Top Management Teams and Their Discontents

CEOs look constantly for areas where they can improve performance.  Yet, as a comprehensive, two-year research study shows, many overlook one of the richest and most readily available targets for improvement: their own top management teams (TMTs). 

Why? Because a significant number of CEOs remain unaware of the high level of dysfunction on those teams.  

While CEOs consistently give their teams high marks for overall effectiveness, TMT members in overwhelming numbers report that their teams perform poorly in such critical areas as innovative thinking, leading change, overseeing talent development, and building a common culture. 

Why does it matter?  CEOs can't address what they can't see.  When their eyes are opened they are often surprised, and want to do something about it.  "I guess I didn't know how the team felt about what we did when we met," says the CEO of a Fortune 100 technology company who participated in the study.  "I tend to take on all the hard issues and just think that the members of the team are all with me." 

Poor performance by the top team, coupled with the CEO's inability to perceive it, can lead to one of the biggest mistakes Boards often make in the face of sub-par business performance.  They replace the CEO when improving the effectiveness of the top management team could produce better results, faster, with more lasting impact. 

Our research not only uncovered the striking difference of perception between CEOs and their teams, but also contradicts some of the conventional wisdom about what really makes such teams effective.  Conducted by Heidrick & Struggles with the assistance of the Center for Effective Organizations at the University of Southern California, the study encompassed 124 CEOs and more than 579 other top executives from global mid- to large-sized companies, a survey of top human resource executives in 60 Fortune 500 firms, and a review of 65 studies devoted to the subject of top management team effectiveness. Based on the study's findings, there are five levers that CEOs can pull to ensure a high-performing top management team: 

Assume a gap in perception with TMT members.  A CEO could conduct a survey along the lines of our global research.  But unprotected by the anonymity of a large-scale, multi-company survey, team members are unlikely to answer candidly.  It's easier for CEOs to simply embrace the overwhelming evidence of the research and assume that a gap exists between their perception of the team's performance and the team's perception.  By deciding to take deliberate action to understand perceptions and improve team effectiveness, a CEO can create an opportunity to improve leadership effectiveness-and the business impact could be significant.  Ed Hanway, Chairman and CEO of health services company CIGNA, recently used consultants to interview both his TMT members as well as his directors.  "You do need to realize that as CEO you are limited by your own viewpoint and that different realities do exist on your team," he says.  "It is powerful to get it all out on the table, and see where you are aligned and where you're not.  Unearthing the real differences in perceptions helps you determine where and how to work together even better going forward."

Address unhealthy competition among team members.  Direct reports and other members of the top management teams see themselves primarily as competitors - rather than collaborators - in leading the organization to higher levels of performance. Half the team members in our survey say they see each other as competitors; 31% admit they put their own interests ahead of their corporations, and only 16% agree that their teams handle conflict well.  Such unhealthy competition reduces the likelihood that the C-suite will generate winning corporate strategies and successful change. 

Team members may also see each other as competitors because they are often rewarded by CEOs and boards for successfully competing with each other. The biggest bonuses go to those whose divisions are most profitable, and boards often choose those same "winners" for promotion to COO and CEO positions.  Only 42% of the human resource executives in our HR survey say that teamwork is considered when recruiting or promoting individuals to the C-suites.  It's no wonder, then, that the men and women in C-suites are often ineffective team players: they are recruited, promoted, rewarded, organized, and trained to be competitive and self-interested rather than collaborative and team-focused. 

A recently promoted CEO in a $12B service enterprise, who had won an internal horse race with another member of the top team, says that their competition had blocked any real teamwork over the previous six months.  "Other members of the team were afraid to take sides and we stopped addressing real issues," he says.  "Instead, we took most of the hard stuff off-line and one-on-one with our CEO at the time, who just didn't know how to get around the conflict associated with the competition." 

It is difficult, if not impossible, to address the problem of team conflict while continuing to reward only intramural competition.  Nonetheless, many companies resist team-based rewards, preferring instead to set individual goals that let them isolate performance and avoid conflict at reward time. 

