Looking for a Leader: The Role of Executive Search Firms Calling the Tune: Negotiation as an Improvisational Dance Books    ·Winning the Influence Game HBS Press Books in Brief Looking for a Leader: The Role of Executive Search Firms At a recent gathering of chief executives in New York City, the heads of two companies shared pleasant dinner conversation. The first led a large, successful corporation; the second also happened to serve as a director of a telecommunications firm that was looking for a new CEO. No mention of the search was made during the dinner; yet within weeks, the first CEO was interviewing for the telecom post, which he only learned about later through a headhunter’s phone call. Why would the telecommunications company use a search firm to talk with the prospective candidate rather than take advantage of the personal connection it already enjoyed? Understanding the dynamics of the CEO search process — and the ways in which chief executive turnover influences corporate performance — has been the subject of recent research by HBS assistant professor Rakesh Khurana. In a working paper titled “Three-Party Exchanges: The Case of Executive Search Firms and the CEO Search,” Khurana describes how the function of search firms in CEO recruiting differs from the role they perform when recruiting executives at other levels. Khurana’s interest in CEO recruiting began with work he initiated with HBS professor Nitin Nohria as a graduate student in 1994. To learn the extent to which chief executive turnover affects corporations, Khurana and Nohria studied the performance of two hundred of the largest U.S. companies before and after chief executive successions. They discovered that what happens to a firm following a turnover is largely determined by two factors: whether the turnover is forced or natural and whether an internal or external candidate is selected as the successor. To understand better the inner workings of the chief executive change process, Khurana initiated an extended program of field research. Over a period of six years, he interviewed nearly forty board members of Fortune 500 companies who, together, had participated in more than a hundred CEO successions. Subsequently, he visited leading executive search firms, where he interviewed senior consultants who had significant experience in CEO recruiting. “I was surprised to find,” says Khurana, “that the part consultants play in CEO searches is not really that of a broker, as described by existing research on third-party behavior. Rather, their task in fulfilling an assignment at this level tends to be limited to that of facilitator and communicator.” It’s the company’s directors, he explains, who actually develop specifications for the position and then rely on their own extensive personal networks to identify the majority of candidates. Only when this phase has been completed does the headhunter assemble general background information, initiate candidate contacts, and begin serving as the conduit between the parties. Finally, when the candidate list has been winnowed to a few individuals, the directors again return to the forefront, calling upon their many contacts to provide information about candidates’ personal and professional qualifications. “There are significant risks to the company and candidates during a CEO search,” adds Khurana. “For example, a candidate’s loyalty and trust would immediately become suspect should his or her employer, investors, or the public learn that discussions were taking place with another company. Using a third party puts distance between the company and the candidate and gives both sides the freedom to discontinue discussions without damaging their egos and reputations.” Another risk that directors face, he notes, is a potential drop in their firm’s stock price based on their final choice. This often occurs when the media and analysts react negatively to the new CEO. Homing in on a candidate who is likely to gain the favor of these external parties has therefore become important to the process. It also gives these outsiders added sway in shaping the futures of companies and executives. Khurana believes that his findings are applicable to most large organizations (including nonprofits) that are seeking new chief executives. “Perhaps the most important insight,” he says, “is that CEO searches, as currently practiced, are likely to exclude many qualified leaders who fall below the sight lines of directors and their personal networks. In these uncertain times, in particular,” he concludes, “the stakes are too high for such a narrow perspective.” — Peter K. Jacobs Adapted from Working Knowledge: A Report on Research at Harvard Business School, Vol. IV, No. IV. RETURN TO THE TOP OF THE PAGE   Calling the Tune: Negotiation as an Improvisational Dance Before you make that next big deal — to buy a car, hire new staff, or acquire a company — you’d better brush up on your ballroom skills. In business today, negotiating is more like an intricate dance than a cold transaction, according to HBS associate professor Kathleen L. Valley, who teaches in the Negotiation, Organizations & Markets (NOM) unit. Valley’s research focuses on how negotiations can be significantly affected by how well the parties know and trust one another and by the medium they use