Judging Leaders Beyond Financial Performance

October 28, 2015

Amazon’s Jeffery Bezos is no longer at the top of the Best-Performing CEOs in the World ranking, even though his company just posted an unexpected profit and added $25 billion to its market capitalization.

The CEO at the top of the list is now Lars Rebien Sørensen of Novo Nordisk, the Danish pharmaceutical company. If he were ranked entirely on financial performance alone, Sørensen would still earn a respectable sixth. However, when you include the company’s decision to offer a steep discount for insulin to people in developing countries, transparent and limited lobbying practices, and responsible policy on animal testing, Sørensen shoots to the top.

A recent Harvard Business Review article outlined the reasoning for this new metric in measuring the value of a CEO above and beyond financial performance. The ranking does not dismiss bottom-line performance as 80% of the score is based on shareholder return and market capitalization. However, the researchers wanted to include other important aspects of leadership that include the longer term by including environmental, social and overall governance or ESG.

“Corporate social responsibility is nothing but maximizing the value of your company over a long period,” says Sørensen in the HBR article. “In the long term, social and environmental issues become financial issues.”

According to HBR, the rationalization for the new metric is that in this “era of big data and greater transparency, consumers and investors increasingly want to understand a company’s culture and values.” While previous rankings were based entirely on stock market numbers, the researchers at HBR say they didn’t reflect a company’s reputation and aspects of leadership beyond market performance.

The researchers track and analyze each CEO’s performance from the first day of his or her tenure with the goal to create a list that goes beyond recent quarterly or annual results and evaluates long-term performance.

The new metric for this rating is a very good thing as consumers and shareholders already do and will continue to make choices that align with their own personal values. Leaders should take note and invest, develop and market products and services that are about more than profits alone.

In order to measure the ESG, they used calculations of Sustainalytics, a leading provider of environmental, social and governance research and analytics. They then applied the weight of long-term financial results at 80% and ESG performance at 20%.

Those better-known and often larger than life leaders elevated by the press are not necessarily the best performing. Here’s the rest of the top ten to make the list:

  1. John Chambers, Cisco Systems
  2. Pablo Isla, Inditex
  3. Elmar Degenhart, Continental
  4. Martin Sorrell, WPP
  5. Stephen Luczo, Seagate Technology
  6. Jon Fredrik Baksaas, Telenor
  7. George Scangos, Biogen
  8. Michael Wolf, Swedbank
  9. Fujio Mitarai, Canon

More familiar names further down the list include: 12. Howard Schultz (Starbucks), 38. Blake Nordstrom (Nordstom), 46. Marc Benioff (Salesforce.com), and 75. Frederick Smith (FedEx). Meanwhile, Amazon’s Bezos dropped all the way to 87 based on the new criteria.

Leadership is, of course, more than financial performance. The best CEOs are knowledgeable and skilled individuals, effective team members, competent managers, and, of course, effective leaders. But the very best have a combination of personal humility and professional will. These are what Jim Collins calls Level 5 Executives.

In his classic book Good to Great, Collins found that every one of the good-to-great companies he studied had Level 5 leadership during the pivotal transition years. These Level 5 leaders are a study in contrast: modest and willful, humble and fearless. They look out the window when things are going right and in the mirror when things are going wrong. Think Abraham Lincoln; not Donald Trump.

REI’s recent decision to close all of their 143 retail stores on the busiest shopping day of the year so their employees can get out to enjoy the outdoors is an example of a company living its values.

“For 76 years, our co-op has been dedicated to one thing and one thing only: a life outdoors,” said REI CEO Jerry Stritzke in a statement. “We believe that being outside makes our lives better. And Black Friday is the perfect time to remind ourselves of this essential truth.”

It’s no wonder REI has earned a spot on Fortune Magazine’s “100 Best Companies to Work For” every year since they began compiling the list in 1998.

What about your company? Is there a match between your corporate values and the actions taken by your leader? Can your leader earn a spot on the Best-Performing CEOs in the World list because they excel not only at financial performance, but in social, environmental and governance as well?

Prepare to Demonstrate Expertise in Job Interviews

January 11, 2014

Securing a job in today’s economy requires more than a solid resume and stellar references. You also need the ability to show your expertise during job interviews.

As reported in a recent Wall Street Journal article, Amazon is especially picky about the employees they choose to hire. And yet they hired some 80,000 since 2010! Most of those, however, are working in lower paying warehouse jobs where starting wages are around $11 per hour.

Those candidates seeking higher paying technical and management positions at Amazon must first pass many intense interviews where they are asked to demonstrate their skills and aptitude in real time. This may include writing code on a white board or solving complex business problems in the moment.

I interviewed with Amazon back in their book selling days of the late 1990s and remember being asked whether I thought they should expand into selling music and movies or go international. While I stated I thought it made most sense to choose the former at least initially, they took the path of expanding in both directions at the same time. Obviously, that turned out to be a pretty good plan.

According to Amazon spokespeople, challenging interview questions are not necessarily meant to arrive at the correct answer, but rather to demonstrate the path a person uses to solve a problem. Showing how one thinks helps Amazon discover whether the candidate has the potential to succeed at their company.

And this tactic isn’t new as high tech companies such as Microsoft, Apple and Google have been testing the prowess of their job applicants for a long time.

Applications, resumes, college transcripts and other data can all serve to help identify a good candidate, but it is the phone or in-person interview where a person can be screened most effectively as to be really viable or not.

This is where potential employees can demonstrate their ability to think on their feet, reveal technical knowledge and problem solving abilities, and show off their personality and soft skills. All of these can continue or halt the interviewing process.

Amazon goes so far as to include what they call “bar raisers” during the interviewing process. These individuals, who come from throughout the company, can veto a candidate even though they may possess no specific technical expertise or business acumen to properly evaluate the person being considered.

Bar raisers may simply provide a gut-check on whether a candidate is a good cultural fit or perhaps offer an out-of-the-box perspective. I have no idea how many candidates have been dropped from consideration due to vetoes by bar raisers, but I’m certain Amazon keeps track of this and perhaps even follows the careers of these individuals to see how they’ve faired after being dropped from consideration.

I can see how a potential candidate might feel this is an unfair way to gauge a person’s suitability for a position. However, I also recognize the importance of Amazon and every employer in obtaining the right person for the right job.

The more a company understands the traits necessary to succeed in a position as well as the organization itself, the more they should invest in thoroughly evaluating their applicants to ensure they hold those traits.

More and more companies are likely to adopt this strategy of scrutinizing their applicants more thoroughly because it is so expensive to hire the wrong person.

According to the U.S. Department of Labor, the average cost of a bad hiring decision can equal 30% of the individual’s first-year potential earnings. This means a single bad hire with an annual income of $80,000 can equal a $24,000 loss for the employer.

If you’re looking to get hired you need to be prepared to think on your feet and demonstrate your expertise during the interview. This means selling yourself successfully not based on what your resume says about you, but on what you can convincingly show in the moment.

You can prepare yourself for general interview questions, but it’s really not possible to anticipate these other questions. Instead, you need to rely on your instincts and innate critical thinking abilities. You need to remain calm even though this will likely be a stressful environment to do your best.

Keep in mind that it is in the best interest for you and the hiring company’s to find the right fit. As scarce as good paying jobs may be, securing one that fits both you and the company you’re seeking to work for is the best solution. Be prepared to be authentic and to show all that you have to offer. Anything less and you’ll sell yourself short. And that’s a bad idea for everyone.