CEOs can take charge of performance by determining where collaboration is required, setting goals that individuals cannot achieve without the help of other colleagues, and rewarding collaborative effort.  One telecom company CEO went even further: "We have a functional organization at the top, so no one works in isolation.  Everyone has their functional goals to achieve, and they all made some effort to work together.  But then I made it so everyone's bonus was based 100% on my goals as CEO for overall company performance and organizational development-that's when we saw real collaboration start to happen." 

Regular confidential reviews and career planning sessions for each team member with the CEO and clear communications from the CEO with all team members about where they stand in terms of their performance and prospects can also head off unhealthy competition.  For the long term, the CEO can also make sure that the process for assimilating new team members includes carefully structured onboarding designed to create an ethic of collaboration. 

Get team process right. The essence of top leadership is making the right hard choices among competing alternatives. Underperforming TMTs typically struggle with making tough choices, especially in pressured situations where speed is important, often because they lack effective conflict resolution and decision-making processes. 

Our research confirmed what years of consulting practice has revealed: what matters most for team effectiveness - more than team structure, more than business strategy - is how the team works together: its decision-making patterns, modes of conflict management, responsiveness to business changes, and the management of its meetings.  At the end of the day, the €˜hard' stuff that is easiest to analyze and manipulate is less important than the €˜soft' stuff that is so hard to do.

For managing conflict, for example, it can be helpful for teams to build capability for healthy dialogue by using a facilitated decision-making process that quickly gets all positions and points of view on the table.  The CEO can also get the team to create and commit to clearly defined team operating principles, which can then be reinforced by building feedback on team behavior into the executive performance review process.  In addition, significant improvement in team functioning can come from simply improving the nuts and bolts of effective team processes - the timing of meetings, agenda-setting, pre-meeting communications, and after-meeting tracking.

"We spent too much of our meeting-time taking deep dives in shallow ponds, and it really ticked me off," says the CEO of a Fortune 500 biotech firm.  "The right topics were there, but no one kept to the agenda and on task.  I've never been trained as a group facilitator and everyone looked at me to guide the discussion.  But now that I've turned the meeting process over to my chief of staff, we cover our topics, finish on time, and get everyone back out there driving performance.  Plus it's easier for me to drive my points and be heard when I'm not also responsible for the process."

Get team structures right. Although process improvements are usually the most direct way to address the performance of top management teams, changing team structures - composition, roles, decision rights, and rewards - can be an important point of leverage in many cases.

To ensure that all the key parts of the organization are aligned, identify who should be sitting at the table. Whatever the need for teaming may be - building alignment around values and vision, developing strategy, solving problems, brainstorming, reviewing budgets and operating performance, or communicating and coordinating - the team's composition needs to complement the operational tasks at hand.  As leaders, CEOs must assume final responsibility for giving clear direction to their teams - in particular, for defining who gets to participate in what decisions and for clarifying the need for, and purposes of, executive teaming.

For many years, CEOs have been concerned with getting the "right" number of people on their top management teams.  But our research indicates that, in general, the number of executives in a C-suite is not a predictor of either team or organizational effectiveness.

It's more important to organize the team with the right mix and diversity of skills and experience to go with well-designed team structures and processes that focus that talent in the most effective way. 

Many CEOs are now reaching beyond their direct reports for members of the top team.  For example, the new CEO of a high-tech business within a larger telecom parent didn't want to expand his number of direct reports.  But he did want to focus more attention on innovation and product development, which had been overshadowed for years by the marketing culture of the parent company.  "I brought our product innovator to the top team table and created a council where he had equal authority in the debate as the executive he reported to," he says.  "It was a little tricky-but it changed our focus and sped up our whole product pipeline, which is key to who we really are as a technology company."

Maintain rigorous focus on the team's responsibility for creating long-term value.  If stockholders, boards and employees can't look to the top management team to drive value over the long term, who can they look to?  Yet, while team members in our study feel that they are reasonably effective at near-term tactical activities, they confess to being far less effective at the leadership activities that drive long-term competitive advantage.  They say they are most effective at managing operations, problem-solving, and sharing information; and least effective at overseeing talent development, brainstorming, innovative thinking, market analysis, leading change, and creating a common culture - all of which are critical for building and sustaining competitive advantage over the long term.

