The Companies Headhunters AvoidDean Foust
When Revlon (REV) hired Jack Stahl as CEO in 2002, the board thought he'd be a boss who could turn the cosmetics giant around. In his 22 years at Coca-Cola (KO), where he rose to president, the telegenic executive had become a darling of Wall Street for his financial savvy and operational discipline.
Stahl stumbled, however, when he left Coke. While he managed to pare down Revlon's heavy debt load, he lost millions on failed campaigns for new products, most notably an "age-defying" makeup line called Vital Radiance. Industry consultants say he relied too heavily on finance types who made basic marketing errors: The line was overpriced, curiously didn't incorporate the vaunted Revlon name, and used no-name models in its campaign. After four years of losses during which the stock lost roughly two-thirds of its value, Stahl left in 2006. "He didn't know what he didn't know," says Suzanne Grayson, a consultant who worked for Revlon in the 1960s and '70s. "He brought in statisticians instead of marketers, and the decisions they made were atrocious." Stahl and Revlon didn't respond to requests for comment.
The Revlon case may reveal less about Stahl, though, than it does about the culture of Coca-Cola. Stahl's stumbles didn't surprise the fraternity of executive recruiters who handicap which companies provide the most fertile ground for talent. Stahl is just one in a line of former Coke executives who floundered elsewhere, including John K. Sheppard, former CEO at beverage company Cott, and Brent Willis, whose tenure as marketing chief at Kmart lasted all of four months.
BusinessWeek reached out to more than two dozen top headhunters and more than a dozen management consultants. The question: Which companies do they largely avoid recruiting from? Some of the most cited are known to be in turmoil—players such as Goodyear (GT), Motorola (MOT), and Sears (SHLD). (A Goodyear spokesman says it has "absolutely no issue" in retaining talent, while Sears says it has averaged 325 candidates for each headquarters job even though it has "significantly" cut back on using headhunters. Motorola declined to comment. BusinessWeek tried to reach everyone cited in this article.)
Recruiters also singled out companies that are widely viewed as successful. Consider Coca-Cola. The conclusion among headhunters is that the very attributes that make Coke a great company—an iconic brand and an unmatched global distribution system—also make it too easy for young managers to rise without having to develop the entrepreneurial skills necessary to compete in other arenas. "Coke is a great company with great brands," says Joe D. Goodwin, an executive recruiter based in Atlanta. But Goodwin says he can't recall any Coke alumnus who successfully ran a major company elsewhere. "People tend to get caught up in the Coke bureaucracy and get dead-ended in their careers," he says. "My advice is that unless someone intends to make a career of Coke, don't stay too long." Granted, working at Coke can make you comfortable—the stock has yielded a 24.8% total return over the past five years, vs. a 2.4% return for the Standard & Poor's 500-stock index—but recruiters say it may not make you management material anywhere else. A spokesman says alumni have gone on to successful stints at places like Home Depot (HD) and Clorox (CLX), though the goal is to keep them at Coke.
For all of the vaunted "academy companies" such as General Electric (GE), IBM, (IBM) and Hewlett-Packard (HPQ), revered for honing executive talent that thrives elsewhere, a significant number of companies are seen as weak in that realm. They may do well financially, but they can't seem to cultivate leaders others want to poach. Whether it's their quirkiness, poor leadership development, or political culture, these players have become the corporate equivalents of the Hotel California: You can check in and enjoy your stay, but the risk is that you can't leave. Three of the companies named as problematic by recruiters—General Mills (GIS), AT&T (T), and Intel (INTC)—made this year's ranking of best places to start a career. Among the headhunters who spoke to BusinessWeek— usually not for attribution to protect their own careers—there was surprising unanimity about which strong companies were suspect when it came to developing senior executive talent.
One trait that puts a company on the blacklist is excessive bureaucracy. That's why recruiters are far more likely to put executives from the private sector into the public sector than vice-versa. British Airways (BAIRY), General Mills, and Occidental Petroleum (OXY) were repeatedly cited as companies that appear to discourage the kind of risk-taking and nimbleness that is valued in today's volatile environment. One search consultant compared British Airways, until 1987 a state-owned airline, to "working at the FBI." CEO Willie Walsh is shaking up the stodgy culture, but this recruiter argues that "it'll take decades to flush out a generation of bureaucrats at that place."
