jump 1.70 m and someone puts the bar at 1.20, where is the challenge? If it is put at 2.50, I probably will not even try to clear it. But if it is set at 1.80 or 1.90, I will try to stretch to reach that level. I may have to train, improve my skills but it is something that is realistic.

Goals, performance expectations, and incentives have a meaning only when they come with consistent and well-weighted follow-up. For effective performance management, CEOs and executives need to measure the performance of the leadership team members individually and also as a team and draw consequences accordingly. Central to creating consistent high performance is the perceived fairness of the rewards or negative consequences. Magdi Batato, Executive Vice President and head of operations at Nestlé, explained: As a leader I need to be fair. If I see good performance, I need to reward it. But if there is poor performance, there should also be an outcome. Sometimes leaders confuse leadership with cheer leading. cheer leading is about cheering everybody, thanking everybody, applauding everybody. If a person who performs well sees that they are treated exactly the same way as someone who has not performed, it’s tremendously demotivating. this is about creating a culture of high performance. to do that you need differentiation.

In evaluating performance, CEOs and executives need to also consider the degree to which they evaluate the objective outcomes and to which extent they evaluate the behaviors that led to the outcome. While a leader may be tempted to focus mostly on outcomes, such as sales numbers or profit figures, in order to drive the different leadership approaches we discussed in earlier chapters, they need to engage in some degree of behavioral control and monitor and shape the behavior of the leadership team members.

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CEOs  and executives need to ensure that the leadership team members engage in behaviors that are aligned with the leadership team approach through role modeling, rewarding desired behaviors and, in the case of unwanted behaviors, coaching and interventions. For instance, leaders may need to interfere in a Team of Stars when leadership team members achieve financial performance through political behaviors or, in the case of a Synergistic Team, through uncollaborative behavior. While praising a subordinate tends to be easy, it is much more challenging to deal with underperformance. Leadership team members may underperform for a variety of different reasons. Some may no longer be motivated by their task. Others may simply lack the capabilities to lead the organization they are put in charge of, which could happen, for example, when leaders are promoted based on their technical or functional skills. In the words of Jan Jenisch, CEO of Holcim: You find a lot of people who are smart and knowledgeable, but they are not leaders. they do not want to take the responsibility. You put them in a senior leadership position and they will get burn out because they cannot carry the responsibility alone.

Finally, some leaders may face personal issues such as illness, divorce, or concerns with children that may make it difficult, at least temporarily, for them to carry out their responsibilities. Given the differences of the causes that might lead to underperformance, CEOs and executives need to develop an approach that addresses the needs of the organization, while keeping the individual in mind. Laurent Freixe, Executive Vice President and CEO of Latin America for Nestlé, explained: When you have an underperforming leadership team member you may be inclined to simply remove the person. But if you hire and fire in the leadership team, you do not create the sense of a team and psychological safety because everyone thinks they can be fired tomorrow. However, if you tolerate underperformance too long you create a sense that average performance is acceptable and people stop working hard. It is about balance. You also need to see the people behind the role. You need to have this capacity to see if underperformance is temporary, due to personal circumstances.

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Keeping the leadership team relevant In cases when performance management works well and is naturally inbuilt into the organization, CEOs and executives may in time face the need to have to keep the leadership team relevant, in a way that may mean disrupting the existing concept of performance management or the metrics used up to that point. In particular, when a leadership team jumps from success to success, the risk that it becomes complacent increases. Success often leads to the replication of what worked in the past and may reduce the focus on what the organization will need in the future. Success also tends to instill in leadership team members strong beliefs in their capabilities, independent of whether the success was due to luck or well-executed actions. As a result, a leadership team that experiences success together for an extended period of time may end up turning into a group that follows old recipes for success, experiments too little, dismisses everything which is really diverse and future oriented, and believes it is invincible.5 Freixe described this dynamic: there is a big risk that after several years in the role people stop reinventing themselves. After many years, you have seen it all and maybe you switch to cruise control and stop questioning yourself, and stop listening to your team. the second problem is that after a certain period of time, people tend to confuse their role and their personal agenda, and forget that they are part of a group – they see the company as theirs. So, you need to either change people’s roles or create the conditions for them to reinvent themselves. For the senior leaders, it is more difficult to change roles, but you can still always find a new angle, or a new project, or an additional responsibility. You can create the conditions for them to be able to refresh and reinvent themselves, if they have not done so already.

To stay relevant, leaders therefore need to engage in a variety of practices that counter these tendencies: • • • • • •

Develop individuals and the team. Regularly reorganize the leadership team. Rotate members of the leadership team. Institute tenure limits. Maintain tension through diversity. Set and maintain the right tone in the team.

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Develop individuals and the team To stay relevant over time, CEOs and executives should emphasize the development of new skills among the members of the leadership team. By creating personal development plans and providing leaders with coaching and training opportunities, the individual members of the team can continue to develop the skills that will reduce the risk of them becoming obsolete – or a burden – to the organization. Similarly, leadership teams as a group should engage in development activities that allow the team to integrate topics such as digital technology, ESG, and corporate social responsibility or corporate purpose into the group’s work. Some of these topics are still considered irrelevant by some leaders, but our research shows that it is not only necessary to truly embed them in every individual corporate area, but it is also necessary to create joint programs to develop them in an integrated manner. In relation to performance management, the development goals for the top team should be tracked and rewarded through incentive systems. By rewarding experimentation, renewal, and real merit, rather than risk avoidance, replication of past successes, and promotion based on old-fashioned processes and ways, CEOs and executives can motivate the leadership team members further to keep developing, step out of their comfort zone, and stay relevant for longer. Regularly reorganize the structure of the management team To counter the tendency of individuals and groups to settle on the status quo, regular changes of organizational structure can bring new topics to the forefront and create pressure for individual leadership team members to pursue their professional growth, and develop new skills and capabilities outside their comfort zone or area of responsibilities, which also increases their personal market value should they decide, or are forced, to pursue new opportunities outside the organization. Rotate members of the management team Even if the organization is not being restructured, an overall corporate advancement can often be achieved by rotating leadership team members. Rotation in the leadership team puts the individual team member on a

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new learning curve and thereby forces them to build new capabilities and experiment. In addition, it will also make the various leaders more aware of the challenges in different areas and may give them an opportunity to look at their new area with a more neutral and valuable approach. That is what happened in the case of the recent rotation at ABB, the Swedish-Swiss technology giant, where Morten Wierod and Tarak Mehta, both members of the executive committee and heads of two of ABBs business areas, swapped responsibilities. A similar practice was common in Nokia in the early 2000s, when the company was highly successful: leaders were rotated across businesses and functions. Institute tenure limits Tenure limits in the leadership team create a natural change that can break the tendency of leadership teams to ossify. Stefan Nöken, former Member of the Executive Board at Hilti Corporation, a global manufacturer of tools, fastening systems and software for the construction industry located in Lichtenstein, described this practice as follows: We have a simple rule for the executive board team: we have three-year contracts up to a maximum of 15 years. there are two good reasons for this. First, it is good for the company to have a change after a certain period of time. no matter how much you try to develop and be on top of things there comes the point where a fresh perspective is healthy for the company. And the second reason is that the work of executives is a very demanding job which involves many scarifies. It is a physically and mentally strenuous job. It is in the interest of the executive to start a new professional chapter after 15 years and find a new balance in life.

In addition to these benefits, tenure limits signal to the talent below the leadership team that positions will open up and make it more likely to retain the best. Guarantee diversity in the team Highly diverse leadership teams are more likely to be able to deal with very different challenges and identify diverse opportunities. By creating diversity along multiple dimensions like gender, educational background,

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upbringing, and corporate and non-corporate experiences, leaders can maintain a creative tension in the leadership team, thereby reducing the risk of it falling into the comfort and complacency zone. Set the tone in the team Finally, CEOs and executives need to set a general tone in the leadership team that emphasizes constant renewal. The late Andy Grove, former CEO of Intel, was famous for his quote: “Only the paranoids survive.”6 While leading Intel from success to success, Grove emphasized that the company could lose its top position at any point due to changes in its industry. Therefore, it was essential for the leadership team to constantly be on the lookout for any change in the environment that may threaten it, and to work on building capabilities that would enable them and the organization to adjust to changes that might arise unexpectedly. By learning this lesson, to be always prepared for the unexpected, CEOs and executives can create a leadership team culture that focuses on identifying discontinuities early on, and prepares the company through proactive renewal.

Strategic change A situation that creates particular pressure on the leadership team is discontinuous change in the industry or in the company itself. In recent years, many industries have been disrupted by technological change, which requires new capabilities and often forces established players to make radical departures from their business model. Take, for instance, the automotive industry. In the past, car companies were experts at developing highly sophisticated combustion engines, integrating a mostly mechanical system, and selling people the dream of owning a high-quality piece of mechanical engineering. Today, with the electrification of cars, they can be viewed first and foremost as a platform for software and software-based services, and the user interface or ease of software updates is becoming more important than the engine. Where mechanical engineering was the key capability of car companies in the past, today it is electronics, software development, and battery chemistry that distinguish different car manufacturers. Also, while in the past the business model of the automotive industry could rely on the very idea that individuals may want to own a car, this is no longer a

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given, with car sharing business models and, in the future, fleets of autonomous vehicles at users’ disposal, which could be owned by service providers rather than individuals. For automotive manufacturers, these changes have led to the emergence of successful new competitors such as US-based Tesla or Chinese Nio and BYD in electrical vehicles or Turo, Getaround, and Zipcar in car sharing and, for existing industry competitors, have created an urgent need to change their competence base and way of doing business, stretching companies such as Volkswagen and General Motors to their limit as they attempt to adapt. Companies have also been faced with ever-increasing expectations regarding their role in society. Stakeholders and increasingly also shareholders expect that companies make a positive impact on the big challenges this planet faces, such as climate change or redistribution of wealth, and overall move to a more equal way of operating and performing. To add more variables to the already high new complexity of doing business, recent events like the COVID-19 pandemic and the war in Ukraine have forced companies to fundamentally rethink where and how they operate and how they can build resilience to changes. What these discontinuous and often surprising changes imply is that the leadership team may need to be more resilient than ever, capable of juggling very different situations and, to that purpose, be always on the lookout for what new capabilities may be needed. In some extreme instances, it may have to fundamentally rethink its modus operandi. To adjust to discontinuous changes and to future-proof the leadership team, a thorough understanding of the nature of change and its implication for the leadership team are required. While there is a variety of different frameworks that can help leaders to think through change and its implications for the company,7 from the perspective of developing the leadership team, one distinction is particularly important. Do they change the capability architecture, or do they change the business model of the organization?8 Changes that retain the capability architecture and business model Some changes in the environment or the firm’s strategy require a strengthening of existing skills and capabilities in the leadership team. To deal with this type of change, a leader can rely on developing an incumbent leadership

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team member, providing that the incumbent has the willingness and ability to adapt. For instance, while mergers and acquisitions (M&A) have always been a topic central to the CFO role, a strategy change that puts M&A at the center of the strategy may require that CFOs develop deeper M&A skills to provide optimal decision support. It is, however, not always easy or possible to fill the gap to the required skill and capability level with existing team members, especially when time is of the essence, or the changed role profile is too big. In that case, a replacement and possibly an external hire could become the best course of action. Other changes simply add new capabilities without affecting the interplay of existing capabilities or the business model of the company. Take, for instance, the Chinese computer manufacturer Lenovo.9 Following the acquisition of IBM’s hardware business, the company had established itself as one of the global leaders in computer manufacturing. However, as the IT industry gradually changed, more and more companies required broader solutions in addition to hardware. In response, around 2015, Lenovo made the decision to build solution capabilities. To do so, it extended the leadership team and created two solution-focused business units. This shows that dealing with such change can often be accomplished by adding new roles to the leadership team that provide sufficient focus on the new business units. This is quite common when an organization decides to drive new business streams for which there are no capabilities in the organization itself.10 For instance, in recent years, a large number of companies have created chief procurement officers or chief innovation officer roles in the leadership team to address the need to drive these increasingly important elements of the corporate agenda.11 Adding new roles to the leadership team is also relevant when an organization wants to expand into a new domain or new business area, or into a new region. Changes that modif y the capability architecture and require new business models A second group of changes require a more fundamental consideration of the leadership team. Changes, such as the electrification in the automotive industry, or digitalization, require more than just the addition of individual capabilities because the way different capabilities interact also changes, and a different business model may be required. Such changes may not only

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redefine existing roles and create the need for new roles but also alter how different roles need to play together. When an organization is faced with fundamental changes in the environment, such as digitalization or corporate social responsibility, changing role definitions and adding a chief digital officer or a chief sustainability officer to the leadership team is no longer sufficient and a fundamental reevaluation of the whole team and the approach to the leadership team will be required. Take, for instance, the current trend toward purpose-driven organizations and corporate social responsibility, which has put many leaders into a position of having to fundamentally rethink their business and organization. Francesco Starace, CEO of Enel, explained: Industry evolution must go hand in hand with management transformation. If the management keeps thinking in terms of what was good a long time ago when they were building their career, rather than in sync with what society really wants, it can become a problem because they might make the wrong decisions: a real industrial change can only be achieved if accompanied by a mindset transformation.

While such a mindset change can happen with an existing leadership team, more often it requires a rethinking of what is needed from the leadership team in the future, who should be on the team, and how can a new team respond to the challenges ahead. Organizational changes While many changes are triggered as a response to innovation or changes in the environment, strategic change can also be internally driven. As organizations grow and mature over time, they gradually outgrow their existing structures and capabilities and to take the next step of the organization’s evolution, they may require a fundamental transformation12 of the organization, starting with the leadership team. For example, a company that has been successful as a local manufacturer and aims to compete at some point as a global player may need to fundamentally transform. To be more specific, to lead such a transformation often requires changes in both the composition of the leadership team and the approach to the leadership team, not dissimilar to the response required by changes in the environment, which modify the capability architecture and require new business models.

