Leadership Confidence Is Crumbling… Here’s What’s Really Happening

Episode #317 Leadership Confidence Is Crumbling… Here’s What’s Really Happening

CONFIDENCE IN EXECUTIVE TEAMS IS DECLINING

I came across a survey from executive search firm, Russell Reynolds, a little while back, which found that leaders’ confidence in their executive leadership team (ELT) is falling. This three-year trend shows no sign of being reversed.

What’s behind this erosion of confidence in the people in charge? What are leaders seeing in their executives that makes them feel less secure about the top team?

You don’t need me to tell you how rapidly the world is changing. Generative AI is still in its infancy; global instability is increasing; and social change is happening faster than at any time in human evolution. Dealing with these trends is hard, and anyone who claims to know where this is all heading is just full of sh!t.

If you’re already in a CEO or a senior executive role, you are no doubt struggling to cope with the rate and complexity of the change. If not, and you have aspirations of joining the C-suite, then you’d better start preparing, because it’s not looking like it’s going to get any easier in the years ahead.

I begin today’s newsletter by looking at a few of the major findings from the Russell Reynolds research and lend my interpretation of each. And then I simply ask, “What can you do to make a difference?”

WHO IS THE MOST (AND LEAST) SUPPORTIVE?

I came across a great piece of research recently from executive search firm, Russell Reynolds, with the catchy title, Leadership Confidence Falls to Three-Year Low.

For those of you who aren’t familiar with Russell Reynolds, it’s the “R” in “SHREK” firms. SHREK is the acronym used to describe the high-end executive search firms that place senior leaders, CEOs and board directors into some of the world’s premier companies.

The full roster of the five SHREK firms is:

• Spencer Stuart
• Heidrick & Struggles
• Russell Reynolds
• Egon Zehnder, and
• Korn Ferry.

In the world of recruiting top talent at the pointy end of major companies, the SHREKs play in rarefied air. Their fees are astronomical, earning hundreds of thousands of dollars for their average placement. They are, to the recruitment industry, what the MBB firms – McKinsey, Bain, and BCG – are to the consulting industry. There’s them, and then there’s everyone else… with quite a bit of clean air in between.

They may not even be that much better, pound for pound, than some of the companies at the tier below, but their brand reputation is so strong that board directors and CEOs who inhabit the world’s top companies wouldn’t trust their executive selection processes to anyone else.

But I digress… all of this is just to say the research is credible, and it is representative of the reach that Russell Reynolds has into the top brands in business.

The results of their survey are broken down into four categories of respondents:

1. Board directors;
2. CEOs;
3. C-level executives; and
4. What they call next-generation leaders, who are a few levels below.

Unsurprisingly, the higher up you go, the more favorable the perception of executive leaders is.

Next-generation leaders had the least confidence in their ELT, in pretty much every area, whereas CEOs had the most confidence.

This stands to reason, I guess, because it’s the CEO who actually appoints the executive team in question. Any lack of performance or behavior in their team would be a direct reflection on themselves, so they may be a little more generous in their assessment.

But equally, CEOs have a better understanding of the complexity, the ambiguity, and the conflicting expectations that most executives have to operate under. Just remember this: the job above you looks pretty easy… until you get promoted, and you actually have to do it.

This phenomenon can be largely explained by the ‘tree full of monkeys’ analogy. They say that organizations are like a tree full of monkeys: if you’re at the top looking down, you see a crowd of smiling faces looking up at you… but if you’re at the bottom and you’re looking up, all you can see is a bunch of assholes!

THE PETER PRINCIPLE STILL APPLIES

The report tees off pretty hard, with this statement:

“At every level, leadership confidence in the executive team has progressively declined. The ELTs’ ability to address ongoing uncertainty and ever-increasing complexity is waning…

“Rising expectations and scrutiny from a heightened diversity of stakeholders provides a huge cognitive and emotional load for today’s leaders”.

The study assesses executive confidence in respect of three key factors:

• Capability;
• Behavior; and
• Issue management.

All three of these areas showed a deterioration in results. This aligns quite well too with data from another Russell Reynolds research tool, which is the Global Leadership Monitor, which tracks the top threats impacting organizational health, and leaders’ preparedness to face them.

In the preceding six months, leadership preparedness dropped across all five threats:

1. Economic uncertainty;
2. Availability of key talent and skills;
3. Technological change;
4. Geopolitical uncertainty; and
5. Increased regulation.

Before I look at some of the report findings, I just want to share my initial reaction, as I poured over the results of this report.

