I love CEO searches. Each is a unique opportunity to work with a company’s Board, or owner, to assess a company’s strategic plan, map out the skills needed, and then go out into the market to hunt down the person best able to make those plans come true.

The appointment of Charlie Beck as the new chief executive of the Los Angeles Police Department has transported me back to the last time we picked a police chief and I was a Deputy Mayor.

November 2002: Our administration was grappling with an LAPD in crisis. The city was prey to soaring rates of violent crime, with our poorest neighborhoods the most victimized. After a decade bracketed by the Rodney King beating and the Rampart corruption scandal, people were starting to wonder whether the LAPD were the good guys or the bad guys. The department was being run by those the Los Angeles Times editorial board called the LAPD’s “infamously insular insiders.” Public distrust of the police was matched only by the racial politics around the selection of the next chief; both were at fever pitch.

We ultimately concluded that we needed to bring in a hard-charging outsider who could bring a fresh approach and desperately-needed reform. Our pick was former New York Police Commissioner Bill Bratton.

November 2009: With Chief Bratton’s resignation to join a private security company, current Mayor Antonio Villaraigosa faced a police chief search of his own. Chief Bratton had pushed crime rates to historic lows, introduced sophisticated data-driven policing principles, and dramatically improved community relations.

Mayor Villaraigosa chose Charlie Beck, a 32-year veteran of the LAPD on whose behalf Bratton had vigorously lobbied. Given how closely Chief Beck is identified with his former boss, he has surprised many by outlining a new model of leadership. In his words:

The only way that real change is made is from the bottom up. You can mandate change from the top… but the only way an organization really changes is from the roots up; that’s much more powerful. So what you’ll see is different with me is I’m going to concentrate on the roots of the organization.

Whereas “Mr. & Mrs. Bratton” have been fixtures on the Hollywood circuit (see Mrs. Bratton’s official website here), Chief Beck says:

I think I have a little more of a common touch, much more of a common touch. I think that maybe at the end of the day you’ll think of me more of a cop’s chief rather than a leader-manager.

Chief Beck even jokes about Chief Bratton’s extensive travels to faraway places for conferences, speaking engagements and the like:

I certainly won’t travel as much as [Bratton] did. This is my home. This is where my family is. . . . I’m a local boy, I always have been and that’s the way I’ll be as chief. And, again, with my philosophy of driving these changes down internally, I’ve got to be here to do that. I’ve got to touch people. I’ve got to have conversations with the [officers] and I can’t do that from out of state…

Chief Beck is the kind of guy you could have a beer with. Whereas Chief Bratton will take his Champagne Krug chilled at 38 degrees, thank you.

As I reflect on the week’s news, two things come to mind:

• When conducting a search, resist the urge to look for a carbon copy of the old guy. LAPD now is a dramatically different place than it was in 2002, and this CEO search was an opportunity to find a new chief to take the department to its next phase of growth. Mayor Villaraigosa was smart to focus on the challenges in front of the department now, and to focus on finding the person to lead the department out of the Bratton era. A CEO search should not just answer the question “What does this company need?” but “What does this company need right now?”
• As you move up the food chain, don’t lose touch with the little guys. I’ve been inspired by Chief Beck’s emotional connection with his troops. It’s rare to find a leader who maintains a common touch as he or she has risen through the ranks. Most leaders lose their empathy as they move up the corporate food chain. According to a recent study:

People in power are prone to dismiss or, at the very least, misunderstand the viewpoints of those who lack authority… Power can inhibit empathy, the ability to perceive another person’s emotional states.

Since the Mayor is an elected position, there’s no civic CEO search more important to Los Angeles than that of police chief. I’ve not been privy to the discussions around the selection of Chief Beck, but given the goal that both the Mayor and Chief have laid out – to continue the ambitious agenda defined by Chief Bratton and push it through the ranks – Chief Beck’s deep roots within the department will serve our city well.

While Chief Bratton has been lauded for his brilliance at defining a new path for the LAPD, Chief Beck looks like a fine choice to shepherd the department into the next decade.

Congratulations to Mayor Villaraigosa and Chief Beck. You have all our best wishes and support.

**
Hat tip to strategy consultant Dave Brock for the link on leaders and empathy.

Lots of talk this week on executive compensation, with fascinating trajectories for American culture, business, society and public policy. I followed the debate so you don’t have to.

As you might expect, much of the conventional wisdom has focused on a potential Wall Street brain drain should comp restrictions be put into place (examples here, here and here).

The week’s best commentaries came from The Economist and compensation expert Frank Glassner.

First, The Economist points to big investment bank bonuses and introduces the concept of “employee capture:”

Such rewards, in the face of public protest, feed the impression that banks are victims of what some call “employee capture”. The top ten investment banks at the start of 2008 made an average return on equity of just 8% between 1999 and 2008. Four made cumulative losses. Staff got four times as much as shareholders did in profits. In 2008 Merrill Lynch paid cash to staff equivalent to over 100% of the capital left by the year-end.

