CEOs at best firms came from within, survey finds

Hiring charismatic outsider CEOs is out. Promoting longtime executives is in.

By Julie Moran Alterio
Gannett News Service The Seattle Times

That’s the word from the editor of Chief Executive magazine, which chose 19 companies with insider CEOs for its second annual "Top 20 Companies for Leaders" ranking.

"There was a while in the late ’90s when boards of directors were smitten by highly dynamic CEOs, and they brought these CEOs in to transform these businesses in a hurry," said Bill Holstein, the magazine’s editor-in-chief.

"It worked in some cases. It worked with (former CEO) Lou Gerstner at IBM, but in many cases it didn’t."

After some CEOs focused on boosting the stock price and securing lavish compensation packages instead of building their businesses for the long term, corporate boards started to place more value on commitment to the company.

"There has been a seismic shift in thinking at the top levels of corporations," Holstein said.

The new thinking is evident in the magazine’s ranking, which has IBM and Johnson & Johnson tied for No. 1. Both are led by CEOs in their 50s who spent long careers at their companies before being promoted to the top job in recent years.

Chief Executive’s top companies for leaders

1. IBM; Johnson & Johnson (tie)
3. General Electric
4. Colgate-Palmolive
5. Dell Computer
6. United Parcel Service
7. Medtronic
8. Procter & Gamble
9. PepsiCo
10. Southwest Airlines
11. Whirlpool
12. Microsoft
13. Cisco Systems
14. Wells Fargo
15. FedEx
16. Pitney Bowes
17. State Farm Insurance
18. General Mills
19. Intel
20. Merck
William Weldon, 54, who joined Johnson & Johnson in 1971, became chairman and CEO in April 2002.

Sam Palmisano, 52, joined IBM in 1973 after college. He was named CEO in March 2002 and became chairman Jan. 1.

Palmisano’s leadership style has much to do with IBM’s No. 1 ranking, Holstein said.

"It used to be that CEOs gave lip service only to the development of their people, but he sees his people at the absolute heart of his company’s success in the marketplace," Holstein said.

The computer giant, with $81.2 billion a year in sales and 315,000 employees, is selling its expertise in the integration of the computers and software it peddles.

Donna Riley, vice president for talent at IBM, said the company doesn’t think in terms of job openings, but rather in terms of people. "It’s much more about finding talented people early in their careers and giving them the job experiences to make sure that when a job comes up, there’s a pool."

The magazine relied on data gathered from executives at 320 companies by human-resources consulting firm Hewitt Associates for its report. Editors examined companies’ strategies for attracting, developing and retaining managers in addition to how those efforts contributed to financial performance.

Among the top 20 companies, 95 percent promoted their CEOs from within, compared with 64 percent of the overall group.

In order to find that budding leader, companies have to spend time and money to develop the skills of their employees, Holstein said.

"The No. 1 lesson is to take this leadership training very seriously," he said. "It’s no longer something you can relegate to human resources. CEOs have to be involved in grooming talent because that’s going to be core to how the company is going to be competitive."

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