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The Effective Decision – The Function of the Chief Executive

At 60, John Neyland, the company president, decided he would retire before the mandatory retirement age of 65. He did not reveal his decision to anyone until he reached 62, and at this time he confided to his best friend and the most powerful board member that he would retire imminently. Mr. Neyland proposed that Bill Strong, Vice President, Administration, a very able and experienced executive, succeed him as president. Mr. Neyland’s friend vehemently opposed Bill Strong’s candidacy, and forcefully argued that Margaret Wetherall, vice president of manufacturing, was the best qualified to be the new president.

This case presents a situation where the decision-making process has completely failed. The selection of the president is one of the most important decisions a board of directors makes. Not only does a president have an enormous impact on the fortunes of a company, but the very process by which the executive is picked influences the way employees, investors, and other constituencies view the company and its leadership. One of the board’s most critical roles is to ensure the presence of an effective management development program for the whole enterprise.

While the CEO (in most firms, the president is also the CEO), is the person managing the program, the board needs to play an active oversight role to ensure that the program is in place and is working effectively. Considering that Mr. Neyland was approaching the mandatory retirement age, and that a significant difference in opinion between Mr. Neyland and the most powerful board member as to who should be the new president, it is clear that the board (the president is almost always a board member) was extremely derelict in its duties.

The decision-making process was greatly undermined, with huge ramifications for the organization. In the Japanese way of decision-making, the single most important element in solving such problems is defining the question. Because the Japanese system is very time consuming and involves many participants from various functions within the organization, the Japanese system is suited to big decisions. A change is president is one of the most crucial events in the life of a company, and it is an event in which the board of directors plays a central role.

Because the new president must be chosen soon, it is already too late to make an effective decision. The decision process will inevitably be marred by politics and compromises, resulting in a weaker organization and lower morale. A successful succession process requires that the board members first define the question: Always view the problem from different perspectives. Each board member should have an independent point of view. Board members should be open-minded. Every board member should seek information and opinions from a variety of people to widen his frame of reference.

Board members need to be active players in shaping the company, and one of their key responsibilities is to oversee the entire succession process. There has to be an effective management development program for the entire organization. Such a program should have the following characteristics: Stability – there should not be constant changes. Should be viewed as a fundamental element of the administration of the business. The program needs to be well understood by everyone throughout the organization. Comprehensive: it should form the basic personnel program for the whole company.

It should not be designed to cover just the very top layer of management. It should track managers’ assignments, identify their development needs, and establish the career paths that will prepare them for higher responsibility. The board should be able to draw on information from the management development program to evaluate each manager in relation to the qualities that everyone has agreed are important for the president. In addition to reviewing the information coming out of the development program, the board needs to have direct and regular contact with all the promising candidates.

Some of the contact should be formal. For instance, candidates should make regular presentations at board meetings. But informal connections are also crucial. Board members need to take the time to get a feel for the personal chemistry of the candidates – to have causal conversations over dinner or lunch, for example. There is a need for both formal and informal contacts to make sound judgements. It is also important to try to establish situations in which the board can see how the candidates relate to their peers. It is not enough just to look at how they act with the board.

Many talented executives who are very effective in their current jobs do not handle “real” authority well. It is hard to measure that capacity, but one can get a sense of it by seeing how individuals relate to their colleagues. It is important that the board make sure that the succession process begins about four or five years before the president is expected to step down. This time frame gives room for maneuver if necessary, and that is important. The board has to identify candidates who could be moved to the top of the organization.

If there is only one real candidate to succeed the president, the president needs to go out and bring new people into the top ranks of the company – to get the pool of successors up to three or four strong candidates. Getting these new people established and reviewing their performance takes time, so the board needs to insist that the process start early. The candidate who looks best early in the process may not be the one who looks best later. This requires great communication between board members, which does not always exist.

Often times the effective decision-making process in undermined because the board is passive, and board members are friends with the president. It used to be that a company was in one kind of business and stayed in it. Today, companies are much more likely to shift between businesses. This dynamic is at work in many of the mergers and acquisitions that have become commonplace. A manufacturer may buy a financial service provider. All of the sudden, it’s in a different business, and running that business requires a different set of skills.

The overall pace of change in business is accelerating, which puts pressure on companies to re-invent themselves. Probably the toughest task for the president in effecting change is mobilizing people throughout the organization to the new competitive environment. The president must possess extraordinary skills, with leadership, integrity, and the ability to motivate being crucially important; this individual is intimately involved when a company restructures or re-engineers, develops or implements strategy or merges business.

The president may be forced into resolving conflicts when marketing has difficulty working with operations, when cross-functional teams don’t work well, or when senior executives complain, “We don’t seem to be able to execute effectively. ” But these problems are often systemic problems with no ready answer, and yet the president is expected to magically come up with a brilliant solution. Mobilizing an organization to adapt its behaviors in order to thrive in a new business environment is critical.

Without such change, any company today would falter. Indeed, getting people to change is the mark of leadership in a competitive world. Yet for most senior executives, providing leadership and not just authoritative expertise is extremely difficult, because: Executives reach their position of authority by virtue of their competence in taking responsibility and solving problems. However, when a company faces systemic problems, the responsibility for problem solving must shift its people.

Solutions to complex issues do not reside in the executive suite, but in the collective intelligence of employees at all levels, who need to use one another as resources, often across boundaries, and learn their way to those solutions. Major change is distressing for the people going through them. The need to take on new roles, new relationships, new values, new behaviors, and new approaches to work can be difficult. Many employees are ambivalent about the efforts and sacrifices required of them. They often look to senior executives to take problems off their shoulders.

