Executive Confidence Hurt by Lack of Leadership Development

Deloitte just released new research which shows an astounding gap between what business executives say and what they do, and one of the biggest issues highlighted is a lack of focus on leadership development.

A majority of America's top business leaders (66 percent of CXOs and 63 percent of CXOs in waiting, among the 300 surveyed) say they are very confident that their organizations will outperform the competition over the next 12 months. But when asked about their confidence in their ability to address specific obstacles to growth, nearly half had some doubts (43 percent of CXOs and 44 percent of CXOs in waiting). Note: A "CXO in Waiting" is an executive in succession to take on a CXO role.

What is keeping these leaders up at night?

It appears to be three things.

First, problems CXO's worry about (such as cyber risk, competition from emerging markets, and skills gaps) are not getting funded adequately.

The data shows, for example, that 72% of the executives who worry about Cyber Risk are not prioritizing investments in funding and incident response; 67% of the executives worried about emerging markets are not adequately investing in talent and business in these markets, and 35% of the execs worried about skills shortages are not prioritizing investments in HR and people development. While the research does not explain why this gap exists, it appears that CXOs simply struggle to get their teams to develop actionable solutions to these issues.

Second, CXOs are not fully confident in their leadership pipeline. Our Global Human Capital Trends research shows that leadership remains the top talent issue among businesses around the world, with only 14% of companies stating they feel they feel their leadership pipeline is "ready."

Fig 1: Findings from Deloitte Business Confidence Survey

Third, organizations are not adequately investing in the development of leaders. In this study the data from CXOs was striking: only 48% of top executives believe their direct reports have the skills to become part of the C-Suite in their organization, and 50% of the individuals who are CXOs in waiting have "little or no access to leadership training" to help them grow into these positions.

Even worse, only 49% of the the up and coming emerging executives told us that "the organization creates opportunities for me to succeed" and only 49% of CXOs state they are committed to developing leadership skills at all levels of their organization. So one could argue that the problem is executives themselves: they are not asking for or spending time on the development of their own top teams.

We have been studying leadership development practices in companies for almost ten years now, and our 2014 Leadership Development Factbook shows that spending in this area increased 14% last year and large companies spend between $7,400 and $10,600 on top executive development each year. So companies are spending the money and they are making an effort, but unfortunately the solutions are inconsistent and not delivering the impact we need. This research shows, for example, that only 26% of companies even have successors identified for their top positions - so the problem is not only one of development, but more significantly one of "selecting the right candidates."

Selecting the right senior leaders is difficult. Internal experience, motivation, cognitive skills, personality, relationship skills, and entrepreneurial skills all play a role. Too many companies promote people who are "in the pipeline" or "highly successful in their prior role" and then find that it takes several years for these high-potentials to realign themselves as senior leaders. (Our data shows that only 36% of executives even have a successor identified.)

Our High-Impact Leadership development research, based on the study of more than 700 companies over the last five years, shows that successful leaders have skills in four broad areas: people leadership and execution, intellectual capacity and drive, adaptability to different cultures and situations, and ability to influence and align people toward a goal. These are broad skills which must be assessed slowly and once identified, leaders who move into CXO roles need support.

Coaching of these "new executives" is critical. One senior HR executive told me that "the worst thing we do is promote a highly successful VP into a SVP role and then not give him or her the right level of support in their new position, often letting them fail and go to the competition." Executives have to realize that it often takes years for new leaders to become seasoned, high performing executives.

Finally, our research shows that despite the best intentions of Human Resources leaders and Leadership Development teams, without direct senior executive involvement, leadership development programs fall flat. Companies that have leaders who are directly engaged in selecting leaders, teaching, and coaching their team are more than three times more likely to have robust leadership pipelines and highly engaged leaders.

Fig 2: Financial Impact of Strong Leadership

The bottom line: executive confidence is directly related to confidence in leadership, which in turn is related to executive focus on leadership development. When we asked investors to tell us how they value companies, they gave companies with "strong leadership teams" a 35% premium in valuation.

Time and again stories show that companies that look at leadership as part of their competitive advantage build capability that drives innovation, performance, and engagement at the same time they're shipping new products and capturing market share.