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When Mary Barra became CEO of General Motors (GM), she found an organization that not only had fallen behind competition but was also largely unresponsive to the market. To initiate an organizational change that would make GM again relevant required transforming the entire leadership team approach, starting with the team’s composition, culture and norms, and way of operating, converting the team from a group of disconnected individuals into an integrated group empowered to deliver on GM’s goals.

IDENTIFYING CHANGES THAT CAN PUT YOU OUT OF BUSINESS Leaders need to look out for changes in the environment. However, not all changes are created equal. Leaders need to identify changes that have the potential to redefine the rules of the game in their industry and that may force the organization to fundamentally transform. the questions below might help guide an evaluation of changes: Does the change require us to replace core technologies? Does the change put technologies to the core that we are unfamiliar with? Does the change affect what product or service characteristics matter? Does the change affect how our product technologies work together? Does the change start from new or peripheral customers? Does the change affect who our customers are, what the value proposition is, and how that value is created for customers? the more answers in the affirmative, the more likely you will be able to deal with an industry-changing event that requires you to respond with radical transformation.

Changing team members An undeniably delicate topic is the unavoidable need to optimize the leadership team composition over time, to keep the leadership team relevant, or to respond to strategic changes. While replacing leadership team members that CEOs or executives have selected themselves is a highly unpleasant

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process, it is part of the normal evaluation of the leadership team as Jacques Amey, former partner of executive search firm Heidrick & Struggles, highlighted: You build the team around your needs in the short, medium, and long term. It’s an evolving process. there are always changes in the business, the environment, the ambition, so you shouldn’t have 12 months of nothing happening in the leadership team. Leaders need to realize that they cannot live with the same team forever. It has to evolve. And they need to buy into the concept of a team that evolves over time and will enrich itself with new capabilities, with new ingredients along the journey. At some point, you need more fresh blood. On some occasions, you need more stability, depending on the situation.

Respectful dismissal Given that leadership team change is normal, it is important that CEOs and executive team members handle this change as a normal part of the business rather than as an exceptional or traumatic event. In fact, as we discussed earlier, some companies limit the maximal tenure of leadership team members to signal this fact from the outset. As organizations and markets change, dismissals are the springboard for a leadership renewal. It is hard to imagine that anyone would enjoy dismissing people, especially after many years of working together. However, being able to let people go is a required competence of leaders and they differ substantially in how they handle these events and in their degree of compassion. Some leaders try to relate to the shock and disappointment of the dismissed employee and do what is possible to minimize it by explaining the reasons for the dismissal, by not making it personal, and by showing emotional support. Other leaders act more indifferently, not taking the time to explain the reasons for dismissal, and maybe provoking an angry response. This indifferent approach, however, tends to destroy the relationship between the two parties, with the employee leaving on bad terms, potentially tainting the brand of the organization. Greg Poux-Guillaume, former CEO Sulzer and current CEO of AkzoNobel, explained: If you are no longer the right person for the job, it does not mean that you are not a good person, it does not mean that you are not a good leader,

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it does not mean that we are disregarding all the good things you have done over the last years. And it does not mean that you can’t be successful elsewhere. When tough people changes have to be made, being fast and generous – both in your feedback and on exit conditions – is a good policy

In a similar vein, Christophe Catoir, President of the Adecco business in the Adecco Group, told us: Even if you have to change a leader in the team, you need to respect the person and what they have achieved for the organization. If you need to let people go, you need do that in a respectful way.

In our view, one central consideration of respectful dismissal is that leaders should, as much as possible, separate the role performance from the personal relationship. All too often, dismissals are the result of difficult personal relationships between the CEO or executive and the leadership team member and, by the same token, leaders can be reluctant to dismiss a team member with whom they have a strong personal relationship. Rainer Hundsdörfer, former CEO of Heidelberger Druckmaschinen explained: I know very few managers who really manage to make objective personnel decisions without emotion – because that’s what you have to do. I fired a personal friend once. He was angry with me for two years. Only afterwards, when he had found a job that suited him better, we got along again, and he said, “You actually did the right thing. I just didn’t understand it at the time.”

Central to a respectful dismissal is the understanding that how a CEO or executive dismisses leadership team members sends a strong signal regarding their personal style. Leaders that show respect and compassion in dismissal are more likely to create loyalty in their leadership team and throughout the organization. Greg Poux-Guillaume, former CEO of Sulzer and CEO of AkzoNobel, explained to us: When we have to let someone go my principle is to do it quickly and do it generously. And we never speak ill of people once they have left, unless they have done something particularly egregious. there is actually a quite large number of people that we exited that I recommended for their next job.

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Leaders should support dismissed team members in their transition into a new role, offering coaching, support, or referrals, as this example suggests. Elephant graveyards While change of leadership team members should be a normal process, in some organizations, senior leaders are not dismissed but rather moved to positions of less influence within the organization. The CEO of a European industrial company who preferred to remain anonymous explained: We try to be very careful with senior people in the technical ranks because we need a lot of technical know-how. I am keen on trying to keep these people in the organization and find them jobs so we don’t lose that knowledge. And in three out of four cases we have been successful. How we manage these people that are good, loyal, dedicated employees but just cannot do the next job sends a very strong message to the organization in terms of how we care about people.

While in some instances it is certainly sensible practice to retain valuable knowledge in the organization, this has led to a phenomenon in Germany in particular that some of our interviewees referred to as an “elephant graveyard.” For instance, one interviewee that preferred to remain anonymous told us: When we have a change in the leadership team, we definitely look for a position to keep a deserving, older colleague in house three, four, five years until retirement. We feel we have a responsibility towards them.

The creation of such positions is, however, often highly problematic for the organization as Erwin Mayr, CEO of the Wieland Group, explained: I find this elephant graveyard idea highly problematic. You are carrying a ballast with you and poison the atmosphere. It is not so much the financial aspect but the cultural. Because everyone sees that the person does not perform. And the most demotivating thing for people is to have a boss that does not perform.

It must also be considered that the rest of the organization tends to know when an obsolete or underperforming leader is kept on, and that alone

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tends to undermine the trust in the leadership team and their decisions, which may be seen as not based on merit. Dealing with toxic individuals Despite the best efforts of the leader in selecting a strong team, leadership teams often end up with one or more individuals that turn out to be toxic for the whole team. Because their personality or style does not fit the leadership team approach, because they may not buy into the strategy, operational model, or the top leadership team’s purpose, or simply because they do not want to adhere to the behavioral norms of the team, such individuals fail to commit to the team. Initially, a leader may seek to convince such team members to adjust their views and behaviors, by confronting the team member and providing guidance and coaching. However, if a team member is unwilling or unable to change their behavior, often the only choice is to remove them from the team. The bottom line is that a single individual in the team can poison the atmosphere of the whole team.13 Jonathan Lewis, CEO of Capita, explained: When an individual in the top leadership team is not living by your purpose and your values you have to grasp the nettle and you have to do it quickly. that means you coach that individual. You may give them a mentor. You give them a period of time to address the unconstructive behaviors or the actions that are not aligned with purpose and values, and hopefully they reform, but if they don’t, you exit them. You can’t brush it under the carpet because in your colleagues’ eyes you are eroding your commitment to purpose, values, and performance. You are showing tolerance for something that you’ve articulated you would not be willing to accept.

HOW TO IDENTIFY TOXIC MEMBERS OF THE TOP LEADERSHIP TEAM Signs that a top management team member is toxic for the overall team include:14 Frequently complains about colleagues and criticizes others in public. Brings out the worst in other members.

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Attacks people rather than focusing on the facts or challenges in the process. Talks in the hall but not in the room. Constantly disagrees with everyone and everything. Acts differently from what they say in public. Adopts a victim mentality when challenged. Claims to understand the problem but does not change. the more of these signs a leadership team member exhibits, the sooner a cEO or executive needs to consider removing the individual from the team. removal needs to be rapid because toxic individuals can poison the whole team and undermine performance.

Succession planning and talent management The final element of optimizing the leadership team over time is succession planning both for the leadership team members in the team but also for the CEO or executive leading the team. In fact, one of the ultimate tests for leaders’ and their teams’ effectiveness is how well their successors do.15 To be able to renew the team, deal with leadership team members leaving the organization unexpectedly, and adapt to changes in the environment, CEOs and executives need to develop a strong talent pool, provide systematic talent management, and in general invest in high potentials in the organization. For instance, Herman Anbeek, President of Europe, Americas and Middle East for gategroup, explained to us: When I have a functioning leadership team, I very quickly need to start looking at succession within tiers two and three of the organization. I need to invest in those people to build up a succession pipeline so that if I need to change current leadership team members, I have strong candidates ready, and I mitigate the risks of making a change.

Talent management should begin from a deep analysis of the likely development paths of the corporation and the capabilities that are needed to pursue those paths. That is what we call future-proofing the organization. Take, for instance, the global consumer electronics, computer, software, and online services giant, Apple. At the time of writing this book, CEO

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Tim Cook, age 62, is in his 11th year at the top and has been surrounded by a leadership team consisting of long-term Apple veterans in a similar age bracket to him. Given this setup, Cook and his team have increasingly intensified considerations of who the next generation of leaders would be that could fill the different leadership positions at Apple, and how these leaders would need to further develop to step into the shoes of the current incumbents.16 The succession plans for the leadership team members – and also for the CEO or executive currently leading the team – need to define the capabilities that are likely to be needed in the future and develop multiple career paths that allow candidates to develop these capabilities. Central in this respect is a strong future orientation. The capabilities that got today’s leaders to the leadership position are not necessarily the capabilities that the next generation of leaders will need. Take, for instance, a company that wants to move from being a local player toward being a global company. While leaders that built the local company may have developed mostly functional and commercial capabilities, the next generation of leaders is likely to require international experience and cross-cultural management capabilities. Identifying these capabilities is a complex task that in the best companies happens in the interplay of the CEO or executive, the leadership team, and a strong people function. Identifying the required capabilities of the next generation of leaders is only the first step. To develop a pool of credible leadership team candidates inside the organization, a long-term systematic development of candidates is needed, which can take years or even decades. High-potential future leaders need to be identified early and then systematically developed by changing assignments that provide them with the necessary experience and allow them to develop strong capabilities, combined with training, coaching, and mentoring, while monitoring their performance as they progress. Also, when candidates reach the leadership team, development should continue to prepare one or ideally multiple potential successors for the current CEO or executive leading the company, business, or other unit. As candidates rise through the ranks, only some will reach the leadership team level, a handful succeed the current leaders, and only one can reach the position of CEO. Others may be disappointed and departures will be unavoidable, as some may find more attractive opportunities outside the company. While many leaders see such departures as a failure of talent

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management, it should rather be viewed as a proof of the quality of talent management and confirmation that the company successfully developed multiple top-notch candidates, even though these candidates went on to take their next steps in a different organization. Successful CEOs, like David Calhoun at Boeing, Thierry Delaporte at Wipro, Jonathan Lewis at Capita, or Benedetto Vigna at Ferrari, were the result of good talent management at other companies, before they moved on to the organizations they lead today. Talent management is often focused on internal talents. However, it is important to recognize that even the best talent management process will never be able to provide candidates for all situations. Often it may be necessary to hire from outside the organization, when the required capabilities are not available inhouse. In some cases, external candidates are not just a fall back, but the result of an intentional search for fresh ideas and perspectives to enrich the leadership team. At the same time, hiring from outside tends to be more challenging, given that less information about the candidates is available and the hiring process is often time-constrained, making it difficult to get to know the candidates well enough. While the concept per se is complex, a more holistic approach could also include regular benchmarking of the market, or even the exploration of potential candidates to develop an external pool of leadership team candidates. For example, here’s Dave Fredrickson, Executive Vice President leading the oncology business of AstraZeneca: Hiring from outside is more difficult because you have fewer data points. One way that we’ve started to address that is what we call proactive talent pipelining, which is an ongoing process. I set out with my Hr lead two years ago on an initiative to talk to at least one person a month who we think might be, based upon their credentials, a good fit for AstraZeneca someday. I spend a couple hours a month talking to people who are not looking for jobs in AstraZeneca, and for whom I don’t currently have a role, but it’s about getting to know one another. Some of those turn into mentoring relationships. Some are impressive enough that I create a job for them. But most importantly it creates a bench of external talent – people that we have got to know.

Such an approach can extend the breadth of the talent pool to a set of candidates inside and outside the organization that are well vetted. While such

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systematic talent identification and development processes can go a long way toward producing a strong bench of leadership talent, it is important to recognize the limits of any succession planning and talent management approach. A pipeline of strong succession candidates will always also create pressure and a potential tension for the current leader and may divert attention from the challenges at hand. Strong rising talents put pressure on and sometimes even create conflict with existing CEOs and executives and it is not so rare for leaders to prefer to hire less capable talents that do not pose a threat, and then not invest in their development. We have often witnessed CEOs, executives, and middle managers sidelining the strongest candidate whom they perceived to be a threat, or who was in practice more capable or more visionary and therefore a risk to the existing leader. A key to true succession management is to guarantee that the leaders themselves are capable, competent, and have good intentions. With that starting point, successful succession management is possible through a systematic commitment from the top down to promote merit, rather than pick the candidates that are not going to disrupt anyone’s comfort zone.

