06 February 2017

Why many CEOs fail: They talk smart but don't act smart

On the morning of Friday 16 December 2016, Clarius announced to the ASX that CEO, Peter Wilson had resigned. No reason was given.
The previous month, I had written an analysis of the two years of Wilson’s tenure at Clarius (recently rebranded as Ignite Services). I expressed my concern about, what appeared to be, the very large gap between what Wilson was saying and the results he was producing.
In May 2015 I originally wrote about Wilson‘s public pronouncements a few months after he had been appointed as CEO. Wilson was heavily critical of the ‘old world Clarius’ he had inherited. He made lots of positive noises about the changes he was making, or intending to make, to fix things.
Nineteen months later Wilson’s resignation was announced. He left the company the same day and the following business day his successor was announced. This is not a sequence of events indicating a happy ending to a job well done. Clearly Wilson was unable to deliver the results he promised to deliver and the board decided a change needed to be made.
I would contend that many of the reasons for Wilson’s failure to improve Clarius’s results are most likely explained by what authors Jeffrey Pfeffer and Robert Sutton identify in their excellent book The Knowing-Doing Gap (HBS Press, 2000).
Specifically, among other factors, the authors identify two significant reasons why commonly-believed-to-be ‘smart’ leaders consistently underperform in their job.

1.  Smart talk happens now, smart actions happen later:
The authors assert that forming an accurate view of a person’s capability and performance is not easy. The larger and more complex the organisation the more difficult it becomes to isolate exactly what each person has contributed to any team’s, business unit’s or company’s success. To do this properly is not just hard work, it also takes time. Conversely making a judgement about how smart somebody is takes very little time; it’s almost always immediately to hand.

“Appearing smart is mostly accomplished by sounding smart; being confident, articulate, eloquent and filled with interesting information and ideas; and having a good vocabulary. A problem arises when smart talk is confused with good performance.”

“Overall organizational performance comes from the actions of many interdependent people, so discerning any one person’s contribution is problematic and fraught with error. People also move from job to job that it is difficult to know, unambiguously, what any given person has accomplished. What you can know immediately, and with less ambiguity, is how smart a person sounds.”  (page 43, 44 & 45, my bold)

2.  Negative people seem smarter: The authors continue …
“Unfortunately for getting anything done in organisations one of the best ways of sounding smart is to be critical of others’ ideas. Be very wary of judging people just on the basis of how smart they sound, and particularly on their ability to find problems and faults with ideas. These are dangerous people. They are smart enough to stop things from happening but not action oriented enough to find new ways of overcoming problems they have identified.” (page 45 & 46)
Judging Wilson solely by his public utterings you could pretty confidently tick both of the above boxes.
I’m interested to understand why it took the Clarius board two years to realise that Wilson was ineffective at doing his job as CEO when there were plenty of red flags in his first year?

Just from the publicly available information, Wilson appeared to be focused on marginal ‘interesting’ areas (eg assessment technology, China, rebranding), making critical public pronouncements about ‘inherited problems’ that he had little or no practical idea of how to solve (eg Clarius’ sales culture) and ignoring the factors that would, most likely, make the biggest difference to the bottom line (eg the skills and motivation of both the Clarius leaders and frontline consultants).
Understanding the lessons from Pfeffer and Sutton’s research, it becomes a lot easier to have an educated guess why Wilson failed – he talked smart, but didn’t act smart. And the board was seduced by the smart talking for far too long.
As I pointed out in my previous blog on Clarius, the four Clarius directors have negligible operational experience in sales, technology or recruitment. They simply didn’t have the capability to know what to look for as a leading indicator in Wilson’s performance in leading a recruitment company, or if they did, they didn’t probe sufficiently to understand whether the results being reported were substantiated by independent data gathering or were consistently improving over the longer term, rather than the short-term.
I am sure the Clarius directors have learned their lesson. They couldn’t possibly be seduced by a potential CEO who simply sounded smart? They couldn’t possibly appoint another person, who like Wilson, has little, or no, recent operational experience in sales or recruitment?
Surely after the ‘Wilson experience‘, they would take their time to identify the best possible short-list of candidates for the role and do everything they could to hire a CEO who could restore confidence to the staff and investors?
What did the Clarius directors do?
After Wilson’s departure was announced on Friday 16 December the appointment of new CEO, Julian Sallabank was made public on Monday 19 December.
And what’s Mr Sallabank’s relevant background?
Four years as a management consultant; six years as an artist manager and event organizer, eleven years developing and managing online communities. Oh, but he has a Masters in Business and Technology from the University of New South Wales and he sits on plenty of boards.
I bet Mr Sallabank sounds really smart.
I hope for the sake of both Clarius’s staff and shareholders that he is smart in the way that he needs to be right now: smart acting. Watch this space.

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