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COPYRIGHT 2005 Sloan Management Review
The CEOs and senior executives of Enron Corp., WorldCom Inc. and other disgraced companies have certainly gotten their fair share of press, but the huge scandal that nobody talks about is the multitude of cases in which top positions are filled with mediocre people. After almost 20 years of experience in helping companies to find and recruit people for senior positions, I am convinced that the problem of poor appointments is serious, pervasive and highly dangerous. (See "About the Research," p. 68.) But many firms are either unaware of the problem, slow to react to it or severely hampered by a number of psychological obstacles.
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Understanding the Problem
Three factors explain why companies have such trouble making the best people decisions at the top. First, even for organizations that are adept at selecting winners, the deck is still stacked against successfully finding those individuals. Second, assessing people for senior positions is inherently difficult for a number of reasons. Finally, powerful psychological biases impair the quality of the decision-making process. A closer look at those three factors explains how each contributes to the failure of companies in making crucial appointments.
A Stacked Deck To understand why companies have such trouble finding topnotch executives, first consider the way in which certain sophisticated skills are distributed across the managerial population. When it comes to complex jobs such as that of a senior executive, the distribution of talent is highly skewed. (See "A Good Performer Is Difficult to Find," p. 70.) The implication is that the best executives will perform at a much higher level than that of their peers. In fact, the performance spread grows exponentially with the complexity of the job. Simply put, the more complex the job, the larger the expected difference between top performers and others. (1) The problem is that the odds are against companies finding those outstanding individuals because there are so very few of them around.
The deck is further stacked by the large impact of assessment errors, even for high levels of accuracy. To understand this issue, answer the following hypothetical question: Assuming that you want to hire only the top 10% of candidates for a position and that you are 90% accurate in assessing them, what will your success rate be? Many people might expect it to be 90%, but the true answer is just 50%. Here's why. If you assess 100 candidates, 10 of those will be the top 10% (although you don't know which 10). Of those 10, you will rightly assess nine as "top" because you are 90% accurate. So far, so good. But the problem is the other 90 candidates. Because of your 10% assessment error, you will mistakenly categorize another nine candidates as "top." So, out of the 100 candidates, you will have classified 18 as top performers when half of them really aren't.
Assessing the Unknown When assessing candidates for a job, companies need to predict two things: What skills and attributes are truly needed, and what will each person actually deliver? Both predictions are extremely difficult to make for the top jobs at any organization.
Junior positions--for example, the brand manager for a consumer goods company--typically require general skills that are relatively easy to define. Senior jobs, in contrast, are often unique. Because of that, companies generally have great difficulty determining what is truly needed at the top. To complicate matters, senior positions frequently have little stability: Their requirements and priorities can shift dramatically as a result of macroeconomic, political, competitive or technological changes. Simply put, what is needed today can be quite different from what is required tomorrow.
Even when a company knows exactly what it's looking for, determining whether a particular candidate fills the bill is an entirely different matter. That's because the differentiating competencies for top leaders are usually in "soft" areas, such as the ability to develop people, lead teams, collaborate with others and manage change efforts. Each of these skills is very difficult to measure in any reliable way.
Finally, to exacerbate the problem, most senior executives have precious little time for a...
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