Executive Interviews: Interview with James O’ Toole on The Making of a CEO
January 2009 - By Dr. Nagendra V Chowdary

Dr.James O’ Toole
Daniels Distinguished Professor of Business Ethics at the University of Denver’s Daniels College of Business.

short-term time horizon driven by Wall Street’s focus on quarterly (quick) profits. For the last couple of decades, the direction of American business has been set by stock speculators, as opposed to patient investor/owners. Today, when CEOs don’t deliver in the near term, they are sacked.

• It’s more than 8 years since that interesting piece was published. Are the findings still holding good or have they changed. If they have changed, what are those changes?
  The chickens finally came home to roost about a month ago with the meltdown in the stock market. During the Clinton and Bush administrations, Wall Street’s misguided myopia was abetted by the US Congress which, basically, threw caution to the wind and enacted policies that were detrimental to the long-term health of the US economy. Deregulation of the financial markets, the Bush administration’s deregulation of business in general, plus tax incentives for the wealthiest to enrich themselves, were a potent combination leading to the worst financial crisis in three quarters of a century. And, of course, add unconscionable executive salaries to the mix

• The underlying culprit for hiring the wrong CEOs, according to you, is the self-defeating way boards select leaders by picking up the wrong people because they don’t understand what real leadership is — or how to find it? What should therefore be the true role of an effective board in selecting the right leaders?
  Many boards pick CEOs who promise to use financial wizardry to boost the bottom line, as opposed to leaders who can build sustainable enterprises. Instead, boards should seek to appoint CEOs who are dedicated to creating sustainable and ethical corporate cultures. Alas, few see that as their role.

• What according to you should be the minimum qualifications and qualities for someone to be appointed as a CEO? Will these changes be based on the size of the company, nature of the industry that the company operates in, the environment that it operates in, and the domicile status of the company (domestic MNC), etc?
  All the evidence shows that, in the final analysis, boards choose executives who were successful in their last job-typically, in a slightly smaller company in the same industry. Success is defined solely in terms of profitability. While board search committees invariably talk about looking for “leadership” qualities, in fact, they almost always end up reducing their selection criterion to the single, quantifiable measure of how much money the candidate made for shareholders in his/her last job. But the biggestmistake boards make is to hire egotistical loners. They don’t understand that leadership is not about having a celebrity CEO; in fact, leadership is a team sport. A board needs to look to staff its entire C-suite with a team of people with complementary skills. They seldom do so.

• Is it better to promote a person from within the organization to the post of CEO or is it better to hire an outsider as the CEO? Is there any evidence supporting either of these perspectives? Under what circumstances do you think it makes sense to adopt each of these policies? For instance, GE’s CEOs are always chosen from the internal candidates, while many other companies hire an outsider? Are there any patterns that you have observed over the last few decades across several major global companies?
  My colleague, Professor Nandini Rajagopalan, has assembled overwhelming evidence that boards are better off going with insiders. That’s because insiders know the business, they have worked with the other executives in the company as team members, and their strengths and weaknesses are apparent. So no surprises: no gambling on an unknown. Boards too often ignore these benefits of hiring the “devil they know” and, instead, go looking for an outside “savior”. That is often a recipe for disaster. The fact is, most outsiders fail within a year, particularly outsiders who are indentified by executive recruiting firms.

1. CEO as Change Agent Case Study
2. ICMR Case Collection
3. Case Study Volumes