It's not surprising that many TMTs aren't adept at these enterprise-level activities. After all, these are activities for which CEOs are typically accountable, while members of the top management team are primarily there to handle their part of the whole-a function or an individual business unit.  These sorts of leadership activities are unevenly performed in most organizations anyway.  It's not as if team members were great at them, but then forgot how when they reached the top table.  It is in emphasizing these important-but-not-urgent activities that CEOs have perhaps their greatest opportunity for creating a legacy of high performance by their teams.

For example, management agendas can be deliberately separated from strategic agendas.  As the CEO of a fast-growing alternative energy company says, "We now set aside one day a quarter to focus solely on strategy and big change issues-and we have a Board member and a strategy executive make sure that this process is strong.  For the rest of our meetings, we drive production and make sure we meet or beat our numbers-which takes up our entire mind share."

                                                   *************************** 

Now more than ever, CEOs are expected to get the most from their teams. A recent CEO succession at a large commercial insurance company illustrates the point.  The Lead Director and head of the search committee was working with the Board to address the issue of top team performance by changing the list of required competencies for the next leader. "In addition to wanting a good decision-maker, we needed someone who knows how to take his people and make them work as a great team," says the director.  "When we referenced candidates, we made sure that we got the view of people who reported to them - because we believed that would be the real proof of their abilities to lead a team."

But CEOs don't have to wait for direction from the Board.  By investing in improving team performance now, chief executives can broaden their personal impact, increase their job security, and, most importantly, improve the business performance on which their tenure depends.  CIGNA COO David Cordani, working with Ed Hanway on restructuring the company's top leadership teams, puts it this way:  "It is more than just having the best and brightest in the right positions.  The secret is to now get them working together in the right way on the right teams so that we are really aligned and focused on driving success across the enterprise.  Alignment and teamwork starts there and can then flow all the way to our front-line, customer facing employees."  Or as legendary coach Phil Jackson says, "Talent wins games, but teamwork wins championships."  

By the Numbers: CEO vs. Non-CEO Perspectives 

Team members and CEOs in our survey of top management team effectiveness couldn't see things more differently.  On a seven-point scale, CEOs give their teams a 5.39 average rating on overall effectiveness, whereas the average rating by non-CEO members is only 4.02. Statistically, those ratings are hardly in the same ballpark.

As the table below illustrates, CEOs and other members of the C-suite roughly agree when ranking the need for teamwork in critical team functions according to their degree of importance.  But for team members, an enormous gap yawns between the critical importance of many team functions and their team's effectiveness in executing them.  Vast differences also exist between the perceptions of CEOs and other team members on a number of dimensions of team design and performance.

Survey Item	CEO N=124	Non CEO N=579			Survey Item	CEO N=124	Non CEO N=579
This is a critical purpose/function of the TMT:	Mean	Mean	Sig.		The TMT is highly effective in:	Mean	Mean	Sig.
Sharing information	6.40	6.16			Sharing information	5.57	4.45	***
Cross-marketing/sales	5.37	5.21			Cross-marketing/sales	4.79	4.13	**
Building a common culture	6.49	6.13	*		Building a common culture	5.51	4.15	***
Strategy formulation	6.56	6.29	*		Strategy formulation	5.68	4.39	***
Operations/performance oversight	6.06	5.78	*		Operations/performance oversight	5.78	4.76	***
Problem solving	5.92	5.57			Problem solving	5.52	4.41	***
Brainstorming/innovative thinking	6.11	5.70	*		Brainstorming/innovative thinking	5.19	4.02	***
Leading change	6.37	6.21			Leading change	5.29	4.11	***
Creating organizational alignment to the strategy	6.57	6.28	*		Creating organizational alignment to the strategy	5.52	4.24	***
Overseeing talent strategy/bench strength for top 1-2 management levels	6.37	6.15			Overseeing talent strategy/bench strength for top 1-2 management levels	4.79	4.05	**

Comments - Use your blogger U/P   You must sign in to post Blogger   Username  Password  No Blogger account? Sign up here. CAPTCHA Validation Retype the code from the picture   Code: