The CEO's Path to the Top: How Times Have Changed
When Edward D.
Breen was named chairman and CEO of scandal-plagued Tyco
International in July 2002, one national magazine reasoned that he
had taken on a job that would make "lesser CEOs quake in their
wingtips." But Breen's footsteps to the top were not just steady;
they also tracked a new pathway to the executive suite, one no
longer dictated by the older, company-trained, academic-elite
candidates. Breen was 46, a graduate of a non-Ivy League school and,
to everyone's relief, had moved up the corporate ranks of another
company entirely, never holding a job at Tyco until he was named
CEO.
As one of the top
human resource executives at EDS, Tracey M. Friend found that her
entrepreneurial background was a plus when she interviewed for the
job of portfolio manager for recruitment services. A graduate of the
University of Florida, the 35-year-old Friend had already built and
sold her own Internet recruitment and training company and worked
for two competing technology companies before joining EDS last
August. "Skills and capabilities open the doors, not degrees," she
said.
And when Ed W.
Flowers, 48, was named senior vice president for human resources at
Russell Corp. -- the Atlanta-based apparel company -- in July 2003,
he had no reservations about joining the executive ranks of a
company where he had never worked. "People advance in their careers
today based on performance," said Flowers, a graduate of the
University of North Carolina at Charlotte who had previously been
global head of HR for the Merisant, a Chicago-based maker of table
sweetener products. Advancement is "not based on an entitlement
mentality."
Good-bye,
Organization Man.
In a new study that
compares Fortune 100 executives in 1980 with their counterparts in
2001, Peter
Cappelli, director of Wharton's Center for Human Resources, and
Monika Hamori, a professor at Instituto de Empresa in Madrid, have
documented what business people like Breen, Friend and Flowers,
along with many others in the corporate and recruiting worlds, have
no doubt already witnessed: The road to the executive suite and the
characteristics of the executives who get there have changed
significantly over the last two decades.
To summarize:
Today's executives are younger, more likely to be female, and less
likely to have Ivy League educations. They make their way to the
executive suite faster than ever before (about four years faster
than their counterparts in 1980), and they hold fewer jobs along the
way. They spend about five years less in their current organization
before being promoted, and are more likely to be hired from the
outside.
What's more, the
Organization Man, the lifelong corporate employee who worked his way
faithfully and slowly up the executive ladder, appears to be headed
out the door -- increasingly nudged, apparently, by women. According
to Cappelli and Hamori's The Path to the Top: Changes in the
Attributes of Corporate Executives 1980 to 2001, not a single
woman held a top management job in the Fortune 100 in 1980. In 2001,
11% of the Fortune 100 top executives were women. Compared to men,
the women executives are younger (47 vs. 52); move into executive
positions faster (21 years vs. 25 years), and are less likely to be
lifetime employees (32% vs. 47%).
"From the 1950s
through the 1970s, American executives looked a lot alike," write
Cappelli and Hamori. "They tended to be model organization men who
stuck faithfully with the companies that first hired them, and they
climbed methodically up the corporate ladder until, at last, they
retired. The dominant notion during this time was that a business
career ran its course inside a corporation."
According to
Cappelli, Fortune magazine editor William H. Whyte put the
phrase "Organization Man" on the map when he wrote a book by that
title in 1956, posing what was then viewed as a novel question: "Why
would executives ever leave their firms?" Further studies answered
that question: In the Organization Man era, executives only left the
fold if a company didn't deliver on its promise of upward mobility.
But, write Cappelli and Hamori, "there were hints throughout the
1970s that things were changing ... Our research puts executive
careers under the microscope once again."
In a recent
interview, Cappelli acknowledges that he is still unsure what to
call this new corporate executive model. But he is definitely
convinced of two things. First, the new model "is here to stay,
through the conceivable future." Cappelli points out that by
focusing on the more conservative, larger Fortune 100, the study
utilized companies "most likely to be able to retain the traditional
model of organizational careers." So if these august, institutional
business models have experienced change over the last 20 years -- as
they have, according to this research -- then "it's likely that the
changes we measured would be [even] greater in smaller
corporations," Cappelli writes. And even though 45% of executives in
2001 are still classified as "lifers" -- those who spend their
entire careers in one company -- the percentage is down from 54% in
1980. Also, the number of "lifers" in young companies (those
existing for 30 years and less) is only 17%.
Second, the new
model clearly underscores that "different skills are being rewarded,
and that a new type of executive will benefit from this trend," says
Cappelli. "The businessman in the gray flannel suit -- the person
who was nameless and had no independent profile but fit into the
organization -- that person clearly suffers in this model. People
who can promote themselves clearly win. It's tempting to say that
people with more merit get ahead now, although I'm not exactly sure
that this is true because it's hard to judge real merit. But the
people who appear to have merit clearly have the advantage in this
model."
In The Path to
the Top, Cappelli and Hamori also report:
*
Changes in size, age
and management structure of the Fortune 100 companies, as well as
the list's industry concentration, contributed to executive career
evolution. Only 26% of companies in the 1980
Fortune 100 list were also in the 2001 list. "The changes in the
Fortune 100's makeup dramatically highlight the continuing shift in
the United States toward a service economy," Cappelli and Hamori
write. 'The decline of the manufacturing sectors on the list (from
17% to 1% of the total) and the rise of financial services (from
zero to nearly 17%) are especially striking."
