In your book GREAT PEOPLE DECISIONS you emphasize the importance of hiring the right people for the right job. Although most companies recognise this, why do they fail to achieve it? What steps can firms take to improve their people decisions?

Claudio Fernández-Aráoz: Before anything else, let me point out that I actually don’t believe that most companies recognize the crucial importance of making great people decisions. Look at the poor track record of senior people decisions: about a third of CEO appointments end up in dismissal or resignation.

Consider as well the way in which people decisions are usually made in most organizations. They are similar to the way advertising decisions were made at least some 50 years ago, justifying the words of Charles Revson at the time, “I know half of the money I spend in advertising is wasted, but I can never find out which half” and Fred Allen’s remark, “An advertising agency is 85 percent confusion and 15 percent commission.”

So, coming back to your question, in order for companies to start to improve their people decisions they need to do 3 things:

• First, become aware about their crucial importance.
• Second, become much more proactive.
• And finally, follow a proven process in each critical stage of any people decision.

These steps include the confirmation that a change is needed, and the decisions about what to look for in a candidate, where to look for candidates (inside and out), how to assess them, how to attract and motivate them and how to properly integrate them into the new job. None of these steps can be left to chance. While each situation is unique, the way to get to the right solution for each step does follow a well proven process.

You argue that the people responsible for making hiring decisions are often the biggest barrier to recruiting the right individuals. What advice would you offer them?

Fernández-Aráoz: The first thing to consider is whether your organization is, in fact, involving the right people in these crucial decisions.

Let’s just focus for example on the assessment step above. Some people are dramatically better than others at assessing people, even when applying the same techniques. For example, the degree of validity for assessors using the same technique has been found to range from a negative low of -0.10 to a positive high of +0.7. In the first case, your best strategy would be to always do the opposite of what that person recommends!

So the first piece of advice would be to make sure that the right people are involved in the process.

In addition, the right number of people should be involved. A person can’t decide in isolation because it is very hard to be objective, whereas several eyes help you see better and keep you honest. On the other hand, adding too many participants to the decision process will increase your chances of rejecting highly qualified candidates due to false negative effects. So this should neither follow a dictatorial nor a fully democratic model, but rather a strong aristocracy, where only a few highly-qualified individuals participate in the process.

Would GREAT PEOPLE DECISIONS help avoid corporate scandals?

Fernández-Aráoz: Of course! The evidence is clear that corporate scandals have been the result of wrong people decisions at the top. These corporate scandals have cost thousands and thousands of jobs, the loss of the life savings of many people and, even worse, a dramatic decline in trust in business leaders, with extremely negative consequences for investment and growth.

However, the current focus on recent outrageous (yet extremely rare) corporate scandals has obscured a much larger scandal that nobody mentions. This hidden scandal involves the multitude of cases where organizations not embroiled in any scandals whatsoever have made appointments to senior positions, which have led, in turn, to mediocre individual and corporate performance.

The aggregate cost to society of this mediocrity is far higher than that of the few public scandals.

Will GREAT PEOPLE DECISIONS help solve the current CEO compensation issues?

Fernández-Aráoz: It will certainly help bring the debate under the right perspective. While there are clear excesses, the pay of the median CEO in most countries is a fraction of the potential value added … by the right CEO; and is, of course, absolutely excessive for wrongly-appointed CEOs.

As Jim Collins has demonstrated in his research on Good to Great, much more important than how much or how you pay, is whom you pay in the first place.

There is a growing trend towards higher CEO churn in today’s corporate world. How do you interpret this development?

Fernández-Aráoz: I’m frequently asked why CEO turnover is out of control, and my most honest answer, based on common sense as well as serious research, is just that CEO turnover is not out of control.

In fact, given their poor people decisions, many companies are still keeping on board CEOs who should never have made it to the top in the first place. Having assessed tens of thousands of senior executives, our own research yielded some depressing results:

• Even at companies with above-average reputation, the wrong individuals are making it to the executive suite too frequently.
• When we analyzed CEOs against the specific competencies deemed essential for each particular job, the typical CEO was slightly below the target level.
• As a rule, the gap between a typical CEO and an outstanding one is so large that, even with the highest motivation and the most sterling development efforts, getting to the required level of competence would be highly unlikely. And even if the gap could be closed, the process would take several years, which is time that most organizations simply don’t have.

Despite the myth about CEO turnover being out of control, the hard evidence is that CEOs still stay for too long. As consistently demonstrated by Booz Allen Hamilton on their studies of CEO turnover, returns to shareholders of CEO are consistently lower in the second half of their tenure.

Why do you attempt to share your expertise with the public in this book? Wouldn't it be better if everyone hired executive search firms to take care of recruitment instead? After all, they are the experts…

Fernández-Aráoz: I learned from our founder, on the day I interviewed with him before joining our firm 21 years ago, that we are not a business but a profession, and that profits would be the by-product of doing the right thing with the highest professional standards. His successors have followed that approach to the letter. We are global citizens, and we are fully aware about our social responsibility to make our world a better place by facilitating the process of getting the right people at the top, in organizations of all sorts, all over the world, even if we are not involved.

After 21 years of practice, I became puzzled and fascinated by a huge blind spot in management education. People are simply not aware of the fact that nothing is more important for your career success than making great people decisions. Just think about it: once you become a manager, everything you do will depend on the people you’ve chosen: your results, your performance, your chances of being promoted, your risks…In short, your career success.

However, we rarely get any type of effective education for these crucial skills!

Making great people decisions is a craft, and a discipline. It can be learned, and it should be learned.

I hope this book can help many managers and students learn these skills. They will doubtlessly be much more successful, and their organizations will be much stronger.

I also believe that high-performing organizations not only provide good returns for their owners, they also make our society better.