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.

***

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The Skinny on Executive Pay @JoyofHC.

In case you didn’t get the memo, hugs have replaced handshakes in the new American workplace. Here’s your how-to guide for the new hug protocol:

• The Full Frontal: Your standard bear hug. Total body contact, heart-to-heart embrace and firm squeeze. For parents, children and good friends.
• The Ass-Out Hug: Nothing touches below the shoulders. Appropriate for the office and bad first dates.
• The Hip-Hop Hug: A.k.a. the man hug and the hetero hug. A manly shake-and-squeeze combo. Shake with right hand and hug with left, two slaps on the back. Favored by President Obama and demonstrated in the photo at right.

If you are still in hand-shaking mode, I’ve got a goody for you too. From the wise and wired John Kobara (that’s John in the photo), handshaking instruction from President Clinton:

1. Slow down and take your time.
2. Direct eye contact and smile.
3. Firm grip and little or no shaking.
4. Take the other hand and grab the forearm or elbow of the other person.

_____

UPDATE: For how to chest-bump like President George Bush, Jr., click on the Comments section below. Thank you to JoyofHC reader Richard Lai for the tip.

Bullies. We know they exist. We know we should fire them. But can we afford to? And what happens if we don’t?

A friend from a major law firm in town recently told me about a senior litigation partner of hers who was famous for being rude. No secretary wanted to work for him. It was always f- this and f- that, and f- this person and all that. Not only did this guy cuss, but he was a mean cuss.

His partners sat him down and told him to shape up.  His response? As a litigator, he needed the f-word to do his job.

You know the type.

What did the firm do?  Decided he brought in too much revenue to reprimand too harshly.

He’s a classic “Destructive Achiever.” That’s a great term coined by retired management professor Chuck Kelly in his 1988 book of the same name.

Chances are you’ve met a Destructive Achiever. The typical American worker has a 50 percent chance of working for a bully in his or her lifetime, and one in five Americans works for a bully right now.

Bullies thrive during a recession, and have thrived in this one, because in bad times companies especially focus on their achievements while forgiving their bad behavior.

But new research shows that in fact, bullies cut a swath of destruction far worse than anyone imagined. Management professors Christine Pearson and Christine Porvath conducted a study of 4,000 employees at the receiving end of bullying behavior and found:

48%  decreased their work effort,
47%  decreased their time at work,
38%  decreased their work quality,
66%  said their performance declined,
80%  lost work time worrying about the incident,
63%  lost time avoiding the offender, and
78%  said their commitment to the organization declined.

Turns out that it’s during a recession that companies should beware the collateral damage caused by bullies.

My primary message regarding that megalomaniacal jerk in your ranks is: Cut Him (or Her) Loose.  That said, I understand that, like the law firm above, you may conclude that your bully brings too much benefit to cut loose, at least in the short term. It’s a recession, and revenue is revenue.

It’s a deal with the devil.  But if you have to make it, you don’t have to lose your soul – or leave your colleagues in harm’s way. Focus on gaining the benefits of the ‘achiever’ – such as his ability to bring in new business or solve technically demanding problems.  Meanwhile, remove his management responsibilities.  Reassign his direct reports and otherwise isolate him to minimize his destructiveness to the rest of the organization.  You’ll be doing your people, and yourself, a favor.

*
For more on this subject, read:

• The Cost of Bad Behavior: How Incivility Is Damaging Your Business and What to Do About It
• The No Asshole Rule: Building a Civilized Workplace and Surviving One That Isn’t

A growing body of research on happiness in the workplace finds that optimism and cheerfulness have a measurable effect on the bottom line.

The chart below is from Wharton finance professor Alex Edmans, who has found that companies with happy employees perform better than other companies.

Makes sense that happy workers are motivated, and that efficiency ensues.  The good news is that happiness is a muscle you can strengthen.

The happiest employees are those who believe they get to do what they do best every day. Only one-third of working people feel that way.

Ensuring that people’s jobs are well-aligned to their strengths is an ongoing process. As your employees grow and broaden their skills, seek to evolve their work to ensure a continued fit with their skills. To achieve “flow” — complete absorption in a task — their workloads should be challenging but not too tough for them.

For those among you who are recruiting amidst this recession, hire for people’s strengths, and not just for their resumes. I will address how to do this in future blog posts, but in the meantime, you can see an overview on our website here.

