How a CEO Factory Develops Its Leaders

Jul 01, 2020

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Things Learned From...
Elena Lytkina Botelho and Sanja Kos at Harvard Business Review

Unexpected Companies Produce Some of the Best CEOs

About 10% of S&P 500 companies change CEOs each year.

20.5% of all CEOs appointed at S&P 1500 firms from 1992-2010 came from just 36 companies.

Botelho and Kos estimate there are over a dozen "stealth CEO factories."

Three practices stand out as important and distinctive:

#1: Give Leaders Broad Authority

Stealth CEO factories vest their general managers (GMs) with broad roles and substantial decision authority.

Very early in their careers, Rohm & Haas had GMs responsible for manufacturing, selling, R&D, supply chain, and asset management. These were real CEO-like jobs running a full profit & loss (P&L) statement and balance sheet, making big decisions with minimal guidance from corporate.

CEOs coming out of Rohm & Haas and Danaher spent on average nearly half of their careers in P&L leadership roles prior to their first CEO jobs.

#2: Encourage Them to Think Like CEOs

Stealth CEO factories push their leaders from very early days to think like CEOs.

Managers at Danaher are trained to prioritize cash, returns on working capital, and strong competitive positions in markets that can grow.

Rohm & Haas ingrains in its leaders a sense of responsibility to five key stakeholders: customers, employees, investors, community, and process.

"At Rohm and Haas, you were taught very early to evaluate every decision from the perspective of the five voices."

"That prepares you...it's not about pleasing your boss -- it's about doing the right thing by your stakeholders."

#3: Challenge Strong Performers Early with Big Opportunities

"Stealth CEO factories send young managers into uncharted waters with minimal support."

"These types of bold bets ('career catapults') help accelerate leaders to the top."

Virtually all CEOs that came out of stealth factories had at least one career catapult, 79% had two, and 37% had three or more.

"To benefit from these approaches, the CEO must be committed to development of the leadership pipeline as her top priority."

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