to communicate — in person, by phone, by e-mail, or in writing. In her spring reunion session, “It Takes Two: Improvisations in Negotiations,” Valley told alumni that successful negotiations result from a solid understanding of the individuals involved as well as of the process through which the interactions evolve. “At HBS,” she noted, “we teach negotiation in the required curriculum to provide a critical set of analytical and procedural skills.” Along with grasping the basics in making a deal — the issues, priorities, similarities, and differences — Valley says it is crucial to consider with whom you are negotiating. “It makes a difference if I’m going to negotiate with Amy or with Bill, because I know Bill is friendly and open, and I know Amy is tough,” she said. “If I know that, I can adjust my strategy and expectations. You can’t do the dance alone — it’s like a waltz. You need to consider the other person before you can negotiate effectively.” Negotiation skills have become vital at all levels of the organization. Valley explained that in addition to the negotiations around a transaction — the exchange of goods or services — the flattening of organizations means people must negotiate the terms of their actions with multiple parties, instead of taking orders from the top. Disputes often arise in the course of determining how the work of an organization should be accomplished, and these disputes must now be negotiated without the old fallback to rules and hierarchy. “We also have multiple organizations doing tasks that used to be handled by a single organization,” Valley noted. “This means negotiating separate contracts for who will do what, at what price, and for how long. Negotiation has become the way we do business.” In her research, Valley found that the communication medium used in a negotiation has an impact on the outcome, particularly when the parties involved do not know one another. “Profit can be much higher for both parties when negotiating face-to-face, because vital information is shared,” she said. Trust and understanding are much less likely to be found when communicating in writing or on the phone. “Over the telephone,” said Valley, “we see buyers getting suckered. This is called the ‘winner’s curse.’ You won the company, but you lost money.” The problem is that sometimes business has to be done by e-mail or phone. To achieve a positive outcome without the inconvenience of assembling all negotiators in one room, Valley points to personal relationships as the key. She discovered, across a number of studies, that if the parties know one another or have any positive past relationship at all, then the medium (phone, writing, or face to face) makes no difference to the outcome of the deal. If the negotiators are strangers, however, the medium makes a huge difference. Trust and openness are established more easily when the parties know one another or can see each other; these qualities are unlikely to be present in telephone or e-mail communications between strangers. Valley believes that successful negotiations require the parties to improvise as they go along, reacting to each other’s responses and actions. “The way the negotiation starts will drive the interaction throughout,” she said. “If the parties are in sync with one another, the interaction evolves in a predictable way, once those initial steps have been taken.” Valley concluded, “I can’t teach you a best strategy for negotiation. But I can teach you how to react to the other party: how to recognize what they’re doing, how to think about the impact of that action on your outcome, and how to make a transition if that improvisation doesn’t fit your preferred outcome.” — Margie Kelley RETURN TO THE TOP OF THE PAGE     Winning the Influence Game by Michael Watkins, Mickey Edwards, and Usha Thakrar (John Wiley & Sons) “Managers who ignore the actions of government do so at great risk,” warn the authors of Winning the Influence Game: What Every Business Leader Should Know about Government. HBS associate professor Michael Watkins, former congressman and current lecturer at Harvard’s Kennedy School of Government Mickey Edwards, and HBS research associate Usha Thakrar have drawn on interviews with government insiders, top lobbyists, consultants, and veteran CEOs to offer executives proven strategies for influencing the government rules and regulations that shape their industries. The book offers both a framework for analyzing the effects of government on business and an introduction to the techniques that are necessary for organizing to influence government. “The workings of government are so remote from the commonsense practices of the business world that even the most astute manager may simply not know how to go about the business of influencing government,” note the authors. By outlining approaches to government relations that other companies have found effective, the book gives managers a better understanding of how to influence legislative and regulatory agencies to gain competitive advantage. The authors outline seven principles — involving skills such as relationship and coalition building, cooperation with competitors, and using influence as a competitive weapon — that can help managers protect their interests and become proactive in shaping government policy. The