At General Mills, recruiters take issue with what one describes as a "patrician culture of conflict avoidance," which tends to make some alumni ill-equipped to handle crisis. And at Occidental Petroleum, recruiters say the imperial reign of CEO Ray Irani has created an autocratic environment where managers at the oil giant simply wait for dictates from on high. "The employees who stay have made their deal with the devil because they're so well-paid," says one. Occidental didn't respond to requests for comment. But General Mills spokesman Tom Forsythe says the company's low turnover and double-digit growth speak for themselves. Moreover, he adds, "headhunters have historically enjoyed little success recruiting talent away from General Mills. That lack of success may have influenced the individuals you spoke with."
One peril is a tendency at some companies to relegate managers to narrow duties, thereby fostering limited skill sets. A case in point, according to Minneapolis recruiter Mark Jaffe, is Automatic Data Processing (ADP). As Jaffe jokes: "You can be the vice-president in charge of payroll services for veterinary offices with between 8 and 12 employees at ADP, and you can do that for 20 years." Jaffe says that makes it hard to tell "what a manager's abilities might look like beyond that miniature scope." Benito Cachinero-Sánchez, head of human resources for ADP, disagrees and says the company's strong financial performance and low employee turnover are a result "of the opportunities that are created within the organization."
Then there are the aggressors. Several Silicon Valley headhunters say they're now hesitant to recruit from two of the tech sector's most successful companies—Oracle (ORCL) and EMC (EMC)—because of their testosterone-driven, take-no-prisoners cultures. Managers who thrive there, they say, are often bad fits anywhere else. One recruiter describes Oracle as "Silicon Valley's version of the Bear Stearns trading desk. You've got a company full of men who would all walk over their mothers to get to the top. And EMC isn't too far behind." Oracle declined to comment. But Jack Mollen, executive vice-president for human resources at EMC, makes no apologies for what he calls a "results-oriented" culture. "Some people might feel it's aggressive, but our people want to be put in jobs where they can work hard, take risks, and get recognized," he says. Mollen also finds the recruiters' criticisms ironic. "Funny," he says. "I ask the search firms to name the three hardest companies to recruit from, and they say 'Intel, Oracle, and EMC.' "
Intel is another place several headhunters and industry executives say they avoid. They marvel at the discipline and degree to which its 84,000 managers and employees march in lockstep behind management's decisions. But the trade-off, they say, is a culture built on the "paranoia" that co-founder Andy Grove took pride in. "The metaphor for Intel is the Politburo in [Soviet] Russia," says one headhunter. "It's a very inward culture." A spokeswoman says Intel believes its market strength and industry leadership position "is the best measure of the company culture as well as our employee and executive talent." There is one company headhunters say deserves its own chapter: AT&T (T). They describe the telecom as a culture that seemed to reward executives more for political skills than results. While some budding talents, such as cable visionary John Malone, got out early and succeeded, the litany of AT&T executives who crashed after leaving the nest is like a virtual Management Hall of Shame: Carly Fiorina at Hewlett-Packard (HPQ), Rich McGinn at Lucent, and Joseph Nacchio at Qwest (Q) (now serving time for insider trading). A company spokesman says it has a "strong, loyal, and committed management employee body."
Poaching talent is hardly an exact science. Recruiters say the days of plucking an all-purpose manager from a celebrated multinational may also be waning. As competition grows keener, industry knowledge becomes more important. Even GE has lost some luster, especially in light of Robert Nardelli's mixed record at Home Depot and Chrysler. It's hard to say how much of an executive's success is a result of a company muscle and how much reflects individual achievement. Often, the true test is what happens when they leave.
Business Exchange: Read, save, and add content on BW's new Web 2.0 topic networkThe Care and Feeding of LeadersIn a 2003 paper titled "Why Leadership Development Efforts Fail," Jay Conger and Douglas Ready note that for all the time and money that companies invest in crafting fancy programs to incubate next-generation leaders, these initiatives rarely yield results. Conger, a B-school professor, and Ready, a consultant, caution companies against outsourcing leadership development to highly paid experts or relying on off-the-shelf solutions. Future captains of industry are not made in "one-day, paint-by-the-numbers, 'edutainment' sessions," say the authors.To view the article, go to http://bx.businessweek.com/leadership/reference/