Notes

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6 A. S. Grove, Only the Paranoid Survive: How to Identify and Exploit the Crisis Points That Challenge Every Business (New York: Currency Doubleday, 1996). 7 M. L. Tushman, W. H. Newman, and E. Romanelli, “Convergence and Upheaval - Managing the Unsteady Pace of Organizational Evolution,” California Management Review 29, no. 1 (Fal 1986); D. A. Nadler and M. L. Tushman, Leadership for Organizational-Change, ed. A. M. Mohrman et al., Large-Scale Organizational Change, (1989); P. Anderson and M. L. Tushman, “Managing through Cycles of Technolgical Change,” Research Technology Management 34, no. 3 (1991); C. M. Christensen, Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (Boston, MA: Harvard Business School Press, 1997); J. Gans, The Disruption Dilemma (Cambridge, MA: MIT Press, 2017). 8 R. M. Henderson and K. B. Clark, “Architectural Innovation: The Reconfiguration of Existing Product Technologies and the Failure of Established Firms,” Administrative Science Quarterly 35, no. 1 (1990).

11 S. Firk et  al., “Chief Digital Officers: An Analysis of the Presence of a Centralized Digital Transformation Role,” Journal of Management Studies 58, no. 7 (Nov 2021); Fu, Tang, and Chen, “Chief Sustainability Officers

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and Corporate Social (Ir)Responsibility,” Strategic Management Journal 41, no. 4 (Apr 2020).

15 Mackey and Sisodia, Conscious Capitalism: Liberating the Heroic Spirit of Business (Boston, MA: Harvard Business Review Press, 2014).

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8 OPTIMIZING PERFORMANCE FOR DIFFERENT LEADERSHIP TEAM APPROACHES AND IN DIFFERENT SITUATIONS

While the topics related to the optimization of the performance of the leadership team discussed in the previous chapter are relevant for all firms and their leaders, important differences exist in their urgency and how leaders address them depending upon the leadership team approach, the situation the company or unit finds itself in, and the leader’s mandate. Take, for instance, Bracken Darrell, CEO at Swiss-American manufacturer of computer peripherals and software, Logitech. Following a long period of growth, Logitech’s business exploded recently, thanks to the huge global shift toward video conferencing, home-office, and remote work, which created unprecedented demand for their products. When Darrell began his tenure as CEO, he decided to give the Logitech leadership team members a high degree of independence, treating the different businesses almost as individual start-up companies. Following several acquisitions in 2018 and 2019 and the rapid growth during the pandemic, however, he foresaw a strategic change that would require a

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higher degree of coordination and centralization in his team. In a conversation, he explained: I am planning to centralize a few things. this will change the dynamic. When decisions need to be made centrally it will mean that you cannot weigh how it affects every individual business as heavily. You have to put the company ahead of each business. So you have to rethink the team. Will the entrepreneurs that ran these before be able to adapt?

Running the company like a start-up often forces transitions, including changes to the leadership team that CEOs and executives need to systematically prepare for, rather than simply finetuning the existing team and approach. Compare Darrell’s situation with that faced by Thomas P. Meier, CEO of Ricola. As already mentioned in Chapter 2, when he began his tenure, Meier wasn’t under any immediate pressure to make changes, which meant he could take a more gradual approach to optimizing the leadership team, developing team dynamics, and focusing on introducing a more consistent approach to performance management. In an interview, he elaborated: ricola has a very caring culture. traditionally we never fired anyone, we were all nice to each other and never stepped on each other’s toes or challenged each other. I tried to change this a bit so that we would be more performance oriented. I introduced more fact-based performance management. We agreed upon goals and then I brought in data, we looked at the data together and no-one was let off the hook. there has to be a certain rigor in looking at the data and asking questions. It is not about challenging people personally or attacking them but, if there is an issue, we need to understand what can be done about it and who can help. And then of course you need to follow up on it. come back the next week and ask how it has been followed up.

Given the initial leadership mandate to develop the company gradually, and given the risk of his synergistic leadership team degenerating into a petting zoo, Meier had to optimize this team and focus on performance management in a manner the company had not experienced before. In addition, he had to rethink how to install and maintain a healthy tension in the leadership team.

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Not so different was the situation faced by Zhang Ruimin, the CEO of the Haier Group, the Chinese home appliances and consumer electronics company.1 During Zhang’s tenure, Haier had grown from an obscure local manufacturer of refrigerators to be the world’s largest manufacturer of white goods, known not only for its products but also for its organizational and managerial innovations. When he was contemplating the future of Haier, Zhang was concerned with leadership succession and how to keep the leadership team relevant in a rapidly changing environment. While his own successors had been a long time in the planning and had already been announced – long-term company leaders Zhou Yunjie as Chairman and CEO, and Liang Haishan as President – this succession had the potential to raise concerns about the future direction of the company. To address this challenge, Zhang chose a leadership approach that distributed the company leadership more widely, rather than concentrating it in a few hands. These examples show that the challenges of optimizing the performance of the leadership team over time depend upon the leadership team approach chosen and the situation faced by the company or unit. Depending upon the leadership team approach, leaders will find different key challenges for optimizing performance. For instance, as we discussed in the first chapter, different leadership approaches carry different risks of deterioration. In a Team of Stars, the main risk to performance is the team deteriorating into a shark tank, whereas in a Synergistic Team, the main risk is deterioration into a petting zoo, while in a Stretch Team, the risk is mediocracy. Depending upon the risks at hand, leaders need to take different steps to optimize team performance and counter these challenges. For instance, collaborative leaders might need to maintain tension in the team by rotating roles, perhaps, or by changing team members regularly to avoid them becoming too comfortable with each other.2 Also, as the situation the organization finds itself in differs and changes over time, leaders may need to adjust their focus on optimizing the leadership team accordingly, to maintain its long-term effectiveness.3

Key challenges of optimizing the leadership team under different leadership team approaches The emphasis and critical challenges for optimizing the performance of the leadership team differ across the three approaches to the leadership team. The key implications of each leadership team approach are summarized in Table 8.1.

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Table 8.1 Implications of leadership team approach to optimizing the performance of the leadership team over time Leadership team approach

Implications

Team of Stars

Common practices Individual performance as key yardstick Individual incentives Provide soft measures to drive collaboration Aggressive change of underperformers Competitive races for succession Challenges Tendency to misalign Monitoring behavior to avoid deterioration into shark tank Avoiding entrenchment of former high performers Dealing with the need for increased collaboration Common practices Focus on joint incentives Company performance as the yardstick Focus on performance management Maintain healthy tension to avoid deterioration into a petting zoo Rotation and tenure limits help to ensure sufficient turnover without threatening the tight integration and trust in the team Talent development focus on team fit and company fit in addition to individual performance Challenges To break out of alignment during strategic change To keep tension in the group without deterioration in trust Replacing people in a tight-knit group Common practices Mixing individual and group performance metrics Balancing individual and group incentives Balancing of competition and collaboration over time Measure and reward behavior and outcomes Rotation of individuals Challenges To align individuals with competitive and collaborative preference Maintaining the balance between competition and collaboration when people are replaced Identifying leaders that thrive in both collaboration and competition

Synergistic Team

Stretch Team

Optimizing a Team of Stars The Team of Stars leadership approach rests on the individual performance and competition among the leadership team members. Optimizing the

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leadership team therefore starts from clearly assigning responsibilities with very limited overlap as Jan Jenisch, CEO of Holcim, explained: In our approach, you have to make sure that for every project, topic, every P&L, there is only one responsible person. If something goes wrong, if something goes right, you know who is responsible. this is very important. the worst situation you can have in a business is if you delegate responsibility to committees or teams. It is the worst solution because the decisions are always compromises and the speed is always slow.

Given the strong individual ambition and drive of the individual leadership team members, the Team of Stars approach often faces particular issues with member misalignment. Highly competitive and ambitious individuals may take advantage of the freedom to make their own decisions to pursue initiatives that align poorly with the direction agreed upon, or may start new initiatives they perceive as adding value, without aligning with the leadership team. CEOs and executives, therefore, need to put particular emphasis on regular alignment within the team. Leaders in this situation face the delicate balance of needing to intervene when initiatives risk misaligning with agreed-upon direction and goals, with leaving the individual team members enough freedom to drive their area of responsibility. Because of this focus on individual performance, target setting, performance measurement, and incentives often put more weight on the individual unit under the responsibility of the leadership team member than on corporate-wide performance, even with the most senior managers. Mohsen Sohi, CEO of Freudenberg, explained: We have basically ten very independent business groups. the members of management teams of each one of these business groups have exactly the same set of targets. that promotes teamwork. the top executives have 75 percent of their financial annual bonus and strategic bonus based on their unit, the other 25 percent comes from how we do as a group.

Although Teams of Stars achieve high performance mostly through competition, when leaders try to create collaboration among units, they often use soft mechanisms rather than common targets, measures, or incentives, relying on the belief that collaboration should, in the long run, pay off for

OPTIMIZING PERFORMANCE FOR DIFFERENT APPROACHES AND SITUATIONS

the individual leadership team member. For example, Sami Atiya, President of the robotics and discrete automation business area in ABB, told us: Of course we want collaboration. But I do not set common targets. People should collaborate when it makes business sense. One thing we do though is meet twice a year and set what we call benchmarks. We let one person present their best practices in for instance sales, procurement, or r&D. We then have a workshop around that, and then we swap around. We create transparency for everybody. And people know if you want to have the best pricing excellence, you go to the meetings.

In constructing performance management approaches for Teams of Stars, CEOs and executives often focus on outcomes that have the advantage of being more easily measurable, as Jan Jenisch, CEO of Holcim, highlighted: With incentives, the more complex you make them, the less they work. In my organization, everything is numerical because I have had bad experiences with soft incentives. For the long-term incentives we have targets: Earnings per share, return on invested capital (rOIc), and sustainability. For sustainability we split it into cO2, water, and waste recycling. the LtI is as big as the short-term incentives, which sets a clear direction. We may even increase the sustainability part if the shareholders agree.

However, focusing just on outcomes could lead to uncooperative behavior among highly competitive individuals, which could eventually turn a Team of Stars into a shark tank, or lead to a toxic environment. Star performers have the tendency to push the limits. Take, for instance, Uber founder Travis Kalanick. Kalanick successfully led Uber through tremendous growth. However, in doing so he encouraged employees to push the boundaries, for example, by attempting to drive competition out of business. In doing so, he created a toxic culture, constant legal battles with regulators, and lawsuits from competitors. Eventually, Kalanick was forced out by the board and his successor, Dara Khosrowshahi, had to fundamentally transform Uber’s culture, values, and ways of operating.4 CEOs and executives therefore need to carefully monitor behavior in Teams of Stars to ensure outcomes are not achieved through political behavior – at the cost of other internal units. In other words, leaders need to focus competition first and foremost on the outside world. Despite the difficulty in implementing

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such measures, CEOs and executives may consider enforcing cooperative behavior, in addition to measuring outcomes, or at least have a transparent conversation about political or uncooperative behavior. Given the strong emphasis on individual responsibility and individual performance in a Team of Stars, CEOs and executives may be able to identify and replace underperforming leadership team members more easily because lack of performance can be attributed to the individual leader, and considerations of keeping a tightly integrated team together are secondary. However, the power that an individual team member may wield over key stakeholder relationships, such as a customer relationship, is often considered, and may override the objective underperformance. As a result, CEOs and executives could be reluctant to remove a deeply entrenched leadership team member, even when they are underperforming. To address this situation, a leader could choose to gradually reduce the influence of the underperforming leader, perhaps by gradually reducing their areas of responsibility or by gradually shifting responsibility for key relationships either to other leaders or, to make the plan less obvious, to lower down in the organization. One of the key challenges for the Team of Stars approach becomes more visible when a strategic change is needed. As we discussed above, in a large number of industries, trends such as digitalization and sustainability have created an increasing need for collaboration across otherwise separate businesses in a company. The Team of Stars approach is not designed for collaboration and leaders may therefore find it often necessary to make adjustments. When the need for collaboration is limited, soft incentives may work, as we discussed above, provided the direct benefits for each participating leader are evident. When the need for collaboration is greater, however, some leaders could try to enforce collaboration through hard incentives. However, this runs counter to the inherent logic of the Team of Stars approach and rarely achieves true collaboration. In a Team of Stars approach, succession management often takes the form of a competitive race, with some leadership team members sparring off against each other in a fight to win the CEO or executive crown. Such succession processes need to be carefully steered, since they could strengthen the tendency of a Team of Stars to degenerate into a shark tank and lead to the unwanted departure of capable leadership team members that are passed over for promotion. For instance, at GE, after every leadership succession

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over the last 20 years, several members of the top leadership team left the organization after they’d not been picked for the top job. Rapid talent development could play an important role in the optimization of a Team of Stars because, given their ambition, rising stars may view any assignment as a step toward the next role and might not have the patience to wait, or might not stay with the organization in the long run unless they feel appreciated and rewarded and can see their career progress. To leverage stars for the good of the organization, CEOs and executives need to set goals that not only support the strategy of the organization but require leadership team members to stretch and allow them to grow and develop their abilities. Doing so means the company can make the most of their skills and create clear benefits for the firm while these stars are part of the team. Talent development management also needs to manage the departure of some of the contenders of leadership positions. Ideally, in a Team of Stars leadership team approach, talent development should be framed as a development process for the individual leader, so that even if leadership team members eventually move to another company, they continue to have a close relationship with the organization that may provide value beyond their tenure.5 Optimizing a Synergistic Team Optimizing team performance in a Synergistic Team requires a fundamentally different approach from a Team of Stars. Targets, performance measures, and incentives focus on the company, business, or unit, while individual incentives typically take a back seat. For example, Urs Riedener, former CEO and current board chair at the Swiss manufacturer of dairy products, Emmi told us: At the top team level we have at least 50 percent common objectives for the individual members and we are even thinking about having only team objectives and forgetting about individual objectives. If I want the leadership team to play as a team, I need to make the team more important than the individual areas of responsibility.

