With the general election imminent, I have been reflecting on what makes a successful leader. To compare and contrast the shiny, well-fed Eton Boy with the crumpled beefiness of the Scottish Heavy could be fun. But given my declared party affiliation to Labour and not wishing to leave MT open to accusations of political bias, I'll restrict my musings to business leaders.
Certainly, it is easier - in the short term, at least - to measure success in business than it is in politics. Every CEO I know checks their share price daily - it is tangible evidence of how well or how badly the company's owners think they are doing. Meanwhile, politicians, notwithstanding the polls and newspaper headlines, have to wait for elections to find out just how they are regarded by those to whom they are answerable. But the focus on the kind of X Factor popularity that politicians are forced to seek before elections, parading wives, children and minor bad habits in an effort to ingratiate themselves with the electorate, is as nothing compared to the half-yearly humiliations faced by many CEOs trying to explain their firm's performance to the analysts.
Business leaders may be accountable to a range of stakeholders, including customers and employees, but it is the shareholders that really count. Incentivised themselves on a quarterly basis to produce higher and higher returns on their portfolio of companies, fund managers - as well as the analysts whose notes form the basis of investors' decisions - notoriously tend to focus on growth, growth and more growth, by any means, and the quicker the better. This can encourage CEOs to take decisions that are good for the share-price rather than for the company. The play Enron dramatised this preoccupation beautifully with the ever-flashing red index of the share price inexorably rising with the company's increasingly dubious dealings, until the descent into valuelessness, fraud and imprisonment.
Delivering shareholder value may be the name of the game, but share price is only one measure of this. A preoccupation with short-term fluctuations can mask the true quality of corporate performance. The remun- eration committees of most companies try to counteract this by placing an emphasis on long-term incentives, although these are usually calculated only over a three-year period. If remuneration committees achieved their intentions, we might expect the best-paid CEOs to be the most successful in delivering the best long-term performance. Sadly, the evidence does not support this hypothesis.
The Harvard Business Review has published (Jan-Feb 2010) a fascinating study of the world's best-performing CEOs. It examined the record of nearly 2,000 chief execs in 1,205 companies globally, and measured financial performance for the full period of their tenure or, if still in office, up to September 2009. The first striking point to note is that there seems to be little or no correlation between the lists of the best paid and the most respected CEOs with those who have actually delivered superior results.
None of the top 10 highest-paid in 2008 appear among the top 50 highest performers. There are, of course, some honourable exceptions, such as Steve Jobs of Apple, who tops the best-performing list, having delivered a staggering 34% compounded annual return since 1997, and appears in the other list too. Our own Terry Leahy also shows up in both the most admired and best-performing list and is among nine Brits on the HBR list. It's notable that there are no bankers among the top performers.
Some of the most successful CEOs were also the least well known, such as Samsung Electronics' Yun Jong-Yong, who increased the market cap of the company by $127bn in a 12-year tenure. Another low-profile high performer is John Martin of Gilead Sciences, who achieved sixth place with 26% annualised growth through the delivery of the one-pill-a-day Aids drug and the anti-viral Tamiflu. HBR describes such CEOs as 'quiet gems' who deliver outstanding results year in, year out, away from the glare of cover stories and MBA case studies.
It is not an option for politicians to maintain a low profile. A Clement Attlee who said 'No' when asked if he had anything to say to the British public just wouldn't hack it today. To get elected, they have to hawk themselves around TV studios, suck up to tabloid editors and sell themselves as personalities, even if they don't have one. They may try to stand on their record of achievement, but the electorate wants a quick fix of all problems, however complex.
Similarly, in the corporate world, shareholders have been content to go for the fast buck, as demonstrated by the Cadbury takeover, where long-term performance counted for nothing when there were short-term profits to take. Both shareholders and voters want immediate gratification - jam today, please.
It takes courage and confidence for a leader to take the long view. Nothing inspires more than a leader with a clear vision of where they are going and how to get there. If this is underpinned with a track record of success, so much the better. Steve Jobs, Bill Gates and Terry Leahy have not only delivered for their shareholders over the long term but also for customers and colleagues. This marks them out as authentic leaders. Politicians would do well to take note.
There is a tough haul ahead if government and business leaders alike are to repair the damage done in recent times by the short-termism of Wall Street and the City. Courage and vision will be needed by both.
Baroness Kingsmill CBE has been a non-executive director of various private and public boards. She is a non-executive director of British Airways and Korn/Ferry International.