Robert Aliota, founder of parts-maker Carolina Seal, says happiness science has led him to make lasting changes at his company. He regularly analyzes his own moments of triumph, “times when I was truly in the zone, utilizing my natural strengths and having fun,” as a sort of happiness fuel.

That’s the sort of fuel that can power the success of your company.

Companies everywhere are trying to reinvent themselves for a future they could not have imagined a year ago. Problem is, their human capital practices are not keeping up with their shifts in strategy.

I was out drinking with a senior partner at a well-known global consulting firm. He was leading a campus-recruiting project to hire students from China as they graduated from American universities. After all, it’s the era of the global consumer, and 53% of executives say that China and India will be vital to their success in the next five years. This project sounded like a good way for his firm to stay ahead of their clients’ needs.

He and his team had just been to UCLA. I asked how things went. Not well, he replied. Now I happen to know that UCLA is commonly called the “University of Caucasians Living Among Asians,” so I wondered why all those Chinese students didn’t fit the bill.

He said that they were uniformly smart and ambitious, but lacked “cultural fit.” In fact, he complained, one student came into the interview in a pastel suit, his hair in a pompadour. Elvis on top, Miami Vice below.

Research shows that, as a matter of human nature, when we meet someone, we size him up within five minutes, and then that initial impression colors not only our entire meeting, but also our recollection of that meeting. In recruiting, we call it the “Halos and Horns Effect.”

A Brooks Brothers model would have had a better chance getting past those crucial first minutes with my friend’s firm.

But this begs the question: What culture is this firm is recruiting to?

The Chinese students at UCLA now are China’s brightest, richest, most connected, best English-speaking, young people. For a firm that has tied its future to winning and executing China business, these candidates could be exceptionally well-equipped to helping the firm execute on those strategies.

It’s in the boardroom that companies announce new strategies and organizational structures, but it’s on the frontlines of people-management that the rubber meets the road.  Companies should routinely review their human capital practices to ensure they’re aligned with their strategies.

Otherwise, that Elvis lookalike who gets away could be the one who walks across the street to help your competitor eat your shorts.

Last Friday night around midnight, The Wall Street Journal broke the news of Steve Jobs’s liver transplant last April. The story raised more questions than it answered. Here’s a round-up of the week’s most interesting commentary, and how to think about it all.

The Wall Street Journal story was unusual on two counts. First, they offer no source for the information — not even an “according to sources familiar with the matter”. Deputy Managing Editor Allan Murray, asked about the lack of sourcing, simply says “Trust us. We’re the Wall Street Journal.” Apparently, everyone does, as all the other news outlets have picked up the story only by sourcing the Journal itself.

Second, as blog Daring Fireball notes, the fact that this news broke months after the transplant, at midnight on the day of what seems to be the most successful new product launch in Apple history, appears to be beyond coincidence. The leak came from Apple itself, because someone wanted it told that way, and on that day.

The New York Times followed by saying that Apple’s obsession with secrecy is nothing new. To enter their offices, employees working on secret projects must repeatedly swipe their badges and enter numeric codes. But even by Apple’s standards, the story notes, the company’s handling of the news of Jobs’s health has been unparalleled.

Times business columnist Joe Nocera wonders what it really mean that Jobs now is back at work. Is he part-time? To what extent will his health continue to impinge on his ability to function as CEO?

Forget about all the good-hearted but misguided people who say we should  respect the privacy of Steve Jobs. If this were, say, Cirque du Soleil, I’d agree that we should simply shut up and enjoy being enchanted. That’s because Cirque is privately-owned and controlled by its largest shareholder, its wildly-creative founder and chairman, Guy Laliberte.

Apple, on the other hand, is public, and thus has responsibilities to be transparent and avoid lying. Remember in January, when Apple claimed that Job’s condition was nothing more than a hormonal imbalance? We’ll see what the SEC has to say about that.

All this puts Apple’s board in a bind. Steve Jobs is not allowing them to do what I’d argue is the most important job of any company board of directors: to put in place a succession plan. In fact, he has a history of actively cutting off at the knees anyone who does get named his successor. As technology pundit Rob Enderle puts it:

His health has made his dependability questionable and his ability to actually do the job as he has defined it nearly impossible. He appears to tie his own mortality, as many do, to retaining the job which actually means he likely feels the only way he is leaving is if is no longer living and the stress of the job coupled with his weakened health makes that more likely.