Leaders preferring a tightly integrated Synergistic Team tend to take a very different approach to performance management and specifically to dealing with the individual leadership team members, compared with a Team of

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Stars. For instance, Fabrizio Petrillo, CEO of the AXA Group’s Swiss subsidiary, highlighted to us how a tight Synergistic Team implies the creation of an atmosphere of trust, where people feel that the organization invests in them, where errors are accepted and do not result in dismissal. This implies a much smaller turnover in the management team, and people may be more eager to experiment together and succeed or fail together without blaming each other for the outcome, while also celebrating together in case of success. While this approach provides a high level of psychological safety that is important for Synergistic Teams, it comes with a cost that CEOs and executives need to be mindful of. First, given that pressure to perform might be perceived to be lower, leadership team members may stay in their comfort zone, and the overall team could be at risk of degenerating into a petting zoo where individual leaders do not challenge each other, overall performance suffers and, because no individual is accountable for the performance of a group, it is more difficult to assign consequences. Because there is a weaker link in this situation between underperformance and dismissal, turnover is often lower and younger people in the organization might feel that there are not sufficient opportunities to advance, so the leader needs to double their efforts to keep them motivated. One mechanism to address both challenges is to introduce regular rotation among roles. Petrillo explains: One thing we do to keep people developing is to rotate them through different roles. Myself, I was head of two divisions, property and casualty, and I was cFO before I became cEO. My current head of operations was previously head of marketing. this also happens on the levels below in the organization. It means that we develop broad capabilities and become generalists with t-shaped profiles.

Role rotation has its benefits, albeit different ones depending on the level of the role. Lower down in the organization, where opportunities for vertical career moves might seem limited, potential leaders can still develop through lateral career moves, which give them the opportunity to learn more, grow as more complete leaders, and a better chance of pursuing new roles outside of the organization, if they need to. For the leadership team, a rotation of roles creates new learning and development opportunities that may keep the team tension a little higher and counter the tendency for members to fall into comfortable routines.

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While role rotation reduces the risk of the leadership team stagnating and becoming irrelevant, a second mechanism that should be considered for a Synergistic Team approach is the creation of tenure limits for leadership team members. As we discussed in the previous section, tenure limits can make changing leadership team members routine and create a healthy turnover. Another consideration for Synergistic Teams is dealing with the challenges of environmental, strategic, or large-scale organizational change. And when the change implies high levels of uncertainty or very different requirements, tightly integrated Synergistic Teams in particular may find it difficult to challenge each other and the status quo and develop effective responses. In other words, Synergistic Teams could often find it difficult to break alignment in the face of environmental or strategic change. To pursue a strategic change, organizations managed by Synergistic Teams may need to engage in larger scale changes to the team, thereby breaking the tight integration of the team members. In this situation, CEOs and executives need to consider if they can or even want to recreate a similar Synergistic Team for the new situation or rather need to adapt the overall leadership team approach toward a less tightly integrated approach. To do this, however, requires the leader to restart the team engaging in the team building and development activities, so it doesn’t continue to operate in the ways of the leadership team approach they were used to. Take the example of the Wieland Group. Following a large acquisition that created a second hub for the group, CEO Erwin Mayr moved from a more tightly integrated leadership team approach toward a Stretch Team approach, which provided the leaders of the two hubs with more operational freedom. In general, replacing individual members of a Synergistic Team is often more difficult than in a Team of Stars approach because a Synergistic Team relies more on each member being a good fit and complementing other team members, and a new individual team member may find it difficult to gain the trust of the team or may, without realizing it, end up affecting the dynamic of the whole team. Finally, when it comes to succession planning and talent managing, a Synergistic Team has its own characteristics. When planning the succession of the leader or of individual leadership team members of a Synergistic Team, it is important to focus not only on individual skills, capabilities, and performance but also to carefully evaluate how well they fit with the team, fit with the culture, and fit with the company as a whole.

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Optimizing a Stretch Team As we argued when introducing the leadership team approaches, the Stretch Team approach is often the most difficult to implement, since it needs to combine or balance what are often countervailing forces and ideas. Similar to Teams of Stars, Stretch Teams often face challenges of misalignment. In a Stretch Team approach, misalignment often arises from the differences in preference for a collaborative versus a competitive focus. For instance, in the light of strategic change, leadership team members that are more attuned to competition may have a preference to initially work independently on developing responses, whereas leadership team members that are attuned to collaboration may prefer a coordinated response from the outset. CEOs and executives therefore need to set the tone as to how collaboration or competition is to be balanced in a specific situation. Performance management in a Stretch Team leadership approach balances individual and group performance and therefore often utilizes a mix of individual and group targets, metrics, and incentives. Given that Stretch Teams need to strike a delicate balance between competition and collaboration, a wider range of targets and metrics beyond financial outcomes are often utilized, despite the difficulties of measuring them reliably and objectively. John Hinshaw, Chief Operating Officer of HSBC, explained: It’s about half on team performance and the other half is on individual performance. team members have a scorecard with key objectives, some of which are project related, some people related, and some metrics related to their specific role. But there is another key aspect. We don’t just care about performance; we care about behaviors. Because even if you have somebody who’s delivering on all of their objectives, if their behaviors are not consistent with HSBc’s values, then that will affect their overall rating. One of the ways that we look at behaviors through a 360 degree review. this is an online survey where people rate someone against about a hundred different behaviors across four major categories. respondents will include a person’s boss or other constituents that are in a level above, their peers, their direct reports and even two levels down. We aggregate all the feedback into 15 ratings, which show us what their behavioral scores are. We also get comments, which we go through as part of year end discussions. I think the behaviors section is actually the most helpful part of the performance review.

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In Stretch Teams, the behavioral aspect of performance takes a much more important role in enabling desired outcomes and CEOs and executives, therefore, need to pay more attention to the examples they set, and must emphasize more day-to-day coaching. It is also important to reward behaviors that help to maintain the balance between collaboration and competition. For example, Christophe Catoir, President of the Adecco business within the Adecco Group, told us: You need to establish clarity around the objectives and a good understanding of who decides what; A healthy balance between collective and individual decision making is key to keep teams engaged and motivated, respecting people’s different ways of working around the How. I tend to call this “freedom within a frame” that allows my team to operate freely within agreed on boundaries. And I’m here to support if needed.

In the same vein, Dave Fredrickson, Executive Vice President leading the oncology business of AstraZeneca, suggested: One thing that takes a lot of work, effort, and energy for me as a c-suite leader, is to uphold the type of behavior I expect from the team. I am pretty quick to identify tensions in relationships between team members, and I call them out on it. For instance, last year I had a problem with two members of my team. I said to them that the way they were engaging with each other wasn’t working. And I gave them my proof points. And I said, ‘you guys are senior leaders and we have two choices, you can either have me, your boss come in and fix it. Or you can sort it out yourselves, which I think would be better given that you are senior leaders.’ they chose option B.

Given this delicate balance between individual relationships and collectively acceptable behaviors, replacing individuals in the Stretch Team approach is critical and difficult. Even more than in a Synergistic Team, leaders need to check carefully that any team changes do not destroy the team’s trust and behavioral dynamics. At the same time, since the balance between collaboration and competition in a changing environment is anyway dynamic, such changes are nevertheless needed to keep future-proofing the team. Fredrickson added: there is a difference between, ‘My strength is achievement and I’m not necessarily a natural collaborator,’ and ‘I have bad behavior around

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collaboration.’ I’m okay with the former. I’m not okay with the latter. When somebody doesn’t treat their colleagues with respect, when they’re a poor collaborator, when you can see that they are not creating an environment that is conducive to all of us succeeding together, those are the core red flags for when we’re going to need to make a change.

Given the need for frequent change and the difficulty of identifying leaders that can operate within a Stretch Team, clear succession planning and talent management are key activities for leaders preferring this approach. In addition to selecting people for their ambition and competitiveness, candidates also need to be exposed to assignments that require cooperation and instill a culture of achieving results cooperatively. This will help to identify and develop individuals that can thrive in an environment of both collaboration and competition and are willing to adjust their behavior to the needs of the organization at any given point in time, thereby facilitating the creation of a solid bench of Stretch Team talent.

Optimizing the leadership team performance under different situational constraints Different situations and mandates often call for different ways to optimize the team. We summarize the key implications of the situation and mandate in Table 8.2. Optimizing in a start-up situation In a start-up situation, leadership teams often consist of highly entrepreneurial members that have limited patience for approval or coordination. One of the central challenges, therefore, is to align these individuals behind a common goal and a coordinated path. As a result, CEOs and executives often need to spend substantive time working with the leadership team on alignment. This challenge is further exacerbated in a start-up situation, with goals and direction likely to change as organizations frequently undergo pivots in their approach.6 A start-up situation is characterized by a high degree of uncertainty, rapid change, and the need to experiment and learn, rather than implementing well-established solutions. Performance management is therefore

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Table 8.2 Implications of situational constraints to optimizing the performance of the leadership team over time Situation

Implications

Start-up

Common practices Measuring learning and experimentation Challenges Aligning highly entrepreneurial people Start-up teams often need to change over time – either people develop new skills or they need to be changed Start-up configurations go through multiple transformations and eventually mature – requires management team change Common practices Strong performance management is key Systematic succession planning for different situations Challenges Breaking alignment on an obsolete course of action Management team often long standing and may need to be refreshed over time Preparing for and spotting the need for strategic change Common practices Use of change indicators for performance measurement Succession planning for different situations Challenges Breaking and recreating alignment Transformation team may not be suitable for next phase Avoiding change for change’s sake with a transformation-focused leadership team Change specialist may not feel comfortable with next phase

Continuation and development

Transformation and restart

often more complex since targets, metrics, and incentives need to evolve rapidly with a changing organization. Performance management also needs to account for the failures that come inevitably with experimentation and needs to distinguish between well intended failures which happen under explorative behaviors and that provide learning opportunities, and failures that arise from a lack of effort, signal a lack of competence, or could have been avoided with some degree of care. Start-up organizations change dramatically over time as the business or organization matures, and that is the way they are intended to operate. Such developments often require organizational change and create different demands on the leadership. For instance, when starting a new business

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unit, leaders need to provide enough leeway to allow for entrepreneurial behavior yet, as the unit develops, more structures, processes, and coordinated decision-making become necessary. For the members of the leadership team, this means that different skills at different points are needed and often leaders that suit the initial phase well due to their unfettered entrepreneurial drive may find it more difficult to be effective once structures and processes need to be installed. Take, for instance, the US-based enterprise software provider Box, familiar to many from its Dropbox product. As Box grew from a start-up, its CEO, Aaron Levie, realized the need for additional experienced leaders. As he reflected on his use of time, he realized that most of his effort was spent on topics that were outside his area of deepest expertise and worse that he would be unable to develop the needed expertise himself.7 To address this problem, as a first step, Levie hired a chief operating officer to help him recruit additional leaders from companies that had already undergone the transformation that Box was experiencing. So, the very definition of “a great team” isn’t static; it changes over time. The team has to evolve with the situation of the company or unit. The people who start a new function or business are not necessarily the same people who can take it to the next level when the situation and therefore the requirements for the top leadership team changes. This is true for the CEO but applies equally for business or functional leaders. A common pitfall for start-ups is that they stick with the initial leadership team too long. Instead, leaders in a start-up situation should have the courage to step aside and bring in talent better suited to each new situation.8 CEOs and executives need to assess to what extent leadership team members can make the necessary transition to a new situation or if they need to be replaced, as our opening example of Bracken Darrell at Logitech showed. Research on entrepreneurial firms suggests that frequently the leadership teams of start-up businesses go through several waves of change and leaders need to address these waves either by adding additional members to augment the capabilities of the leadership team, or by evolving the role structure to better fit the capabilities of the team members.9 While the evolution of the organization creates the need for leadership team changes, companies or businesses in a start-up situation tend to be more talented at implementing strategic change. Given that organizations during a start-up situation are fluid, strategic change, such as a full-blown

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pivot in the market, may come more easily to the leadership team than in other, more mature company situations.10 While any strategic change may require the addition of new knowledge and capabilities, which may imply the addition of some new members to the leadership team, the existing leadership team is often less set in a specific technology, go-to-market approach or operating model, and wholesale team changes are needed less than in an organization that has been operating for many years with the same model. At the same time, however, leadership team members in a start-up may find it more difficult to commit to a particular strategy and model and to drive the necessary organizational processes and structures; that is, they often are reluctant to institutionalize a chosen solution. When leadership team members need to be replaced during the evolution of a start-up organization, a key challenge is often to find new leadership team members that can respond to the need for new structures, drive the emerging need for processes, and at the same time cope with the often rapid and uncoordinated decision-making that results from the initial, entrepreneurial approach. Leadership team members that prefer to operate in an entrepreneurial environment often mistake the need for rapid decision-making and strategic pivots as an excuse not to coordinate and to let chaos reign. As an organization matures, CEOs and executives need to gradually replace such leaders. All too often, however, CEOs and executives choose new leadership team members that either fit the unstructured entrepreneurial past of the organization, and therefore do not provide enough structure, or may be too structured, and may therefore become easily frustrated in a looser, entrepreneurial organization. Optimizing for a continuation and development situation In a continuation and development situation, the key task of the leader is to finetune and gradually evolve the leadership team, as the current baseline performance is taken to be acceptable. Long-term performance management in particular is a central task of the leader, addressing the challenge of how to bring the organization into the future without disrupting existing good practices – and without risking a fall into too much of a comfort zone. Given this focus on the long term, performance metrics tend to be more complex than in the start-up or restart and transformation situation and are often based not only on outcomes but on a rich set of behavioral measures

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that allow for more fine-grained intervention and coaching, as in the case of John Hinshaw at HSBC above. Similarly, Stefan Nöken, former Member of the Executive Board, Hilti Corporation, described: I judge my top leadership team members by two metrics. One is achieving outstanding business results. But that is not sufficient. Equally important is to develop people and teams. It’s about creating a strong team composition, a good spirit, an environment where people like to be, where they can grow. And I have to say when it comes to the long-term success of an organization, developing people, developing the team and developing the organization is even more important than achieving business results because it’s actually the team, the team composition and the team play which ultimately delivers the performance and not the other way around.

