A Really Good Book: “Searching for A Corporate Savior,” by Rakesh Khurana

I rarely find a book about management or leadership very interesting. There are hundreds of volumes written about both topics, and almost all of them are trite, boring, or simply a variation on a theme that has been done a hundred times or more. But once in a while a gem appears, and Rakesh Khurana’s book, Searching For a Corporate Savior, is one of those. I am sure it will stimulate discussion and controversy over the next few months. And perhaps it will even begin to change the way we think about CEO succession. Rakesh Khurana, now an associate professor at Harvard, but a PhD student at MIT when he researched this book, has written a fascinating story about how CEOs are chosen. He comments, based on solid research, on why the charismatic CEOs we have come to expect today have emerged. Indeed, according to his research more CEOs are being placed from outside the organization than are being promoted from within ó a phenomenon that only began in the 1980s and has since steadily increased. How many CEOs from Fortune 1000 companies were featured on a Business Week cover in 1981? he asks. How many in 2000? The answers are 1 and 19 respectfully. What happened over a 20-year period to warrant this? Perhaps a fixation on the CEO as the sole creator of corporate wealth and growth ó and, consequently, as the primary factor in a corporation’s failure to meet financial goals and expectations? Perhaps the rise in the number of equity analysts, whose numbers increased from about 1,500 in 1980 to more than 4,000 in 1999? Perhaps an increase in the institutional ownership of equities, from less than 10% in 1950 to more than 60% by the late 1990? Whatever the cause, the CEO has emerged as the “corporate savior” and is viewed as the key to stock price increases and decreases. He carefully analyzes the role of the board of directors in the decisions to replace a CEO as well the role of the investment community. And he is particularly hard on human resources and its failure to provide leadership. “The mere fact that the human resources department of today is considered one of the lowest-prestige divisions in most major companies makes the priorities plain,” he notes. “The personnel function was (and continues to be) peripheral to the senior executive team…” He sees the use of outside search agencies as a way to keep the anonymity of players secure rather than as a way to introduce unknown candidates into the process. He says that most potential CEO picks come from the board of directors itself, and that all successful candidates were already known to the board before the decision was made. The search firm helps the organization appear to be more objective and acts as a “marriage counselor” between the parties. While this may be a legitimate function, it is hardly what the average person expects is happening. In fact, the “market” for CEOs is a closed community, limited to a few known personalities. New CEOs are often chosen for their media prominence and external persona more than they are for their understanding of the organization’s core business, needs, or strategy. The book is a wealth of information on the succession of CEOs, as well as the internal processes and why they have changed over the past twenty years. It is in many ways an indictment of HR and the board of directors for their inability to provide a meaningful, results-based process for selecting effective CEOs. Similar themes to the one in this book are also emerging from the work by Jim Collins, in his recent bestsellers From Good to Great as well as an article in Strategy + Business magazine called “Why CEOs Fall,” which offers a strong research-based analysis of trends in CEO succession that nicely supplements this work by Khurana. I urge you to get a copy and read it. Then pass it on to your boss and anyone else who has a role in leadership succession and senior leadership recruiting.