*
Corporate hierarchies
are flattening. "We measured a considerable change in the
distribution of executives by job responsibility between 1980 and
2001. Not all companies have exactly the same hierarchy of titles,
but most have three tiers -- CEO and chair level, EVP level and VP
level ... We found that the percentages in the top and middle tiers
declined (27.8% to 22.8%, and 65.1% to 59.3% respectively), while
the percentage in the lower tier expanded substantially (from 7.1%
to 17.8%), again supporting the perception that corporate
hierarchies have become flatter."
*
Different types of
firms offer different prospects for advancement. "It's clear, for
instance, that there are huge advantages to working in a growing
firm. Executives are much more likely to be promoted in firms with
healthy growth rates than in stagnating companies ... Other things
being equal, younger firms offer faster advancement, perhaps because
of their tendency to have flatter hierarchies." Also, "the youngest
firms -- presumably the fastest growing -- do the most recruiting of
outside talent."
*
The "speed to the top"
depends on the industry. This report and previous work suggest that
"companies in fast-growing industries offer better prospects for
advancement. For example, the two industries offering executives the
fastest paths to the top in 2001 were wholesale trade and financial
services -- two industries that had no companies big enough to be in
the Fortune 100 in 1980." But Cappelli found one
finding particularly surprising: In both 1980 and 2001, executives
reached the top more quickly in industries that were undergoing
structural change. In 2001, for instance, the steel industry offered
one of the fastest paths to the top (just over 23 years). "It makes
sense because turmoil creates opportunity," Cappelli said of an
industry wracked by consolidations and restructurings. "One of the
reasons you get to the top faster is that people are being
jettisoned quickly."
*
Changes have also
taken place along the "inside track" to the executive suite. Through
the 1970s, "marketing was the preferred track into the executive
suite, but the results here suggest that finance now offers by far
the best path (it offered the best path in 1980, too, but consulting
and human resources were close behind). The finance track will
remain the dominant path to the top job as long as the investor
community wields a powerful influence on corporations."
*
Increasingly,
graduates of non-Ivy League institutions have worked their way up
the corporate ranks. "The top executives of powerful companies once
shared the common bond of elite education," Cappelli and Hamori
write. "Between 1980 and 2001, the percentage of Fortune 100 top
executives with Ivy League undergraduate degrees fell by four points
(to nearly 30%) while the proportion from public schools increased
by 16 points (to 50%) ...The results for second degrees suggest an
even greater change. There is something of an increase in the
proportion of second degrees, principally MBAs and law degrees,
among these executives by 2001, and the decline in the percentage
that came from Ivy League institutions was much greater than for
undergraduate degrees. It's unclear whether this
means corporations were becoming less elitist and more open to
students from all levels of society. A possible explanation is that
the Ivy League produced a smaller fraction of graduates over time,
especially in the exploding area of professional
degrees."
According to
Cappelli, executive search firms play a role in this changing path
to the top, but he's not sure to what degree. "Head hunters are a
big part of the story. They both benefited from and caused" many of
the changes during the last 20 years. "Whether they were driving it
is an interesting question. I would say that they responded (to the
trend), and once they got in there, they facilitated the move very
quickly. Ironically, one of the complaints that you hear from
executive recruiters today is that it's difficult to find people to
move around because no one has any experience any more. How do you
assess talent without a proven track record? It's hard to get
objective measures when you are trying to decide, 'Is it the steak
or the sizzle?'"
When presented with
these findings, executives from several search firms had different
reactions. "I certainly tell people that staying with one company is
a negative," says Franklin D. Marsteller, an executive search
consultant with Spencer Stuart in Philadelphia. "I think that the
movement between companies is a plus. A progressive resume does make
people look very valuable."
But Marsteller
believes that recruiters played no role in the changing market. "We
really only respond to our clients' trends. We don't generate
trends," he says. "I think the bigger issue over the last 20 years
has been clearly not pedigree, but performance. The 1980s were the
transition years away from the Ivy League and the country club set
to performance and results, and the faster the better. Ed Breen, the
new Tyco CEO, is an example. He was a rising star at Motorola before
we recruited him."
Kenneth L. Kring, a
senior partner with Heidrick & Struggles who founded the
executive search firm's Philadelphia office in 1997, isn't sure
whether search firms played a role in the changing path to the top.
"But what I do know is that people move quicker, and the
requirements of leading organizations have gotten harder," says
Kring. "The skill sets required are less
developmentally traceable. The learning curves are steep and people
fail in jobs like they have never failed in before because
organizations are measuring things differently and have less
patience."
Cappelli agrees
that not only has the path to the CEO's office changed, but the role
of the CEO has changed along with it. "Management jobs today are
really very much about projects," he says. "They are hiring CEOs and
executives to do certain things -- not to fill a job but to do X or
Y. They are hiring them as a substitute for doing
strategy. And the person that they are looking for becomes the
strategy."
In conclusion,
Cappelli and Hamori write: "Overall, there may be something of an
'Is the glass half full or half empty?' issue in interpreting these
results. Despite all the discussions about corporate job-hopping and
an open labor market for executives, one might say that almost half
of these top executives in 2001 were still in the company where they
held their first job, and the average executive had been there 15
years. There is clearly some stability in the careers of top
executives in 2001. On the other hand, these are the largest
companies in the world with the biggest internal labor markets and
the strongest policies oriented around promotion from within. If
more than half their top executives now come from the outside,
roughly half their careers have been spent elsewhere, and both the
percentage of lifetime careers and average tenure are falling
significantly, then something is clearly different about how
executive careers operate now. The 'Organization Man' model has
clearly eroded."
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