Optimizing the performance of a leadership team in a continuation and development situation often also implies fine-tuning roles, responsibilities, and decision-making, rather than creating them anew as would be more likely to happen in a start-up situation, or changing them wholesale as might happen in a transformation situation. Take, for instance, the following two examples from ABB and Nestlé. Morten Wierod, President of the electrification business area at ABB, explained how he frames the decision autonomy of leadership team members: I leave a lot of room for people to decide how they do things. But they need to be able to explain to me in simple terms for every project or program: what are we doing? Why are we doing it? Who is going to do it? How will it be done? And when will it be done? Most important is why we are doing something. And that shouldn’t be because Morten has decided, so now we have to do this. they’re accountable for their own success and their results. But I have clear expectations that all the team members also think about how their decisions affect others. that their success does not come at the cost of somebody else. Because over time that is poison in the team.

Compare this to how Magdi Batato, Executive Vice President and head of operations at Nestlé, framed the same approach: For senior leaders it is important to emphasize the concept of autonomy. Autonomy does not mean independence, and I think people often confuse both. Independence means you are on your own and you have no links,

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you have no links to your boss, no links to subordinates, and you have no links to your peers. Autonomy means you’re expected to make your own decisions, to deliver your results, but you’re not independent, you are linked to other people. And you need to know which people can contribute to your results so you know with whom you need to work together.

In both situations, the leaders focus on setting the right balance between autonomy and coordination to optimize performance in their leadership team. However, the levers they emphasize differ slightly. In the case of Morten Wierod, the lever is to limit autonomy through the need for justification and a clear expectation that results cannot come at the cost of their peer leaders. In the case of Magdi Batato, the lever is to emphasize the interdependence of results on others, and therefore the need to work together in achieving results. Maintaining such balance over time requires focus on utilizing such levers selectively, and how they are used optimally will differ from organization to organization. A well-known challenge in organizations in a continuation and development situation is that leadership teams tend to remain in their roles a long time and CEOs and executives need to work on keeping themselves and all the leadership team relevant. In this situation more than in others, mechanisms such as leadership team rotation as in the case of AXA Switzerland described above, and tenure limits as in the case of Hilti in the previous chapter, become tools to keep the leadership team relevant. Also in these cases, occasionally the leadership teams need to be refreshed by changing the team members to infuse new ideas and keep sufficient creative tension in the team. Sometimes that happens naturally, as senior members may retire, or some may choose to leave corporate life altogether. In other cases, a proactive change without a particular reason, such as low performance, may be executed anyway. Leaders in a continuation and development situation often face a paradox. On the one hand, they focus on maintaining the status quo of a leadership team, on fine-tuning and gradual evolution. At the same time, they need to prepare the organization and the leadership team for any strategic changes which may be needed to stay relevant, or to face sudden disruption. As the COVID-19 pandemic or the war in Ukraine has shown recently, dramatic strategic change can happen overnight and often from unexpected directions. Leadership teams that have experienced longer

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periods of continuation and evolution in particular may have become set in their routines and unable to navigate through unexpected surprises because they find it difficult to break the alignment to their agreed-upon goals in the light of change and uncertainty. CEOs and executives operating under continuation and development situations may need to reflect on how to have their leadership team ready in case of unexpected changes and ensure that inertia does not take over. Otherwise, rapid leadership changes will be needed when the unexpected happens. One mechanism to prepare the organization and its leadership team for strategic change is to create a succession plan and talent management processes that explicitly focus on developing leaders for start-up and transformation situations and mandates, in addition to focusing on a continuation and development situation.11 Even a mature company currently focused on continuation and development should aim to develop leaders with transformation or start-up skills. While opportunities inside the organization may be limited, talent management should therefore systematically reach beyond the boundaries of the organization and engage mechanisms such as external coaching, training, or exposure to potentially different setups. While not every situation can be anticipated and not all leaders can be prepared, such a talent management approach allows for a more effective response to strategic change and general surprises. Optimizing the leadership team in a transformation and restart situation Transformation and restart situations emphasize the alignment around a new set of goals. Either driven by the environment or by internal strategic or organizational changes, CEOs and executives need to work to create alignment on a new set of goals. Many leaders adopt the idea of a burning platform – helping people to see the dire consequences of not changing – to break the alignment on a status quo that is no longer sustainable. However, just breaking the status quo is not sufficient; leaders need to put emphasis on carefully steering the process of realigning the leadership team on a future set of goals and create commitment to the path forward.12 In a transformation, organizations often change dramatically over the course of several years, beginning with a period of intense

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restructuring, perhaps followed by changes to build a strong and viable platform for further development. Given the long-term horizon of such changes and the fact that transformations often consist of multiple phases with different priorities and requirements, CEOs and executives may need to design performance management that utilizes different metrics and different incentives at different phases of the transformation. For instance, Adel Al Saleh, CEO of T-Systems and management board member of Deutsche Telekom, explained: I phased incentives throughout the transformation. I started the first half of the journey with very individual goals because I needed people to get stuff done in their area. But then during the second half of the transformation, I moved us all into 75 percent common goals and 25 percent individual goals. During this phase I over-weighted the common goals because I needed everybody to work as a team.

When an organization needs to go through an important transformation, qualitative metrics may be more important at the start to gauge the progress of the transformation. For instance, in the transformation of Zurich Insurance, its CEO Mario Greco initially focused on how effectively the management team was able to discuss things. He explained: Initially people did not want to talk openly. Everybody had their defenses and people would not automatically speak up and discuss. One measure of progress for me was the quality of the discussion. We have biweekly executive committee meetings, which is my temperature check: How are these meetings going? How much discussion is there? How many people speak up, raise issues, or challenge colleagues, or accept to be challenged by colleagues? In the beginning, there was practically no discussion. now, over the years with all these initiatives, it has become better. I finally achieved a very different way of behaving in these corporate meetings.

Over time, qualitative measures will be complemented and eventually replaced by more traditional quantitative measures, which are ultimately easier to measure and are what the shareholders look at. One of the central challenges of the transformation situation is pace of change. To optimize performance in this situation, CEOs and executives need to carefully balance driving change without overburdening the

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organization and triggering resistance. For instance, Christophe Catoir, President of the Adecco business in the Adecco Group, explained: Driving short term results while simultaneously setting up the company for future long-term success through change management is a delicate balance. transitional periods can’t go on for years – they will, eventually, create a feeling of disempowerment and resistance. All efforts need to focus around keeping people committed, engaged and motivated – and you need good leaders in place for that

In a similar way to the start-up situation, transformation situations imply a shift in priorities over time as the company stabilizes, and that tends to bring a change in organizational requirements and may demand different leadership. For instance, at the beginning of a transformation, the key priority is often to create change momentum by changing roles, structures, and processes. To create such momentum, decision-making is typically centralized and resides with the leader. As the organization moves to a more stable situation, decision-making can and should be more decentralized, engaging a broader range of members in the organization.13 Given the inherent changes over time, keeping the leadership team relevant is often challenging in a transformation situation in at least two ways. On the one hand, different skills and capabilities may be needed to finetune a transformed organization compared to those that were required at the start to make the initial change. On the other hand, leaders that thrive in transformation situations often do not enjoy the stability that follows. In an ideal scenario, such leaders leave the organization of their own volition but that does not always happen easily. Instead, as Whole Foods Market cofounder John Mackey and Conscious Capitalism, Inc. cofounder Raj Sisodia write in their book, Conscious Capitalism, all too often transformationfocused leaders may move from crisis to crisis by letting situations deteriorate rather than addressing problems early on.14 CEOs and executives need to be mindful of the risk of such cycles, set expectations early on, and replace such leadership team members early enough. In fact, some leaders may even plan such leadership team changes over time, to gradually optimize the leadership team along the evolving transformation. For instance, Christophe Catoir, President of the Adecco business in the Adecco Group, explained:

OPTIMIZING PERFORMANCE FOR DIFFERENT APPROACHES AND SITUATIONS

I had the great opportunity to build a new leadership team as we are transforming from a decentralized to a more centralized organization. And I know that in some time, I will need to come back and probably change some people in the team. Why? Because not all are able to adapt to a future performance model, for various reasons – and it’s only fair to people to address this. I don’t believe in big one-time disruptions, but in transitional models, that allow people to understand if, and how, they fit in new structures and performance needs with their skills and personality.

Given that the need for different types of leadership team members is inherent in the transformation situation, succession planning and talent management also need to focus on developing leaders with the capabilities and skills needed to finetune and evolve the organization. While the challenge of succession management during the continuation and development mandate is often to develop leaders that have the required skills for transformation or start-up situations as well as for continuation and development, in the transformation mandate, succession management is about identifying leaders that are capable and interested in fine-tuning the organization once the transformation is complete, as this requires very different skills and temperament.

Notes 1 B. Fischer, “No Managers, More Leaders: The Leadershp Legacy of Zhang Ruimin,” Forbes, Nov 5, 2021, 2021, https://www.forbes.com/sites/ billfischer/2021/11/05/no-managers-more-leaders-the-leadership-legacyof-zhang-ruimin/?sh=57a698ef2908. 2 H. Ibarra and M.T. Hansen, “Are You a Collaborative Leader?,” Harvard Business Review 89, no. 7, 8 (Jul–Aug 2011). 3 Edmondson, Roberto, and Watkins, “A Dynamic Model of Top Management Team Effectiveness: Managing Unstructured Task Streams,” Leadership Quarterly 14, no. 3 (Jun 2003). 4 George and Clayton, True North: Emerging Leader Edition (Hoboken, NJ: Wiley, 2022). 5 Chambers and Brady, Connecting the Dots: Lessons for Leadership in a Startup World (New York: Hachette, 2018). 6 E. Ries, The Lean Startup: How Constant Innovation Creates Radically Successful Businesses (NewYork: Crown Business, 2011).

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9 DESIGNING THE FUTURE OF LEADERSHIP TEAMS

We started this book with the observation that creating a top-notch leadership team is one, if not the, most important tasks of any CEO or executive. Throughout the chapters we highlighted different approaches that leaders can take to create a successful leadership team and situational constraints that influence the suitability and implementation of these approaches, and we discussed their implications for selecting the members of the team, building these members into a cohesive team, and optimizing the performance of the team over time. In doing so, our aim has been to provide CEOs and executives with a set of frameworks, ideas, principles, and tools that capture what we have observed to be good practice in the organizations we studied, and that we hope to be helpful to leaders reading this book. In this last chapter, we want to address a selection of topics that seem to need further development in current practice, either because they continue to be underdeveloped despite being the subject of discussion for some

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time, or because they have emerged as important topics relatively recently. Specifically, we will discuss the following six topics: • • • • •

Creating purpose-driven leadership teams. Building organizational resilience. Driving organizations through leadership style. The changing profile of leadership team members. Leveraging diversity.

Creating purpose-driven leadership teams One of the important topics where CEOs, executives, and their leadership teams need to start delivering in a substantially different manner is how to engage with the company’s purpose.1 Where until four to five years ago it was sufficient to deliver strong financial performance, today organizations cannot survive in the long run if they do not create a positive societal impact alongside their financial results. Stakeholders inside and outside the organization are no longer tolerant of companies that ignore the societal ramifications of their actions. Employees will vote with their feet and move to competitors that balance financial and societal impact better, communities will exert unprecedented pressure when their needs are not honored, and the general public is ready to attack any organization on social media that does not take its role in society seriously. But creating a solid purpose should not just be viewed as a response to yet another pressure. In fact, organizations that utilize their purpose as a powerful tool to motivate employees and leaders toward a common meaningful goal and a powerful and lived purpose can gain a competitive advantage.2 In an interview at the height of the COVID-19 pandemic, Albert Christmann, CEO of the Oetker Group, explained to us: the purpose statement does not tell you the strategy, it only tells you why you are doing something. this means that if all people know why they are doing something, you can also give them the freedom to develop ideas decentralized, because they can relate them back to that why. I think it helps immensely, especially in times like now in the crisis. It helps people to run in a decentralized way, to take responsibility for their own actions and come up with solutions that a small group at the top never could have imagined.

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It is against the mixture of pressure and opportunity that CEOs, executives, and their leadership team members need to rethink what broader societal purpose the organization fulfills, and how they can make the organizational purpose meaningful for all stakeholders. This may mean reinventing their business so that societal and financial impact complement each other rather than be at odds. They might also need to look at reinventing the leadership team, especially if team members view societal purpose as something cosmetic and are not able to truly embrace the change. The transformation that Mario Greco instituted at Zurich Insurance may serve as an example. As a traditional insurance company, Zurich Insurance was run by rules and policies. As part of the transformation Greco led as CEO, he focused on implementing a purpose-driven culture, where decisions would be made based on company purpose and a set of principles derived from this purpose. To do this, it was necessary to completely rethink how the leadership team had to work. Greco explained to us: My ambition was to introduce a purpose-driven culture in the organization. So, in order to have that you need to have leaders who understand. A purpose-driven organization is an organization which is based on principles and acts according to principles and not based on prescriptions and policies. It is much easier to run a prescriptive organization based on policies and manuals, where everything is clearly spelled out. You make a new policy and then you just audit and check that people comply. If you want to run an organization based on values, principles, and purpose, a very different approach is required. You have to constantly interpret or align people on what is the meaning of what you propose. How does it align with the purpose? Why are we going to do that? It also requires different leaders. You need people who could become examples of purpose-driven actions and who empower others to be purpose-driven. People who have the self-confidence to follow values and principles, not just prescriptions. And it means working together in a very different way. If you walk away from prescriptions into values and purpose, then things are much more open and subject to discussion. things like: ‘I made this decision, but maybe another one could have been better. Let us discuss it and let us learn from it, so next time we will do better.’ It also means taking people out of their comfort zone.

As this example shows, when moving toward a purpose-led leadership team, CEOs and executives need to question the existing leadership

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team approach, go beyond the façade, and implement what might seem a paradox at first. Empowering the leadership team with more freedom and flexibility to come up with decisions based on the corporate purpose is one way to hold each responsible and make them reflect on what that means for their own organizations. But at the same time, leaders need to bind them more tightly together through discussion and debate to ensure high-quality decision-making and learning.

Building organizational resilience through the leadership team The second theme which emerged during our interviews where leadership teams don’t yet seem fully confident is the subject of organizational resilience.3 Events like the COVID-19 pandemic and the war in Ukraine have clearly highlighted the necessity of building a new level of resilience in organizations to absorb external shocks. Leadership teams have had to revisit their operating assumptions, and many organizations have been forced to change key dimensions of the business, such as the business model or supply chain, often in a very short period of time. Many leadership teams, however, were simply not sufficiently prepared to make such changes, and appear never to have been designed to deal with external shocks. How do leadership teams need to be built to support organizational resilience? As initially presented in a recent article,4 we propose some principles on how possibly to do that: • • • •

Build management teams that focus on multiple time horizons. Develop and train systematic crisis management processes. Focus on group responses. Engage all layers of the organization. Build your management team to focus on multiple time horizons

Most of the time, leadership teams tend to be absorbed with the here and now. However, to build organizational resilience, leadership teams need to extend their temporal focus because looking at the short term may not address the challenges of the future. To achieve organizational resilience,

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CEOs and executives need to create top management teams that can address the short and long term simultaneously.While an organization typically masters the activities related to the short term, long-term projects and solutions for the future often require longer periods of learning and development. The central role of the CEO or unit leader is to provide temporal leadership by managing the different directions taken during different time periods, synchronizing behaviors and decisions, and temporarily allocating resources. This allows the top management team to exhibit a temporal ambidexterity that simultaneously focuses on the short and long term.5 Bringing the long-term focus to the fore is even more important when the organization has to deal with the unexpected. While any specific shock is unexpected, regular planning for alternative long-term scenarios allows the leadership team to build a set of robust strategic options upon which responses to a specific event can be built. Leadership teams also need to counter the tendency to sharpen their short-term focus when immediate pressures are high. When a disruptive event occurs, leadership teams easily forget to incorporate long-term trends, such as industry changes, digitalization, and sustainability, in their responses. Bringing the long-term focus to the fore also implies building a sustainable pipeline of diverse leadership team options. Whitney Johnson, CEO of human capital consultancy Disruption Advisors, describes this with the picture of a leadership team where members are at different stages of their experience and learning curve. Such diverse teams are better prepared to solve not only today’s problems but also those that are likely to arise in the future.6 Rather than being overwhelmed by current pressures, leadership teams that simultaneously manage multiple time horizons may view external disruptions as opportunities to turbocharge progress on the key trends and changes in their industry, and thereby future proof the organization. For instance, Sami Atiya, President of the robotics and discrete automation business area at ABB, explained how his team took the COVID pandemic as an opportunity to revise their way of working together: cOVID has shown the good, the bad, and the ugly in many things. During cOVID I asked myself and then I started asking my team, where do we contribute, where do we not contribute. You sit in so many meetings and

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there is so much empty talk. Is all of this really needed to run a business? We have since been able to cut out a lot of that and meetings have become much more efficient and effective.

Develop and train systematic crisis management processes Resilience, particularly in the light of a dramatic shock like a pandemic or war, requires the ability of the leadership team to act with both speed and high-quality decision-making under time pressure. To balance speed and quality, a diverse yet tightly integrated management team can prove to be a real asset, to generate the necessary breadth of options, arguments, and opinions, and make quick, high-quality decisions. For this, however, you need a well-established culture of productive discussion and decision-making. Dealing effectively with crisis situations is a skill that can be trained and learned. Organizations that deal with crises on a regular basis such as firefighters, crisis response teams, and disaster relief agencies, regularly practice their crisis response procedures, even when not faced with a crisis because, when under the time pressures and high stakes of a real crisis, decision-making processes shouldn’t be left to chance. Leadership teams that want to be truly resilient need to be trained and ready to respond to sudden or unexpected crises. Respond as a group and don’t allow prof iteering A central principle to creating leadership team approaches that enhance organizational resilience is to curb any profiteering of individual leaders. Entrepreneurial individuals may try to use crises to their advantage to the cost of the organization. Coordination is of the essence in crisis situations and CEOs and executives need to provide strong leadership to ensure that such seemingly entrepreneurial behavior does not harm the organization at large. Take, for instance, the attempt of Shell’s oil traders to profit from sanctions against Russian oil firms at the beginning of Russia’s invasion of Ukraine. Although the traders managed to gain short-term financial wins, the resulting public outcry against Shell created a loss in public trust that more than outweighed the profits which Shell, ultimately, was forced to give up. Even in leadership teams that thrive on competition, coordinated behavior and mutual support are essential in a crisis, especially when the survival

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and prosperity of the whole organization need to be prioritized. CEOs and executives that make competition the key principle of their leadership approach, therefore, may need to intervene to ensure team members coordinate their decisions. Engage all layers of the organization While coordination in the leadership team is important for organizational resilience, in the long run, resilience only emerges when all layers of the organization are engaged. Leadership teams are unable to operate in a vacuum and the knowledge of the whole organization needs to be drawn upon to generate the options that an organization can utilize in crisis. As important as the leadership team is in directing the organization in a crisis, the development of future-proof solutions needs to precede the crisis and take place throughout the organization as a whole. An always-ready organization requires the intelligence of the whole organization rather than relying on the insights and ideas of a few. Companies like Nestlé, which responded successfully to the COVID-19 pandemic, focused on setting frameworks from the top, within which solutions could emerge from all layers of the firm. Magdi Batato, Executive Vice President and head of operations at Nestlé, explained: During cOVID, our cEO published three priorities top down to provide clarity of direction. But then you need empowerment. You cannot provide all the details. You provide the big picture and then trust the people.

Driving organizations through style Throughout this book we have written a lot about different leadership team approaches and their pros and cons in different situations. Nonetheless, the choice of the leadership team approach is often a very personal choice of the CEO or executive leading an organization and may to some extent be a question of personal style. One consideration that we want to highlight in this final chapter is the impact that the personal style of the leader has on the organization at large.7 All too often, we underestimate how much the personal leadership style of CEOs and their closest reports can influence the way employees throughout

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the organization behave. In some organizations, leadership teams resemble a shark tank, where highly ambitious executives circle each other, fighting over resources, attention and power, and launch attacks at each other at the first sign of weakness, because this is how the CEO likes it. Other CEOs and executives prefer leadership teams that focus on collaboration and team play and, ultimately, put the organization ahead of the individual executive. In fact, an effective CEO can change the tone at the top dramatically, as the example of Satya Nadella at Microsoft shows. Over the course of his tenure that began in 2014, Nadella transformed the Seattle-based software giant from an organization of often brutal internal competitiveness into a much more cooperative company that inspires the employees inside the organization as much as customers and partners outside.8 Through their personal style and their own personal behavior, CEOs set the general tone that diffuses throughout the organization. Once a tone is set in the leadership team, executives tend to replicate the style in their own businesses. If the CEO prefers competitive individuals in their team and does not mind confrontational behaviors among the leadership team members, executives are less likely to hire team players, as they will not fit the mold created by the CEO. Similarly, when faced with intense in-fighting with their peers, executives are less likely to promote collaboration within their business, which leads to a trickle-down effect of the CEOs’ behavioral choices and style. In all circumstances, the examples set by CEOs, executives, and their team are likely to be observed and emulated throughout the organization. Why would any self-respecting middle manager engage in collaborative behavior with their peers when they see their bosses fighting for resources? The bottom line is that leaders at the top need to be always mindful of the implications their behavior may have on the organization at large. Whether they realize it or not, the personal style lived by the CEO, executive, and their leadership team creates a feedback loop that can generate a virtuous or a vicious cycle, which can determine the company and its future. A CEO who communicates openly, welcomes ideas, listens, and embraces novelty and innovation has a much higher chance of creating an organization that promotes novel ideas, which spread both top down and bottom up, and an organization that is resilient to change and adopts a forward looking and innovative direction. In contrast, a highly directive CEO who focuses on giving out instructions and maintains the status quo

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may be able to maintain current performance for a period of time but runs a much higher risk of not being able to leverage the knowledge present in the organization, and may face difficulties in finding innovative responses to unexpected events.

The changing prof ile of leadership team members One of the key themes we discussed so far has been that the composition of the leadership team should depend upon the situation an organization finds itself in, and upon the mandate for the leader that derives from that situation. And as companies and their environments change, the leadership team should follow suit. In recent years, certain global events have created massive changes across industries and turbocharged pre-existing trends such as digitalization, deglobalization, sustainability, diversity, and inclusion. Arising from these changes is not only the need for new individual skills and capabilities in the leadership team, but also the need for a fundamental re-evaluation of the balance of skills required for a team member.9 In the past, leadership team members were often recruited from within the industry, with a focus on a narrow set of skills such as the ability to sell, analytical skills, negotiation expertise, and decision-making abilities. Typically, their personal connections played an important part too. Future leadership team members will need to master a different and broader set of skills to be relevant for the leadership needs of tomorrow. They will need to lead ever more diverse teams, where the expertise lies with the team and not the leader. As a result, future leadership team members will need to feel more comfortable to take a step back, delegate authority, and coach the performances of others, while at the same time learning from them. This requires that leadership team members exhibit the will to keep learning, or what Satya Nadella, CEO of Microsoft calls, a learn-it-all rather than a know-it-all culture.10 And in relation to the generational shifts that we see taking place, future leaders will need to accept that new younger employees will want to contribute their knowledge to the organization from day one. Millennials and post-millennials are simply not willing to join a corporation that locks them into years of training before they can have their say. In future, the key skill of leadership team members will be to identify, value, and promote the talent that possesses the ever-changing skills that the organization needs.

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As already hinted above regarding purpose-driven leadership teams, future leadership team members will also need to demonstrate the ability to successfully balance societal impact with financial performance, as well as long and short-term goals. To be prepared to do so, traditional CVs that list a continuous, professional career progression are not likely to be sufficient because they do not produce the breadth of experience that tomorrow’s challenges will need. Tomorrow’s leadership team members are more likely to have followed a non-linear career path that may include parental leave, sabbaticals and other forms of breaks, changes in career, and shifts between the not-for-profit or public sector and the for-profit sector. More and more leadership team members will have lived in multiple countries and been exposed to multiple cultures. The next leadership team members will be eager to learn not just to increase understanding but also to feel more attached to different cultures – and ultimately truly embrace diversity. Take Vas Narasimhan, the CEO of Novartis, as an example. Narasimhan’s path started in the USA, where he was born and raised in Pittsburgh. After completing a bachelor’s degree in biology at the University of Chicago, he pursued both a master’s degree in public policy and a degree in medicine at Harvard. During his medical studies, he worked on public health issues such as HIV/AIDS, malaria, and tuberculosis in India, Africa, and South America – work that he continued afterwards. In an important change of direction, instead of continuing his training as a physician, he joined McKinsey as a consultant. In 2005, he started his career at Novartis, where he continued to follow paths less trodden. Instead of working for the main business lines, he held positions in the vaccines business, the generics business as head of drug development, and chief medical officer, before being appointed CEO in 2018. Identifying and systematically developing talent with more varied careers and skills is a challenge in itself. In many organizations, talent management systems still systematically weed out CVs that have gaps, career side-steps into unrelated industries, or otherwise do not follow a linear career progression. As a result, talent management may side-track the very candidates that are needed for future leadership teams. What can be done to address this issue? In our view, as so often, change needs to start from different directions until it converges at the heart of the organization. On the one hand, boards need to recognize the importance of having board members and CEOs with different profiles, as these individuals select the other leadership team members. A board that does

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not want to risk hiring board members or a CEO with non-traditional CVs won’t be able or willing to appreciate leadership team members with a non-traditional CV either and, even if they do, may not have the courage to hire them. In practice, this means that the capability to hit the ground running and deliver on short-term challenges is prioritized over investing in more unusual candidates that could have huge potential. At the same time, the people function plays a role in both helping to identify unusual but more promising candidates, and in developing candidates with non-traditional CVs. Talent management needs to be adjusted to be focused on valuing and attracting candidates that are focused on learning and creating value for the organization, rather than looking at short-term delivery, or for their next promotion or salary rise. To retain such individuals requires the organization to have a variety of systematic development opportunities, rather than just a narrow path to the top. The people function also plays a central role in creating a set of experiences that are rich enough to allow high potentials gain the breadth of skills necessary for the future. Given that the depth of experiences in any company is limited, future talent development should also consider letting talent leave the organization temporarily to gain fundamentally different experience elsewhere, on the understanding that they return, together with their richer set of experiences. We see this happening when organizations send their people to work in another office for a period of time, or rotate them across roles, but this is a long way from the experience that can be acquired from working in very different organizations. Such high potentials could be linked to the organization through alumni programs and considered for senior leadership positions at a later stage. In fact, talent development should systematically follow the career path of talented leaders that leave the organization, with an eye to bringing some of them back at a later stage. In our view, the way talent is assessed also needs to change. With the requirements for leadership team members evolving, what has been a minus in the past could very well become a plus in the future and therefore in addition to traditional business competencies, a much broader set of skills should be given credit (see box). What characteristics will be needed will certainly change over time, and the best organizations will regularly update their list of capabilities. But what remains constant is that by enriching the set of characteristics to look for in leaders, organizations can futureproof their leadership team and the organization at large.