The Apple board can’t back-fill him without Steve acting to protect his job and forcing out the person the board selects, and the board can’t fire him because that will result in the very problem they are trying to avoid near term. They are seriously stuck with a problem they can’t fix and yet will be held accountable for. Watch for any drama between Jobs and anyone seemingly positioned as his heir. The last true Jobs heir was Jon Rubenstein, and he was driven out of Apple some time ago and currently runs Palm.

I’ll give the last word to business writer Bill Taylor, who advises, if you admire the leadership of Steve Jobs – and there’s so much to admire in what he’s achieved – do not try this at home:

Jobs, for all of his virtues, clings to the Great Man Theory of Leadership — a CEO-centric model of executive power that is outmoded, unsustainable, and, for most of us mere mortals, ineffective in a world of non-stop change. A Wired magazine cover story from last year made the point well. The article begins with a memorable anecdote — the CEO, in search of a space in the company’s crowded parking lot, regularly leaves his Mercedes in a handicapped space, sometimes taking up two spaces. The pattern became so noticeable that employees, according to the article, put notes on his windshield that read, Park Different.

Humility is not part of the Steve Jobs leadership repertoire — and that’s worked out fine for him. But humility has become a crucial part of the job description for leaders who aren’t Steve Jobs. So marvel at his products, applaud his feel for design, wonder at his capacity to cast such a large shadow over so many industries — and, by all means, pray for his speedy recovery and long health.

This week marks the 25th birthday of Cirque du Soleil, the extraordinary circus for adults, whose mission is to invoke the imagination, provoke the senses and evoke the emotions of people around the world.

If you’re not among the 90 million who’ve been, what are you waiting for?

I’ve got a clip for you, from the show Alegría. Alegría is Spanish for Joy, but I chose this clip because the theme of this show is the abuse of power and the subsequent struggle for freedom. It’s a story of hope and perseverance, and a haunting elegy in light of the bloodshed unfolding this week in Iran.

Cirque was founded in June 1984 by college dropout, folk musician and fire-eater Guy Laliberté. In the quarter century since, Laliberté has built his troupe of stilt-walkers into an $800 million empire with 4,000 employees from 40 countries. He’s now one of Canada’s richest men, and a regular on the Forbes billionaire lists.

Along the way, he bought out his co-founder and has rejected numerous buyout offers in favor of keeping control over his singular vision. The company remains independent and privately owned today.  That has meant scrapes with bankruptcy and risk-taking that would make most investors quiver. He remains the company’s controlling shareholder, reportedly still owning 95% of the shares.

Now only 49, Laliberté remains the guiding visionary in charge of every show. As he puts it:

“I am blessed for what I have, but I believed in it from the beginning. Today, the dream is the same: I still want to travel, I still want to entertain, and I most certainly still want to have fun.”

Laliberté’s reign at Cirque someday will come to an end. He’ll decide to sell, or he’ll just plain get tired. That juncture will be a true test for the company.

Meanwhile, we’ll continue to revel in the magic, shouting, Vive le Cirque!

The latest unemployment news to get my attention: Not only is unemployment at historic highs, but also the percent of people who have been unemployed more than six months is 50% higher than at any time since the Great Depression. This will have long-term implications for unemployed Americans and the economy at large in terms of damage to psyches, checkbooks, and skills. At the thought of all this pain, my heart aches. I’m sure yours does too.

Some CEOs assume that, with all this bad news, people who are working feel lucky to have a job.  So they’re focused on what they need to do to get through the recession: manage cash and cut expenses.  Employees, as the biggest expense for many companies, are getting short shrift. Companies are lowballing job offers, cutting pay, denying bonuses, and generally putting a lower priority on their people.

The problem with ignoring your people is that your most important assets also are your most tenuous. And having a job does not equal job satisfaction.  Over half of working adults say they are likely to look for a new job after the recession ends.

The numbers are staggering:

• 66% of American workers are currently dissatisfied with their compensation
• 76% are dissatisfied with future career growth opportunities at their company
• 48% are dissatisfied with the relationship they have with their boss
• 77% are dissatisfied with the strategy and vision of the company and its leadership

CEOs looking hopefully toward economic recovery may be shocked by an unprecedented exodus of talent when that time comes.

