“In every situation, the election of a CEO defines the destiny of the company.” This comment by Ram Charan, a management columnist at Fortune magazine, encapsulates and serves as the inspiration for a recent research project on how CEOs work in Argentina. The study, “The Agenda of the Number-One: The value added by senior corporate management,” highlights some of the weaknesses of the key executives of that country, such as their lack of interest in succession planning and the short-term mindset of their agenda.
In the study, Alejandro Carrera, professor in the corporate policy department of the IAE Business School in Buenos Aires, Argentina, and Juan Quiroga, a corporate policy specialist at the IAE, reveal that the people responsible for managing companies in Argentina are less and less interested in occupying senior positions because of the enormous wear-and-tear of working during these times of crisis, and the fact that their jobs deprive them of time they could be spending on their personal and family lives. The study involved 321 interviews with the CEOs of medium and large companies representing a combined 11% of Argentina’s GDP. The participants were an average of 50.9 years old, and had an average of 10.3 years of experience in senior management. The analysis, which took place from 2006 to 2008, involved open questions on what they did and how they prioritized their agendas, as well as closed, quantitative questions concerning their roles).
One of the key conclusions that Carrera and Quiroga reached was that most CEOs disregard what they call “the process of institutional configuration” — that is to say, the preparing for the future of their organization. “This is worrisome because it has an impact on continuity; on the future of the company,” the authors write. This also demonstrates “the short-term perspective that exists in the governance of the companies,” asserts Carrera, who talked about the findings of the research with Universia Knowledge at Wharton.
Universia Knowledge at Wharton: Could you please explain the meaning of the concept “Institutional Configuration?”
Alejandro Carrera: For us, “Institutional Configuration” means a series of key activities in the work of the CEO, such as developing leaders within the company, training them and searching for a successor. In that sense, we were alarmed by the fact that CEOs assign little importance to the task of finding their successors; this variable has to do with building the future of the organization. And this also includes family-owned companies.
UKnowledge at Wharton: Why don’t CEOs in Argentina consider the process of “institutional configuration” to be more important?
Carrera: The institutional configuration process is the hardest process to [recognize] in the activity of a CEO. But it is one of the most important tasks that they must undertake because it is related to building the company’s future profits. This happens in every company, in general, because [CEOs] look [only] at the short term, and it is costly for them to understand what they have to do to [prepare for] the future.
Definitely, the average CEO is not so concerned with building a context of corporate governance. It so happens that many business executives believe that all they need to do is to create employment, invest, and provide profitability for the shareholder. That is to say, they don’t figure out how to add value to the corporation.
UKnowledge at Wharton: What is involved when a CEO adds value to the company?
Carrera: Adding value means providing continuity — doing things that give a future to the company, that produce the conditions that make it possible for the company to continue with its activities. It means generating employment, committing oneself to the community; taking care of customers; and seeing the future of the business. It also means making potential profits in the future. Specifically, it is more important to sow seeds in order to harvest more in the future.
UKnowledge at Wharton: So the problem is that CEOs don’t see the future of the enterprise?
Carrera: This lack of vision into the future of the company is something that happens everywhere. It is [part of] our functioning economic model, and it is related to the global economic crisis of the past year. In Argentina, you see it more often because … we have faced various crises, such as the one in 2002. On the agenda of top leaders, or in their priorities, there is still a residue of the survival process in that crisis: That’s when they had to save the company. So today it costs them more to have long term vision.
UKnowledge at Wharton: Given that the study extends from 2006 to 2008, did you notice any changes in the real agenda of the CEO after the global crisis broke out?
Carrera: Analyzing the priorities on the agendas of the CEOs surveyed in 2006 to 2007, versus those surveyed at the end of 2008, we found significant differences in the execution of four variables. The survey of senior managers that was undertaken during crisis conditions showed that:
(1) CEOs were spending 50% less time thinking about their vision than they had before the crisis. During times of crisis, the important thing should be to maintain your direction and create a vision [for the company] — but under these conditions, this approach is very difficult [for CEOs] to carry out.
(2) CEOs were spending 75% more time on the execution of their management strategies. That trend is clear enough because during times of turbulence, the key thing is to pay attention to short-term continuity and stay focused on those control panel instruments [that allow CEOs to do so] on a day-by-day basis.
(3) CEOs were spending 40% less time caring about organizational unity. This is a worrisome indicator since it means that they were neglecting a variable that is critical for the continuity of the organization, thereby generating a lack of confidence with various stakeholders (especially those within the enterprise).
(4) CEOs were spending 80% less time engaged in activities aimed at searching for and developing their successor. That’s because under these circumstances, senior managers focus on day-to-day concerns, and do not think about leaving the command center on the bridge of the ship.
UKnowledge at Wharton: Another conclusion of the study is that, in general, there is no concern about searching for a successor. Why does this problem appear?
Carrera: This is a topic that is not on the agenda of executives. They should have a sense of responsibility about their ultimate legacy before leaving their post. They should search beforehand for someone who is competent and has a positive impact on the future of that company.
We concluded that this concern is not on the agenda of CEOs because they definitely don’t want to leave their company. The interesting thing is that when they are older and more experienced, they are less worried about this. We are talking here about people more than 50 years old; about 30% of these executives are of [non-Argentine] origin.
It is interesting to compare [Argentine companies], for example, with Japanese companies, in which CEOs must start taking their legacy into account on the very same day when they assume the presidency. In addition, when it is bonus time, companies [in Japan] also evaluate the CEO’s performance for how well he has prepared his successor.
In conclusion, companies in Argentina should have to promote long term initiatives. Although we have yet to analyze other countries in the region, [we believe that] the same sort of thing happens in Paraguay [and elsewhere].
UKnowledge at Wharton: What happens with family-owned companies?
Carrera: In family companies, the difficulties of preparing a legacy and generational change are more obvious. At times, the person who assumes this role does so by inheriting it, and that person has no training. So it is hard to replace the founder because he often dies on the job. If the new president were to come from outside with experience and training, that would be simpler. But that doesn’t usually happen in family-owned companies in Argentina.
UKnowledge at Wharton: In your research, you also include the CEOs’ rankings of the importance they give to key stakeholders in the company. What were the results? And what conclusions did you draw that can serve as lessons for companies?
Carrera: Our research includes a ranking of how valuable various ‘stakeholders’ -that is, those groups that have an impact and influence within the organization- are for the CEOs. Among the interviews that we conducted, the most important were customers, employees and shareholders; there was little interest [on the part of CEOs] in the needs of trade unions, the treasury, the environment and the community. Definitely, what we see here is a lack of commitment on the part of senior executives regarding some key players in the functioning of an organization.
UKnowledge at Wharton: What is the difference between younger CEOs and older ones? What happens with Argentine leaders and foreign ones?
Carrera: Those who have recently arrived – that is to say, those who have assumed a leadership position for the first time – have less understanding than older CEOs about their responsibilities and tasks but they carry out more initiatives. On the other hand, those with greater experience may understand more, but some of them are more cautious about carrying out specific tasks. In addition, the older ones probably can count on having a leadership team that they put together, and they focus on areas where they understand that they need to provide more value.
So we suggest that when there is a new commercial or financial manager, for example, he or she needs to be accompanied by the person who previously occupied that post for at least two years in order to focus properly on that task, and take part in the senior management team. When companies engage in this kind of process, then you can see it in the results.
On the other hand, [non-Argentine] CEOs are more focused on institutional concerns, and not so much on the business itself. They focus more on the managerial process. So local executives are more dedicated to business and management, while they spend less time on institutional concerns.
UKnowledge at Wharton: Is it clear that nowadays, fewer and fewer people want to occupy the chair of the corporate president?
Carrera: Worldwide, there is tendency for fewer and fewer people to want to be “number one.” When students complete their master’s degree at IAE, where I teach classes, I ask them, “Who wants to be [aCEO]?” These days, only 35% of them say they do. It used to be almost double that number. Our research got the same results. That means [being the CEO] is not such a lofty aspiration, because people feel that this job wears people down a great deal, within a context where they do not understand the role of the company, and where they believe that, on balance, their job has a negative impact on their family life.
To counteract this, we try to bring in successful business executives who do enjoy both their work and their family life. This demonstrates that being a CEO is no longer all that prestigious from an economic and personal viewpoint, since this sort of activity is associated with great wear-and-tear and an absence of family life.