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WHAT TO LOOK OUT FOR IN FUTURE LEADERSHIP TEAM MEMBERS IN ADDITION TO BUSINESS SKILLS What are the criteria that boards, cEOs, executives, and Hr should look out for in future leaders, in addition to traditional business skills? While the list is constantly developing and is company, culture, and industryspecific, there are some criteria which, at the time of the writing of this book, seem to be relevant across different appointments: • •

• • • • •

•

Lived in more than one country, experienced life in different continents. Acquired knowledge through formal education but also invested in life-long learning of diverse subjects, including in non-corporate relevant courses. Persevered through challenging career stages and setbacks and possibly a change of career path. Worked for an nGO or political organization. Volunteered in a meaningful way for social causes. taken time off to rethink their priorities at least once in their career. Proof of a sound work-life balance, because a work machine is likely to push him/herself and others too hard and may put career ahead of ethics. Has meaningful interests and hobbies outside work.

Creating and leveraging team diversity Throughout this book we have in several places discussed the benefits and challenges to diversity in top leadership teams. While the advantages of diversity have been well established over the past two decades, the progress in building truly diverse leadership teams has been limited in most companies. Boards, CEOs, and executives continue to struggle to build diverse leadership teams and leverage them for performance. How can that be explained? Based on our interviews and observations across many management teams, one issue is that leaders view diversity first and foremost as an issue of hiring diverse candidates. However, hiring diversity is not enough, if there is no true appreciation and desire to integrate diverse members and

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leverage diverse thinking. For instance, a female leader who asked to remain confidential was approached by a male colleague, who compared her to another female leader and said: You presented right after the head of the People function (also female) and she is soft and agreeable, we can cope with that. But you are strong and assertive and that makes it more difficult to accept you in this group.

This suggests that, in this organization, diversity is appreciated only as long as the diverse candidate does not sit at the decision-making table. In a similar vein, Jacqueline Hunt, former member of the management board of Allianz insurance, explained: I think what happens in many organizations, is they talk about wanting diversity. And by that, really what they mean is checklist diversity: let’s tick off that we have 30 percent female, that we have X number of ethnicities. that we have someone from a LGBtQ background. they don’t really want to manage a more complex environment. they don’t see the value of it. So, they bring in people who are different, who are defined as disruptors. And then they expect them to behave like everybody else. And the discussion around the boardroom table becomes, ‘Well, he’s too disruptive’. ‘He’s too blunt’. ‘He’s not like us.’ If we bring in a change agent, we need to actually support them to deliver that change.

These are examples of how diverse voices often remain unheard because diverse leaders often do not fit the predefined view and categories of other leadership team members. As a result, in particular when the organization is very hierarchical and leaders higher in the hierarchy use their position of power to shut out different voices, the benefits of diversity may not materialize.11 To leverage the advantages of diversity, leaders need to be willing not only to hire diverse members but create leadership practices that systematically include them. Otherwise, the truly diverse leadership members will decide to leave – if they have not already been dismissed for being seen as disruptive. Inclusion has several dimensions. First, as the above examples suggest, it means making sure the voices of different leadership team members are heard, which can only happen if the CEO or executive creates an environment that values the different perspectives brought by different leadership

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team members. Inclusion also requires changes in behavior and learning for all leadership team members. For instance, Herbert Joly explains that his leadership team engaged in reverse mentoring, where diverse members of the organization mentored leadership team members on aspects of the different experiences from growing up in a different ethnicity or culture, to broaden their perspective.12 Inclusion also means that different leadership team members feel valued in the organization. Morten Wierod, President of the electrification business area in ABB, explained: Inclusion is probably even more important than simply creating diversity because it determines if people feel at home in the company, if they feel respected, valued, and are open to be themselves at ABB.

A truly inclusive environment needs to be open to the needs of leadership team members with very different backgrounds and life circumstances. For instance, a CEO of large European company, who preferred to remain anonymous, explained: In my leadership team I have one granddad and a single mother of two. Both work 80 percent and it works very well. It works in a company of several thousand people. Of course, it took time and you have to be open and flexible. You have barriers in the environment, you have the culture, you have the ideas of the past. And you have practical issues that you need to work through. But they are a lot less problematic than having someone in the team with a too big ego.

Inclusion of diverse leadership team members is possible; however, it requires effort and will on the part of the CEO or executive and the rest of the leadership team.

Concluding thoughts The leadership team is one of the most powerful instruments a CEO or executive has to drive the strategic agenda. Each leader has their own personal style, every leadership team has its own traits and requirements, and every company faces its own unique situational constraints. Nonetheless, we believe the frameworks, principles, and tools we have compiled after years

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of extensive research and providing advisory services to diverse organizations around the world, are helpful for leaders to identify the approach that best fits their own style, leadership team, and company. Much of what we have presented will not strike an experienced leader as surprising or rocket science. However, many of the executives we talked to admitted off the record that they find it difficult to apply many of the principles, either for lack of time and the always-present need to prioritize short-term goals or because they simply do not realize that these principles also apply to their situation at hand. We hope that this book will encourage all the leaders who read it to become more aware of the circumstances they themselves are in, find some useful practical advice for how to proceed better, and ultimately achieve the consistency in thinking and behavior that our research shows is the key driver to building successful leadership teams.

Notes 1 For additional discussion on the changing role of company purpose see, Henderson, Reimagining Capitalism in a World on Fire (New York: Hachette, 2020); Mayer, Prosperity: Better Business Makes the Greater Good (Oxford, UK: Oxford University Press, 2018); Joly and Lambert, The Heart of Business: Leadership Principles for the Next Era of Capitalism (Boston, MA: Harvard Business Review Press, 2021). 2 T. W. Malnight, I. Buche, and C. Dhanaraj, “Put Purpose at the Core of Your Strategy,” Harvard Business Review 97, no. 5 (Sep–Oct 2019). 3 For an in-depth discussion of resilience see, for instance, G. Bell, The Organizational Resilience Handbook (London: Kogan Page, 2020); D. L. Coutu, “How Resilience Works,” Harvard Business Review 80, no. 5 (May 2002); Coutu, “How Resilience Works,” Harvard Business Review 80, no. 5 (May 2002); J. E. Dutton et al., “Leading in Times of Trauma,” Harvard Business Review 80, no. 1 (Jan 2002); R. Gulati, N. Nohria, and F. Wohlgezogen, “Roaring out of Recession,” Harvard Business Review 88, no. 3 (Mar 2010); W. C. Shih, “Global Supply Chains in a Post-Pandemic World,” Harvard Business Review 98, no. 5 (Sep-Oct 2020); M. Mankins, E. Garton, and D. Schwartz, “Future-Proofing Your Organization Prepare Our Team to Stay Ahead in the Post-Pandemic World,” Harvard Business Review 99, no. 5 (Sep–Oct 2021).

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INDEX

Note: Bold page numbers refer to tables; italic page numbers refer to figures and page numbers followed by “n” denote endnotes. ABB 32–3; and decision-making 182; inclusion at 202; rotation of team members at 150 accountability 2–3, 6; processes around 128; and psychological safety 105; and team environment 107 Adecco Group 41, 63, 157, 177, 186 advisory decision-making 113 agenda setting 110–11 agility 35, 71, 135 Alcatel-Lucent 4 alignment 19, 50; breaking 175; in start-up situations 178; in Stretch Teams 84, 132; in Team of Stars approach 80, 170 alpha leaders 82 Amazon 4, 89–90 ambidexterity, temporal 193 ambition: of companies 19, 58; individual 127, 133, 170; as

leadership quality 68, 72, 82, 178; and talent development 173; of teams 3 Amey, Jacques 70, 156 analytical skills 71, 74, 197 Anbeek, Herman 40, 73–4, 160 A-players 6, 74, 83–4, 89, 128 Apple 1, 4, 84, 160–1 assessment of leadership team 57–9, 118 AstraZeneca 30, 37–8, 85, 88, 135, 162, 177 Atiya, Sami 32–4, 127, 171, 193 attention, managing 126 automotive industry 47, 151–3 autonomy 100, 182–3 AXA Switzerland 24, 89, 104–5, 114, 129, 174, 183 Barra, Mary 155 Batato, Magdi 146, 182–3, 195

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IN D E X

behavioral norms 105–6; failure to adhere to 159; leaders modeling 116–17; and team building 131–2, 134, 136–7 behavior, measures of 172, 176–7 benchmarking, regular 162 Best Buy 115, 138, 143–4 Bezos, Jeff 90 Black Lives Matter 117 board of directors, and leadership team recruitment 68 Boeing 35, 162 Box 180 Bracken, Darrell 88, 166–7, 180 building leadership teams 8, 37, 99–101, 123–5, 135, 137; and leadership approaches 125–33, 126; restarting 175; and situational constraints 133–9, 134 burning platform 184 business model 31, 42; and resilience 192; and strategic change 151–4 business unit leaders 50–1, 133 business units 22; creating new 153; and leadership team 51, 132 Calhoun, David 162 candor 85, 135 capability architecture 152–4 career paths 198–200 Catoir, Christophe 41, 63–4, 157, 177, 186–7 CEOs: appointing second-incommand 51; and leadership teams 1, 3–5; recruiting leadership team 68; setting the tone 196 CFO (chief financial officer) 51, 74, 109, 153, 174 Chambers, John 3, 69–70, 86 Chandler, Alfred 76n18 change: nature of 152–5; pace of 55, 61, 92–3, 185–6; signaling 62; see also strategic change

change agents 42, 134, 138, 201 cheer leading 146 Christmann, Albert 190 coaching 82; and behavioral norm setting 134, 147; individual and team 118–19, 149 collaboration: and CEO’s personal style 196; culture of 5, 128; in leadership teams 16–17, 19–23, 26; outside team meetings 111; in Stretch Teams 85, 176–8; in Synergistic Teams 83–4; in Teams of Stars 170–2 collaborative decision-making 114–15 comfort zone 23; challenging members out of 129, 149; in continuation and development situation 90; in Synergistic Teams 174 command-and-control-based decision-making 112–13 commitment: deeds that demonstrate 137; and hiring team members 66; moral and ethical 68; and team environment 107; trust in 103 communication, one-way 81 communication skills 70–1, 74 company purpose 101–2, 119n4, 191, 203n1 company situations 8–9, 36–42, 91; and leadership team approaches 38 company strategies 31, 102 company types 31–6; and leadership approaches 33 company vision 102 competition: dysfunctional 24; and group response 194–5; in leadership teams 16–17, 19–23, 26; power of 6; in Stretch Teams

INDE X

84–5, 176–8; in Teams of Stars 170 competitive mindset 21–3 complementary strengths 83, 85 Conant, Douglas 23 conflict: interpersonal 112, 115; productive 105, 112; unproductive 130 consensus: and decision-making 112– 14; in Synergistic Team approach 20–1, 128 continuation and development situation 39–40; building leadership teams in 135–6; performance management in 181–4; selecting team members in 89–91 COO (chief operating officer) 51 Cook, Tim 1, 161 coordination: and autonomy 183; and company type 33–4; and leadership team composition 49–50; at Logitech 167; in start-up situations 135, 178; in Stretch Teams 23, 132; in Synergistic Team 83; in Team of Stars 19, 26, 81 core technologies 155 corporate goals 24, 127, 145 corporate memory 93 corporate purpose 25, 149, 192 corporate social responsibility 149, 154 COVID-19 pandemic 152, 183, 190, 192–3, 195 creative tensions 24, 151, 183 creativity 22, 103, 116 crisis management processes 194 culture: and decision-making 113; existing 41, 87; see also team culture CV (curriculum vitae) 54, 67, 70, 198–9, 204

Dacey, John 61 Danone 99–100 decentralization 186–7, 190 decision-making: approaches to 112–15; in continuation and development situations 182–3; and crisis management 194; Joly’s approach to 144; and leadership team composition 49–50; slow 2, 21; in start-up situation 86; in Stretch Teams 133; in Synergistic Team 83, 128; in Team of Stars 80; in transformation and restart situations 138, 186 decision-making approaches 112–13, 135–6 decision-making processes 106, 108, 113, 194 deglobalization 197 Delaporte, Thierry 2–3, 53, 60, 162 Deutsche Telekom 28–9, 58, 60, 185 development activities 149, 175 development tools for leadership teams 117–19 devil’s advocate 112 differences of opinion 104 digitalization 62, 153–4, 172, 193, 197 Dimon, Jamie 1 discontinuous changes 151–2 discussion: managing 111–12; productive 194 discussion culture 130 dismissal 62; respectful 156–8 disruptive events 193 dissenters, constructive 55 diversification 31–2 diversified companies 32–4 diversity of leadership team 1, 3, 52–4, 123; creating and leveraging 200–2; future of 197–8; and hiring procedures 63; and maintaining relevance 150–1; and opinions 22; and productive conflict 112; in