I wondered, are we just seeing the Peter Principle playing out in these executive teams? You may recall the Peter principle states that eventually people are going to be promoted to their level of incompetence… and there they remain, seemingly forever. I produced an episode on the Peter Principle years ago: Ep.50: Are All Leaders Incompetent?

Let’s assume there’s an inherent capability deficit at the executive level. This has probably always been the case, at least to some extent. But why would it be causing this erosion of confidence? And, why now?

I think that, as the environment becomes increasingly complex, it’s even more important to have an executive team that can cope with that complexity. But, based on the survey results (which are going materially backwards), it seems that the gravity and complexity of issues is outstripping the executive leaders’ ability to deal with them – and it’s much harder to lead against this backdrop.

As Warren Buffett famously said, “It’s not until the tide goes out that you find out who’s been swimming naked!”

BEHAVIOR IS ROCK BOTTOM

The biggest fall in the three areas that were examined by the report was in the category of behavior. To gauge the sentiment on executive behavior, leaders were asked three questions:

1. Does the executive team model the right culture and behaviors?
2. Do they work together effectively? And,
3. Do they effectively embrace change?

The results in this category were dire. Only 53% of leaders agreed that their executive team models the right culture and behaviors. Just think about that. That’s almost half of all executives who don’t.

Behavior is supposed to be the easy one: it’s really easy to spot bad behavior, and any strong CEO is going to stand up to it and demand a higher standard from their executives… or will they?

When considering executive team effectiveness, only 56% of leaders felt that their executives worked together effectively – clearly there’s more competition than collaboration, I guess. And only 59% felt that their executive team effectively embraces change.

Next-generation leaders were particularly scathing when assessing ELT behaviors:

• Only 51% felt that their ELT embraces change
• 43% felt their ELT works together effectively as a team, and
• An abysmal 38% thought that the executives role model the right behaviors.

I suppose these results aren’t entirely surprising. When we produced Ep.314: Surviving Office Politics a few weeks ago, I took a deep dive into company politics and how not to be burned by it. It appears that very few people rise to executive level without playing politics, at least to some degree. My experience is that any relationship between executive behaviors and the stated company values is purely coincidental.

How can executives demonstrate integrity and accountability when they blame others for their mistakes, reconstruct history to cover up their failures, and embellish their teams’ achievements way beyond their actual value?

For some executives, this is deeply entrenched behavior, and because they begin to believe their own bullsh!t so comprehensively, it doesn’t even occur to them that everyone around them can see the glaring inconsistency between their words and their actions.

Then there’s working together effectively. The majority of executives can’t help but see their peers as competition for the top job. Aligning the self-interests of two ambitious executives, when you look at it in that light, actually is as hard as it sounds. I’ve witnessed firsthand the power struggles for political ascendancy in pretty much every organization I’ve worked in… and, more surprisingly, in even the best leaders that I’ve worked for. The degree of difficulty here is really high.

And how about embracing change? Well, of course, any major change brings risk. It can threaten an executive’s standing, their power, the size of their team, and the relative impact they have in the company. When faced with major change, many executives are more concerned with protecting their own position than they are with working for the good of the company.

What’s the underlying cause of all these behavioral issues? I don’t think it’s really that complicated. It can all be traced back to good old fashioned self-interest. The world might be changing rapidly, but that basic human urge isn’t.

SATISFYING EVERY STAKEHOLDER’S EXPECTATIONS IS IMPOSSIBLE

One of my favorite quotes from the article says, “C-suite leaders need to engage in deep collaboration with their peers, but they are struggling because alignment around strategy, key priorities and the lines of responsibility for new issues are often unclear, and the level of expertise they require to deal with the new issues they face is low.”

This is the classic accountability gap. The issues are difficult enough, and not having extreme clarity on who owns those issues exacerbates the chaos. It creates yawning gaps and hidden overlaps.

So, what are the key issues that quote is referring to?:

• Digital transformation;
• Diversity, Equity, and Inclusion (DEI); and
• Sustainability.

Let’s face it, the issues don’t get any trickier than this. Leaders have to balance performance with social expectations.

You could be forgiven for thinking that social expectations are an intrinsic part of performance, but it’s often not the case. For example, if you’re an executive in a publicly listed company, the vast majority of your shareholders will be interested only in two measures: Dividend yield, and capital growth.

If you don’t believe me, just look at what happens to a company’s share price when the management team misses its earnings guidance. At that point, it really doesn’t matter which worthy causes they’re donating to.

What conclusions can we draw from this? Executives are trying to align some very disparate value drivers, with stakeholders who are often completely polarized… so they have to play the appeasement game in some of the most controversial areas.

We know what gets measured gets managed, and what gets rewarded gets done. So, given a choice, what do you reckon they’re going to do?