But those expectations have to be unlearned. Rather than fulfilling the expectation that others will provide answers for them, leaders have to teach them how to better solve their own problems. Instead of maintaining norms, leaders have to challenge “the way we do business,” and help others distinguish core values from historical practices that must go. Since change is a function of leadership, being able to generate highly energized behavior is important for coping with inevitable barriers to change. Achieving grand visions always requires an occasional burst of energy.

Motivation and inspiration energize people, not by pushing them in the right direction as control mechanisms do, but by satisfying basic human needs for achievement, a sense of belonging, recognition, self-esteem, a feeling of control over one’s life, and the ability to live up to one’s ideals. Such feelings touch us deeply and elicit a powerful response. Good leaders motivate people in a variety of ways. First, they always articulate the organization’s vision in a manner that stresses the values of the audience they are addressing.

This makes the work important to these individuals. Leaders also regularly involve people in deciding how to achieve the organization’s vision. This gives people a sense of control. Another important motivational technique is to support employee efforts to realize the vision by providing feedback, and role modeling, thereby helping people grow professionally and enhancing their self-esteem. Finally, good leaders recognize and reward success, which not only gives people a sense of accomplishment, but also makes them feel like they belong to an organization that cares about them.

When all is done, the work itself becomes intrinsically motivation. The more the change characterizes the business environment, the more the leaders must motivate people to provide leadership as well. When this works, it tends to reproduce leadership across the entire organization, with people occupying multiple leadership roles throughout the hierarchy. This is highly valuable, because coping with change in any complex business demands initiative from a multitude of people. There are many pitfalls in making an effective decision if the question is not examined from all perspectives.

Certainly Mr. Neyland and his friend on the board had strong opinions as to who should be the next president, and a strong difference in opinions is not unusual, and in some cases, it can be healthy. It is very possible that both Mr. Neyland and the board member got caught in the confirming evidence trap because it is so insidious. The following example illustrates the confirming-evidence trap: Suppose the president of company ABC, a successful midsized U. S. manufacturer, is considering to call off a planned plant expansion.

For a while the president has been concerned that ABC will not be able to sustain the rapid pace of growth of its exports. The president fears that the value of the U. S. dollar will strengthen in coming months, making ABC’s goods more costly for overseas consumers and dampening demand. But before the president puts the brakes on the plant expansion, the president decides to call up an acquaintance, the president of a similar company that recently closed a new factory, to check her reasoning.

She presents a strong case that other currencies are about to weaken significantly against the dollar. What should the president of ABC do? The president should not let that conversation convince him, because if it does, then he has probably just fallen victim to the confirming-evidence bias. This bias leads one to seek out information that supports one’s existing instinct or point of view while avoiding information that contradicts it. What, after all, did the president of ABC expect his acquaintance to give, other than a strong argument in favor of her own decision?

The confirming evidence bias not only affects where we go to collect evidence but also how we interpret the evidence we do receive, leading us to give too much weight to supporting information and too little to conflicting information. It’s not that you should not make the choice you are subconsciously drawn to. It is critical that you want to make sure it is the smart choice. So you have to put your decision to the test: Always check to see whether you are examining all the evidence with equal rigor. Avoid the tendency to accept confirming evidence with equal rigor. Avoid the tendency to accept confirming evidence without question.

Get someone you respect to play devil’s advocate, to argue against the decision you are contemplating. Better yet, build the counterargument yourself. What is the strongest reason to do something else? The second strongest reason? The third? Consider the position with an open mind. Be honest with yourself about your motives. Are you really gathering information to help you make a smart choice, or are you just looking for evidence confirming what you think you would like to do? In seeking the advice of others, do not ask leading questions that invite confirming evidence.

If you find that an adviser always seems to support your point of view, find a new adviser. Do not surround yourself with yes-people. A first step in making a decision is to frame the question. It is also one of the most dangerous steps. The way a problem is framed can profoundly influence the choices you make. A poorly framed problem can undermine even the best-considered decision. But any adverse effect of framing can be limited by taking the following precautions: Do not automatically accept the initial frame, whether it was formulated by you or by someone else.

Always try to reframe the problem in various ways. Look for distortions caused by the frames. Try posing problems in a neutral way that embraces different reference points. Think hard throughout your decision-making process about the framing of the problem. At points throughout the process, particularly near the end, ask yourself how your thinking might change if the framing changed. When others recommend decisions, examine the way they framed the problem. Challenge them with different frames. The Japanese make decisions by consensus, and they have developed a systematic decision-making process.

The critical first step in the Japanese decision-making system is to define the problem and then proceed through well-defined stages to arrive at an effective decision. For example, the Japanese flush out various opinions without any discussion of the answer. The Japanese focus on exploring and debating the merits of alternatives, rather than on the optimal solution. The process includes all parties that are affected by the decision. When a consensus is reached, the decision can be easily implemented because people implementing the decision were intimately involved in the decision-making process.

The disagreement between Mr. Neyland and the board member regarding who should succeed Mr. Neyland has sabotaged the effective decision-making process. It is highly unlikely that the next president will be the “best” candidate, and politics will compromise the integrity of the decision process. Naturally, there are enormous implications for the economic health of the organization. American and European managers often make poor decisions, and the consequences can be devastating for their organizations.

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