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Stretch Team approach 85, 132; in Synergistic Team approach 83; in Team of Stars 81 Dohn, Oliver 24, 137 dysfunctional elements, identifying 137 echo chambers 56 Edmondson, Amy 105 education programs 118 egos 20; low 83; outsized 72–3, 82, 86; strong 15 elephant graveyards 158–9 emotional competencies 82 emotional intelligence 71 emotional support 156 empowerment 6, 195 entrepreneurial behavior 135, 180, 194 entrepreneurial firms 86, 180 entrepreneurs, leaders as 39 errors, discussing 128 executive search firms 67, 70, 156 experience and track record 70–1, 74 experimentation 128, 149, 179 external hiring 62–5, 90, 93, 153, 162 failure, in performance management 179 failure-tolerant culture 117 fallibility 105 familiarity 66, 124, 134 feedback 128; constructive 106, 131 female leaders 201 Ferrari 47–8, 162 fine-tuning 40, 181–3, 186–7 fit, with team and organization 70, 73–4, 82–3, 89 flexibility 38–9, 133, 135, 192 fractionalizing 23 Fredrickson, Dave 30–1; and behavioral norms 177–8; and

company situation 37–8; and external hiring 162; and team purpose 135; and team selection 85, 88 freedom within a frame 177 Freixe, Laurent 22; on commitment 107; on company situation 36; on hiring team members 63; on leader roles 116; on personal characteristics 71–2; on team size 50; on underperformance 147–8 Freudenberg 73, 86, 91, 124, 136, 170 future-proofing 152, 177, 195, 199 GE 4, 89, 172–3 gender 3, 35 gender diversity 52–3 gene pool, leadership 63, 65–6 General Motors (GM) 152, 155 generational shifts 197 global connectors 128 goals: common 22, 62, 72, 112, 178, 185, 190; identifying clear 145; new set of 184; shared 127–8 Google 4, 20 Greco, Mario 66, 80, 92, 185, 191 group responses 192, 194–5 groupthink 53 Grove, Andy 134, 151 Haier Group 168 Halton 78–9, 102, 109 Hastings, Reed 1, 19 headhunters 53, 73 Hebenstreit, Laurent 138 hidden agendas 124–5 high performance, creating consistent 146 high-performance standards 106 high performers, disruptive 62 Hilti Corporation 20, 100, 150, 182–3

INDE X

Hinshaw, John 34–5, 72, 123–4, 176, 182 Hintikka, Juhani 6; on behavioral norms 106; on collaborative teams 83; and conflict management 130; on leadership team role 49; on team selection 16, 66; on trust 103 Hirai, Kaz 41 Hoettges, Timotheus 29 Holcim 6 homogeneity 83, 86–7 HPE (Hewlett Packard Enterprise) 35 HSBC 34–5, 72, 123, 176, 182 Huawei 1, 145 human qualities 71, 74 Hundsdörfer, Rainer 157 Hunt, Jacqueline 7, 53–4, 56, 91, 201 ideas pool 128 incentives: long-term 171; soft and hard 171–2 incentive systems 149 inclusion 52, 85, 135, 197, 201–2 incompetence 62 inconsistency of implementation 25–6 independence, in start-up situations 39, 86, 135 individual assessments 118 individual development 149 individual performance 6; in leadership team approaches 16, 19–20, 26, 82–3, 169–70, 176; and performance culture 100 inertia 104, 184 infighting 54 information flows 128 information sharing 19, 49–50, 80, 84, 110, 125 integrated multi-business companies 34–5 integrity 106

Intel 134, 151 intentions, trust in 103 interdependence 31–2, 34–5, 49, 100, 109, 183 internal promotions 62–5, 90 international experience 70, 161 Jassy, Andy 89–90 Jenisch, Jan 6–7; on leader roles 115–16; on personal characteristics 72; on replacing team members 92; on setting responsibilities 111; and Team of Stars approach 19–20, 127, 170–1; on team size 49; on underperformance 147 job search platforms 67 Joehle, Andreas 58 Johnson, Whitney 193 Joly, Hubert 77, 115, 138, 143–5, 202 Kalanick, Travis 171 KAO 34 key risks 25 Khosrowshahi, Dara 171 Klapper, Norbert 89 knowledge, trust in 103 Konola, Kai 78–9, 102, 109 lateral career moves 174 leader mandates 36, 57–8, 68–9 leader roles 115–17; new 153 leadership, as contextual 28 leadership capabilities 70, 118 leadership changes 47, 61, 184 leadership skills 71, 74 leadership style 17, 118, 157, 195–7, 202 leadership team: composition of 48–54, 75n3, 197–200; existing 30, 42, 89; future of 189; importance of 1–5; internal coherence of

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IN D E X

15–16; involvement in choosing new members 68; journey of 139; keeping aligned 144–5; maintaining relevance of 148–51, 186; role of 48–9; unique traits of 202–3 leadership team approaches 6–8, 17, 18, 18–23; degeneration of 23–5; and performance management 168–78, 169; and recruitment 78–86, 81; and situational constraints 28–30, 31; success and failure of 25–7; and team building 125–33, 126 learning curves 150, 193 learn-it-all culture 197 Lenovo 153 Levie, Aaron 180 Lewis, Jonathan 25, 162; on admitting mistakes 117; on behavioral norms 137; on changing leadership team 93–4; on hiring team members 64, 68, 88; on toxic individuals 159 LGBTQ leaders 201 Liang Haishan 168 Logitech 88, 166, 180 long-term focus 193 long-term success 41, 64, 181–2, 186 loyalty 4, 66, 157 Lundmark, Pekka 59, 110 M&A (mergers and acquisitions) 71, 153 Mackey, John 186 management teams, diverse 53 Mayr, Erwin 50, 132–3, 158, 175 mediocracy 25, 168 Mehta, Tarak 150 Meier, Thomas P. 29–30, 36, 130, 167 Mella, Sara 6–7, 15–16, 131–3 member misalignment 170 mentoring 115, 159, 161; reverse 202

merit, promoting on 4, 149, 159, 163 microaggressions 117 Microsoft 4–5, 196–7 misalignment 144–5, 176 momentum 3, 64, 138, 186 Moore, Gordon 134 motivational drivers 72 Müller, Georg 130 myopia 53 Nadella, Satya 4, 196–7 Narasimhan, Vas 198 Nestlé 22, 36; and COVID-19 195; and decision-making 182–3 Netflix 1, 19 new skills 60, 83, 149 Nöken, Stefan 20, 100–1, 150, 182 Nokia 4, 59, 78, 110, 139, 150 Nordea 6, 15, 131 Norgaard, Mette 23 Novartis 198 Noyce, Robert 134 open-mindedness 71 operational tasks 109 optimizer role 135 organizational changes 100, 154–5, 164, 175, 179, 184 organizational culture 113 organizational layers 195 organizational maturity 135, 179, 181 organizational purpose 72, 191 organizational roles 48, 50–1 organizational structure 2, 42, 149 overachievement 70 participative recruiting 67 people first 138 people function 161, 199, 201 people skills 71 performance culture 100

INDE X

performance expectations 145–6 performance management 6, 143–7, 166–8; fact-based 167; and leadership team approach 168–78, 169; and situational constraints 178–87, 179; and Team of Stars approach 19; and team relevance 148–9; see also individual performance performance measurement 5, 58, 108, 170, 173, 181–2, 185 personal characteristics 70–4 personal development plans 149 personality clashes 60–2 personality traits 71, 74 personal relationships 82, 129–30, 157, 173 Petrillo, Fabrizio 24, 89, 104–5, 114, 129, 174 petting zoos 4, 24, 36, 129, 168, 174 Pichai, Sundar 20 P&L (profit and loss) 3, 61, 170 politics: avoiding 116; in leadership teams 4, 6, 24–5 position profiles 68–9 Poux-Guillaume, Greg 31; on company situation 37; on dismissals 156–7; on diversified companies 34; on hiring team members 63; on lack of values 73; on leader roles 116; on performance management 145; on replacing team members 61; on team building 126 power distribution 51 Premji, Azim H. 2 Premji, Rishad 2 proactive talent pipelining 162 problem solving 32, 49; joint 20–2, 25, 128 Procter & Gamble 34 professional identity 105 profiteering 194

psychological safety 104–5, 129; and performance management 147, 174 purpose-driven leadership teams 190–2, 198 purpose-driven organizations 154, 191 purpose of leadership teams see team purpose questions 128 quick-change agenda 144 racism 117 RASCI model 111 Reagan, Ronald 72 recessions 86 referee, CEO as 126–7, 133 Ren Zhengfei 1 replacement of team members 59–62, 155–60, 168; in start-up situations 180–1; and strategic change 153; in transformation and restart situation 91–3, 138 resilience 152, 192–6, 203n3 resistance 60–1, 186 respect, mutual 128 responsibility: individual areas of 19, 88, 111, 149, 170; to the organization 16, 107; processes around 128; shifting 172; in Stretch Teams 131–2 Ricola 29–30, 36, 130, 167 Riedener, Urs 85, 109, 173 risk taking 2–3 Ritakallio, Timo 93 ROIC (return on invested capital) 171 role modeling 106, 116, 130, 134, 137, 147 rotation of leadership roles 148–50, 168, 174–5, 183 Russia, sanctions against 194

2 21

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Al-Saleh, Adel 28–30, 58–60, 185 Sanche, Jacques 19 selection of leadership team 8; criteria for 68–74; four questions for 55–7; internal and external recruitment 62–5; and leader mandates 57–61; and situational constraints 86–94, 87; sourcing candidates 66–7; stages of process 67–8; and team approaches 26, 78–86, 81 sexual orientation 52 shareholder value 38, 102 Sharer, Kevin 106 shark tanks 4, 24–5, 34, 82, 168, 171, 196 Shell 194 short-term focus 193 single business companies 35–6 Sisodia, Ray 186 situational constraints 31; and performance management 178–87, 179; and team building 133–9, 134; and team selection 86–94, 87 situational demands 8, 27–8, 51, 125 size of leadership team 49–50; Stretch Team 84; Synergistic Team 82–3; Team of Stars 80 skills and capabilities 60, 70–1, 74, 118, 186 social behavior 71, 74 social media 1, 67, 190 societal purpose 191 soft skills 68 Sohi, Mohsen 73, 85–6, 91, 124–5, 136, 170 Soriot, Pascal 38 spiritual intelligence 71 stalemates 133 Starace, Francesco 154 star performers 18, 82, 171, 173

start-up situation 37–9; building leadership team in 133–5; performance management in 178–81; selecting leadership team in 86–9 strategic change 41, 151–5, 166; and continuation and development situations 183–4; and start-up situations 180–1; and Stretch Teams 176; and Synergistic Teams 175; and Team of Stars approach 172 strategic diagnosis 57–8 strategic tasks 109 Stretch Team approach 17, 22–3; degeneration of 25; implementation of 26; and integrated multi-business companies 35; key risks of 26; performance management in 175– 8; selecting members for 84–6; and single business companies 36; and team building 131–3 structure follows strategy principle 57, 76n18 succession planning 40, 160–1, 163; in Haier Group 168; in Stretch Teams 178; in Synergistic Teams 175; in Team of Stars 172; in transformation and restart situations 187 Sumitomo Group 32 supply chain 51, 85, 192 sustainability 29, 132, 171–2, 193, 197 synergies, and Team of Stars approach 20 Synergistic Team approach 17, 20–1; degeneration of 24; and integrated multi-business companies 35; and performance management 147, 173–5; selecting members for 82–4; and single business companies 36; and team

INDE X

building 127–31; Thomas P. Meier and 167 systems intelligence 71 talent management 160–3, 173, 178, 184, 187, 197–9 target setting 170–1 tasks of the team 108–9 Tata Group 32, 52 team culture 26, 40, 42, 103, 151; and team building 134, 136–7 team development 17, 38, 149 team dynamics 118, 167 team environment 101, 103–7, 115, 120n7 team meetings 19, 49–50, 101, 106, 110–11, 131; see also agenda setting Team of Stars approach 17–20; building team in 125–7; degeneration of 24; in diversified companies 33–4; implementation of 26; and integrated multibusiness companies 35; key risks of 25; performance management in 147, 168–9; selecting members for 80–2 team performance, and inconsistency of implementation 26 team players 18, 22–3, 26, 70, 85, 196 team processes 5, 26, 108–19; in continuation and development situation 40, 136; in start-up situation 38, 135; in transformation and restart situations 138 team purpose 26, 101–3, 108–9, 115, 159 team structures 108, 115, 135; regular reorganization of 149 teamwork 15–16 temporal leadership 193 tensions, healthy 85, 135, 167 tenure limits 150, 175, 183

Terwiesch, Peter 67 Tesla 35, 152 Thatcher, Margaret 72 Thorborg, Heiner 53 tie-breaking decisions 114–15 time horizons 69; multiple 192–4 tone, setting the 116, 151, 196 toxic culture 171 toxic individuals 55, 61–2, 159–60 track record 17, 70–1, 74, 82–4, 88, 124, 126 training programs 118 transformation and restart situation 40–2; building leadership teams in 137–9; performance management in 184–7; selecting team members in 91–4 transparency 59, 85, 135; as behavioral norm 106; and team building 125 Tricoire, Jean-Pascal 6 Trump, Donald 72 trust: and performance management 174, 177; and team building 124, 129, 134; and team environment 103–4; and team selection 55–6, 64, 66, 85 t-shaped profiles 174 T-Systems 28–9, 58, 60, 185 turnover 169, 174–5 Uber 35, 171 Ukraine 152, 183, 192, 194 underdogs 71 underperformance 145, 147; retaining leaders despite 158, 172; of Stretch Teams 26; in transformation and restart situations 41, 92 Unilever 29, 34 values 16, 70–1, 83–4; lack of 72–3 Vanacker, Peter 3

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IN D E X

Verizon Wireless 35 victim mentality 160 Vigna, Benedetto 47–8, 162 vulnerability 104

Wipro 2 WithSecure 6 work-life balance 200 workshops 117, 134, 136, 171

Walmsley, Emma 1 Werner-Dietz, Stephanie 59, 110, 139 Wesseling, Floris 99–100 Wieland Group 50, 132, 158, 175 Wierod, Morten 136, 150, 182–3, 202

Zhang Ruimin 168 Zhou Yunjie 168 Zufferey, Maurice 72 Zümpel, Dieter 146 Zurich Insurance 66, 80, 92, 185, 191