Normally, this would be just a problem for shareholders. But because the public had to get involved, it’s now everyone’s problem. Next, the newspaper debunks the banks’ revisionist protests that, because they’ve repaid public subsidies, their bonuses should revert back to those of 2007. Fact is, they continue to operate on public support:

It is not just that they were saved from destruction. They got public capital (much of it now repaid), short-selling bans on their shares and rescues of counterparties, such as American International Group, which the public otherwise had no interest in saving. Today they enjoy laxer accounting, loose collateral rules at central banks, explicit debt guarantees and asset-purchasing schemes. And, critically, they can borrow cheaply because they are deemed too big to fail. All of them-from comparatively healthy Goldman to the nationalised weaklings-are being subsidised by the rest of us. As a way to keep cash flowing to the wider economy and help banks rebuild their capital, this subsidy made sense; nobody intended it to go to employees.

The heads-I-win-tails-you-lose aspect of all this has got America steamed. But The Economist argues that the answer is not simply to tax the banks’ highest earners:

In the longer term the bonus mess underlines the importance of getting the state out of finance: setting a time limit for the explicit guarantees and finding ways to lessen the implicit promise of support through living wills and the like…. Retrospective taxes are usually bad news. They distort incentives, and scare investors in other industries who fear they may be next. A wholesale cap on pay would lead regulators further into the swamp of micromanagement. And symbolic caps on a few top executives, as the White House is threatening, are too feeble a response.

The resident expert on pay on CNN, Bloomberg, and elsewhere is Frank Glassner, who’s been omnipresent this week on TV, newspapers and across the blogosphere. Frank is CEO of Veritas, the top pay consulting firm to Fortune 1000 companies. Because our firms share clients in common, I’m on his private email list. Frank this week sent his clients a manifesto advising that when it comes to pay, it shouldn’t be a matter of “how much,” but “how.” I sought his permission and bring that note to you here. An excerpt:

[G]overnment regulation will probably have unintended consequences, without curbing excessive pay. For example, if the maximum ratio of CEO pay to worker pay were mandated, companies would likely respond by outsourcing the work of the lowest paid workers, rather than curbing CEO pay.

For the rest of us who are not recipients of public largesse, the lesson we can take away is the delicacy with which we should approach compensation, and how it needs to be situated within a broader human capital strategy. Company directors will be under greater scrutiny than ever. Says Frank:

[C]ompanies should design compensation packages to attract the right people for implementing the company’s strategy. For instance, below market salaries coupled with aggressive incentive pay linked to individual performance is likely to attract self-motivated entrepreneurial individuals, however, that very type of pay strategy may create increased risk taking as well, and would need to be designed with appropriate checks, balances and controls.

Companies also need to assure their executives longer tenure and horizons – without the necessity of pay guarantees. A CEO who is afraid of being fired for not making short-term financials will not focus on the long term. A board that is actively engaged in strategy formulation and implementation and compensates a CEO for strategy implementation milestones, along with monitoring long-term performance, is more likely to understand, appreciate, and encourage a CEO’s efforts, even if they yield short-term financial results that are below expectations. Thus there is an urgent need for boards to evaluate their executives’ performance annually to determine their progress on long-term goals.

What I like most about Frank’s note is the premise that when it comes to compensation, one size does not fit all. When business strategies differ between companies, their compensation strategies ought to differ as well.

Companies should have the fortitude to set their compensation strategies according to their corporate strategies, not simply based on external markets for pay, and not simply based on internal ideals of what’s “fair.” To accomplish this, you’ll need first to identify how pivotal to your company strategy an executive really is.  For my earlier post on how to do that, click  here.

***

Thank you for your Tweet:
The Skinny on Executive Pay @JoyofHC.

Buried in the current debate over healthcare reform is the fact that 70% of our health care spending is to treat “lifestyle-related chronic disease.” That’s a polite way of saying that two-thirds of our healthcare costs are due to Americans getting fatter. And THAT is just an incredible statement, which I would not believe except that it came from Ross DeVol and his crack economic team over at the Milken Institute.

Even worse, for every dollar we spend on healthcare, we lose three to four times as much in lost productivity. This is through absenteeism (sick days), “presenteeism” (when sick people show up for work to avoid losing pay and then perform below par); and time off for care-giving.

Taken together, the healthcare and lost-productivity costs of chronic disease now add up to a trillion-dollar a year hit to the U.S. economy. Half of all Americans now suffer from a chronic disease. Two-thirds of us are overweight or obese. Things are only getting worse, since obesity spreads like a social epidemic.

The single most effective way to promote affordable healthcare and economic growth is to give people financial incentives for healthy behavior.  One organization which is leading the way on tying financial incentives to reducing obesity is the Harlem Children’s Zone, under the leadership of its visionary CEO, Geoffrey Canada. Unfortunately, the healthcare legislation taking shape in Congress reflects the view that people should not be responsible for their own unhealthy behavior. This is a huge missed opportunity.

Let’s you and I do our part.  We each can resolve to make healthy choices.

I know that for my own family, this is easier said than done. Having recently had a baby, I’ve got another 15 to lose. We’re working to ease my husband from his KitKat-cheeseburger-beer “old Dave” ways, and that is an ongoing process. As for our daughter, we’ll try to raise her with healthy habits from the start.

You in?