advice presented can be applied at the local, state, national, or international level by managers from a wide spectrum of industries. In today’s economy, where government laws and regulations can determine the long-term viability of businesses, Winning the Influence Game argues that business leaders must choose between being players or victims. “There will always be laws, regulations, and taxes,” note the authors. “Government is not going to go away. Either you will influence those laws and regulations or your competition will.” RETURN TO THE TOP OF THE PAGE   HBS Press Books in Brief (Harvard Business School Press)     The War for Talent, by Ed Michaels, Helen Handfield-Jones, and Beth Axelrod, presents a strategic view of what managers must do to hire and keep the best employees. Drawing on five years of research, including surveys of thirteen thousand executives and case studies of 27 companies, the authors map out five bold imperatives for attracting, developing, and retaining the very best people. They show that great talent management has more to do with a pervasive “talent mindset” than it does with better HR processes.   Loyalty Rules!: How Today’s Leaders Build Lasting Relationships, by Frederick F. Reichheld, maintains that it isn’t new market forces that make loyalty so elusive in the digital arena — it’s faulty leadership. Applying his breakthrough loyalty theories to the digital economy, the author shows that the Web can actually enhance the loyalty effect but that few leaders understand what loyalty means or how to build it. Reichheld, author of the 1996 bestseller The Loyalty Effect, outlines six principles of loyalty that can make the Internet a hospitable and highly profitable place for businesses to succeed. 20/20 Foresight: Crafting Strategy in an Uncertain World, by Hugh Courtney, outlines a new approach to strategy making that enables managers to move beyond outdated prediction-based models by embracing — not fearing — uncertainty. Courtney argues that most executives suffer from an all-or-nothing view of strategy in which future events are either certain or uncertain. He believes the key to making better strategic choices in turbulent markets lies in understanding the level of uncertainty faced in a given situation. 20/20 Foresight provides a framework for learning to separate what can be known from what can’t — and then using that residual uncertainty to tailor the decision-making process.   From Global to Metanational: How Companies Win in the Knowledge Economy, by Yves Doz, José Santos, and Peter Williamson, focuses on a new breed of global company — the metanational — that is turning the strategies of traditional multinationals upside down. Metanationals are first to sense and capture new knowledge all over the world; they mobilize this globally dispersed knowledge to become more innovative than their competitors; and they turn this innovation into value by effectively managing operations for maximum sales growth and profitability. The authors maintain that in order to survive, traditional multinationals must stop playing yesterday’s global game — essentially creating a homegrown strategy and then projecting it around the world — and start competing the metanational way. The Infinite Asset: Managing Brands to Build New Value, by Sam Hill and Chris Lederer, argues that marketers and CEOs urgently need tools to manage vast groups of brands — not as individual elements or collections under one corporate roof but as complex systems that transcend corporate boundaries. The Infinite Asset provides top executives with an original strategic approach to resolving tough questions, such as whether or not to umbrella brand, how to determine the right number of brands, and the role of the brand manager in the 21st century. Tempered Radicals: How People Use Difference to Inspire Change at Work, by Debra E. Meyerson, considers the virtues of people who want to become valued and successful members of their organizations without selling out on their identities and their beliefs. These “tempered radicals” may have differences based on moral values, social perspectives, or racial, gender, or sexual identity that put them at odds with the “mainstream” organizational culture. But Meyerson argues that these “everyday leaders” can act as crucial sources of new ideas, alternative perspectives, and organizational learning and change. Expectations Investing: Reading Stock Prices for Better Returns, by Alfred Rappaport and Michael J. Mauboussin, offers a powerful alternative for identifying value-price gaps. The authors provide everything the reader needs to utilize the discounted cash flow model successfully. And they add an important twist: They suggest that rather than forecasting cash flows, investors should begin by estimating the expectations embedded in a company’s stock price. Providing a fundamentally new way to evaluate all stocks, Expectations Investing will set investors on the path to success. Managers can also use the book to devise, adjust, and communicate their company’s strategy in light of shareholder expectations.   To order HBS Press books, call 800-545-7685 or visit www.hbsp.harvard.edu. Other books by HBS authors are available at the Business School Coop (617-499-3248; 617-547-5003 fax).   RETURN TO THE TOP OF THE PAGE