I got a little blowback from an episode I released a couple of months ago, Ep.305: Should Leaders Buy Into Social Issues? Just to give you the cliff notes version of this episode, my personal view is that CEOs and their companies should only focus on social issues to the extent that they are central to the company’s strategy and to the extent that they enhance company performance.

Maybe I’m just getting a little cynical, but there’s a disturbing lack of practical action behind most of the noble rhetoric on social issues, particularly when it comes to things like DEI.

I want to touch briefly on DEI, because it’s such a hot topic in so many countries. The modern narrative would lead us to believe that it’s essential to practice positive discrimination in respect of minority groups in an attempt to reach some notional measure of equity.

However, what’s probably less known is that in many countries, it’s actually against the law to do so.

In the UK, for example, the Equality Act of 2010 makes it illegal to perform positive discrimination based on protected characteristics, like age, or sex, or race, or disability. Yet executive teams often have their DEI credentials judged based upon whether or not the mix of individuals in key roles is perceived to be sufficiently diverse.

I’m not going to go into this any further now, except to say that the public social perception of what’s required to fulfill a company’s DEI obligation may be completely out of reach for the top leaders in practical terms.

To be fair to the executives who copped a pasting in the survey, it’s often impossible for them to meet the unspoken expectations of the casual observer. In the coming weeks, I’m going to be conducting an interview with one of Australia’s leading experts on gender diversity to try to unpick some of the complexity around this topic. So, watch this space.

WHAT CAN YOU DO ABOUT ALL OF THIS?

We know that even highly seasoned leaders are ill-equipped to deal with some of the big issues that they’re facing into in today’s complex world. And from the Russell Reynolds report, this is no secret – it appears that everyone around them is aware of it.

If you’re an executive leader, a CEO, or a company director, I’m sure you’ll already resonate with many of my observations.

If you’re on your way to the executive team, I’d really encourage you to take deliberate preemptive action to mitigate some of the issues that the report uncovers, because if you can get that right, there’s a huge payback there for you.

The key factor that bridges expectations and performance is trust.

The Russell Reynolds article points to research on the importance of trust in today’s C-suite, which quotes a really interesting statistic: “Leaders at high-performing organizations are eight times more likely to feel that their C-suite displays a high level of visible trust…”

Well, that’s interesting, but remember, correlation is not causation. Which came first? The chicken or the egg?

Do people have more trust in their ELT because of the company’s superior performance? Or does the company achieve superior performance because of the high level of trust in the ELT? Hard to say, right?

But, all things being equal, my gut says that it’s more likely to be the former. Success through high performance builds trust. It’s not the full story, of course, but if demonstrated organizational performance is lacking, trust is way harder to build.

Trust is built on the foundation of credibility and competence in all areas, not just technical competence. I’m absolutely not saying, for example, that a CFO who’s a whiz with numbers will be more trusted, or that she’ll be able to yield better performance from her team.

What I am saying is that competence, when combined with emotional intelligence and the absence of self-interest, will enable you to reach your team much more effectively than you otherwise could… and that translates directly into results.

LAYING BRICKS, ONE BY ONE

Going back to the three key areas of the survey – capability, behavior, and issue management – there’s no magic recipe. But, at a minimum, you don’t want to shoot yourself in the foot, which is why I’d suggest starting with the capability piece.

I think it has a strong bearing on, and a really high correlation with, the other two areas. Why? Because, increased capability helps you to hone your skill in dealing with complex issues. And as this virtuous circle forms, the confidence you build is going to make it easier for you to leave some of your less desirable behaviors behind.

Perhaps start by asking yourself the question: “What does capability mean in my context?” We typically think of technical skills, but that’s rarely the full story, especially at executive level. High order capability is essential in areas like strategy, financial literacy, commercial acumen, negotiation, decision making… but think about the other elements of executive capability.

How deft are you at engaging with your people? How strong are you in setting high standards for performance and behavior? How sharply can you focus your people on the most critical value drivers of the business? How good are you at really leveraging the potential talent of your teams and building their individual and collective capability?

These things are completely within your control. It’s a matter of building it up over time in a methodical manner.

Think of it like you’re building a wall: if you want to create the ultimate structure, you have to lay one brick at a time. Every single time you have a difficult conversation instead of avoiding it; every time you make the right decision instead of following the path of least resistance; every time you put yourself at risk for the good of the team; guess what? Every time you do any of those things, you are laying another brick.

Don’t wait until you’re an executive, and find yourself rationalizing that the survey numbers are incorrect, in an attempt to preserve your ego. Start laying the bricks today.