Better rev up your retention efforts now. And, start with your pivotal talent!

_____

* Hat tip to HR Chief Bill Budzinski for sending me the worker dissatisfaction data.

Next time you make a hire, do not rely solely on the interview process. Research shows that what we know about ourselves is fairly limited, with many of our impulses, traits and beliefs residing in our subconscious. See photo.

The current recession only further increases the business risks of each new hire. To reduce those risks, conduct good reference checks, since reference checks are the only way to verify what a candidate is really like. Do not ask the most commonly asked reference question: “Tell me about Laura’s strengths and weaknesses.” It prompts bland generalizations, and leads nowhere.

Here’s how to make reference checks count:

1.  Create a roadmap. The goal of referencing isn’t to dig dirt, or to get gossip, but to verify a candidate’s fit for the position.  Identify the specific skills, competencies and personal characteristics required for the position, and reference against those.

2.  Focus on references from the past five years. People grow. Studies show that the best predictor of future behavior is immediate past behavior.

3.  Conduct 360° references.  Don’t just speak with former bosses. If the candidate you are considering has already had some career success, she’s already shown some skill in managing upwards. Often, the most revealing references are provided by direct reports and peers.

4.  Always go off-list. Inform the candidate that it’s your policy to identify and call people not on her list, and ask if she has any concerns with that. If yes, those concerns can be revealing. When speaking with her references, always ask if there are others who might have different perspectives on what it was like to work with her. Then call them.

5.  Take control of each call. Avoid wasting anyone’s time. Start each call knowing exactly what you’re after on that call.  Could be one thing, or four, based on your referencing roadmap, and when and in what capacity this referee knows your candidate. Perhaps you have a question around a candidate’s departure from a certain job, or how well he manages his peers. If the conversation veers off-topic, promptly steer it right back to your agenda.

6.  Get specific examples, then drill down. Don’t ask present-tense questions: “How does she…” Rather, get specific examples from the past: “Can you remember a time when Susan actively mentored a member of her team?” When you hear generalizations, get examples. For each example given, drill down to find out the original Situation, what Actions she took, and the Result of each example. S-A-R.

7. Identify developmental areas. One of my favorite questions, at the end, is: “If you were his executive coach, what would you have him working on in the next three years?” More effective than asking for the candidate’s weaknesses, and opens the door to further probing.

8. Hit Pause. If the reference ever hesitates, wait. People do not like breaks in conversation. By pausing, you’ll often get the most revealing insights.

9.  Take notes. Research shows that memories of conversations always are faulty, and are colored by one’s own opinions of the candidate. I always tap along on my computer, taking near-verbatim notes. When I review and type them up, I always see things I forgot were said. Try to take down nearly everything that’s said on your call, so you can later assemble your notes from all the calls to get a more rounded view of your candidate.

Five or six reference checks like this, lasting 45-60 minutes each, and you’re done. Yes, that’s a serious investment of time, but it pales in comparison to the cost of a wrong hire. And, if all works out, you’ll gain excellent insights for onboarding your newest hire.

Was this helpful? What are your experiences with referencing? Let me know if you have questions I should address in future posts.

I recently came across an old Psychology Today article with a definition of creative individuals. It’s worth the read, here.

The paradox for large companies is that, to stay large and grow in an economy where change is increasingly accelerating, they need to behave like creative individuals, who as the article states are “remarkable for their ability to adapt to almost any situation and to make do with whatever is at hand to reach their goals.”

I used to do a lot of work with Fortune 500 companies, since they were the bread-and-butter of my former search firm, Heidrick & Struggles. But while I worked with a lot of terrific people at the big companies, by and large, the most creative people I’ve met have been at the small- and medium-size companies we work with now at Chen Partners.

I wonder: Is scale a natural enemy of creativity? Is creativity truly an individual trait – as in “We’d better hang on to our creative individuals?” Or can it be developed company-wide: “Here, we’re all rewarded for being creative”? Which large companies successfully foster a culture of creativity? (I’d like to headhunt from them!)

Does creativity naturally leach out of companies as they grow, and is this process what “creative destruction” is really all about?

I’d love to know your thoughts.