In most developed economies around the world, public sector intervention is becoming more widespread. This not only includes new and stricter regulations, but even the state actively going back into business, as illustrated on the cover of an issue of The Economist, “Leviathan Inc.” The big problem is that unless people decisions in the public sector are drastically reviewed, economic and social progress will be seriously at risk.
Poor people decisions where they matter the most
On the evening of November 4th, 2008, I was invited to give a speech about Great People Decisions to an impressive group of Chairmen and CEOs of FTSE 200 companies in London. Given the time difference, precisely at that point in time perhaps the most important people decision on earth was being made, with Americans casting their votes in their 56th presidential election. Following the speech, inevitably we discussed that decision with some of the guests, and unavoidably moved into the topic of presidential elections and people decisions in the public sector.
In similar discussions all over the world, both with leaders in the private and the public sector, everyone seems to agree that we are not doing a very good job. In terms of results, most agree that many of the presidents or prime ministers in office today, even in the most developed countries, are far from the best possible candidates to hold those jobs. Very few of them are outstanding, and a tiny minority are possibly just good enough in terms of their competence, credibility, and even integrity. Unfortunately, we are making very poor people decisions where they matter the most!
In simple terms, making great people decisions involves generating a rich pool of candidates, assessing them properly against the competencies required for their jobs, and attracting the best into the most critical positions. Both when selecting top political leaders and appointing their key officers, our poor performance is simply the result of extremely poor processes.
Going back to the last US presidential election, you will remember that Hillary Clinton was very close to winning the nomination of the Democratic party, following which she would have had a very significant chance of being elected President in 2008, and quite likely re-elected in 2012. Of course I am not commenting on her personal competencies in this context, but had that happened, we would have had as Presidents of the most powerful nation on earth, for over 3 decades, a succession of a father and his son, and a husband and his wife. In a country with a population of over three hundred million, it is hard to believe that we are doing enough of a good job while generating candidates. Even for a family-owned company, that type of leadership succession would be seen by most as neither a credible nor an effective one.
Starting with a limited pool of candidates is an irreparable constraint for making great people decisions. But the process gets further damaged by our poor assessment process, where in the case of presidential candidates most of us either stick to our party affiliation and/or make emotional decisions based on superficial impressions from public information, including live TV debates. It is extremely rare to find a clear analysis about the challenges facing a nation, their implications on the specific competencies required for the top leaders, together with an in-depth assessment of the candidates against those competencies.
In addition to having the right leader at the top, strong nations need to have top officers in charge and outstanding civil services. However, people decisions at that level are also extremely poor, with candidate generation usually limited to those within the ruling party and/or civil service, promotions based largely on tenure and experience rather than competence, and compensation levels which for top public leaders are usually a fraction of what great leaders would make in the private sector.
In summary, we have a very poor record making people decisions in the public sector, and we don’t seem to be very smart while casting our votes or appointing top public leaders and officers. Candidate generation, evaluation, and attraction are all significantly below the usual practices in the private sector.
Why these decisions are so hard
Even in the private sector making great people decisions is brutally hard. Jack Welch, considered by many as the greatest manager of the 20th century, usually mentions that when he became a manager at GE he would get half of his appointments wrong. And 30 years later, the last 20 of them as CEO of GE, leading what arguably was the largest creation of value in the world’s corporate history, he would still get 20% of his appointments wrong. If these decisions are brutally hard in the private sector, they are even tougher in the public realm.
The first reason why these decisions are so hard is that unfortunately our brain is a piece of hardware that hasn’t had any major upgrade for the last ten thousand years. It is not very different from the brain of the primitive man who hunted animals in the savanna. People decisions at that time were mostly based on familiarity, similarity, and comfort. We would of course welcome someone similar to us as a likely member of our tribe, otherwise it was a question of fight or flight. But while that type of decision was once key for our survival, it is no longer useful today. Building great teams does not necessarily require familiarity and comfort, but rather complementary skills, which by definition imply diversity, and even the ability to challenge each other in the right way. Unfortunately, however, our brains have been shaped through evolution and we are hardwired into a series of unconscious psychological biases which sabotage our people decisions, including our tendency to procrastinate, overrate capability, make snap judgments, stereotype, stick with the familiar, save face, and go with the crowd.
On top of these general biases, when making political choices our brains seem to function in a particularly limited way. While one would expect that political sophisticates would do better than novices, cutting edge research from neuroscience seems to indicate that actually the opposite may happen.
Recent fascinating research has been conducted at UCLA(University of California, Los Angeles) using fMRI (functional magnetic resonance imaging) to measure brain activity of individuals being exposed to images and recordings of political and non-political subjects. In one of these experiments, individuals would listen to political statements concerning hot-button issues in national politics, and were asked to agree or disagree with each statement. While novices involved more of their cognitive areas to make their choices, politically sophisticated individuals were actually thinking less. The politically sophisticated individuals showed a much higher level of activity in part of a neural system called the “default state network” (specifically at the precuneus and the dorsomedial prefrontal cortex). This is actually the area of the brain that is dominant when there are no specific goals or tasks at hand, when we daydream, or “do nothing”.
In other words, our longer exposure to political choices may actually make us worse, when we already have the wrong brain for making people choices!
In addition to having the wrong hardware, we also have the wrong software because most of us have not studied either the impact of making great people decisions or the proper way to master them. When giving speeches to corporate audiences I would typically ask how many in the room had actually formally studied how to make great people decisions. Even in the corporate world, only a tiny minority would be able to raise their hands. In the public sector, the number of people educated in the topic is usually dramatically close to zero.
How can we possibly master the key for building great nations when we have the wrong brain and the wrong education for choosing our political leaders? Add to this a series of additional constraints for people decisions in the public sector, including stability, tenure and low compensation, and it is easy to understand our very poor track record.
The value of great people decisions in the public sector
While there is lots of public focus on the integrity of public leaders, as should be the case, it is not very common to hear about the value of great people decisions in the public sector. The impact of these decisions has been analyzed in the corporate world, and some of the best studies have confirmed that the choice of the leader in a corporation is probably the most important controllable factor beyond corporate value. The results of these studies are also seen daily in the market. When a great leader leaves at the top of an organization, or joins another one, the value of the company can immediately change by as much as 5% to 10%, representing a potential change in value of a large organization measured in billions of dollars.
If that is the case in the corporate world, imagine what the impact will be of the choice of those individuals with key leadership roles in major nations. On November 22nd, 2008, the Dow Jones industrial average had been down as much as 1.4% in the morning. By 3.00 pm, the news of President Obama’s choice of Timothy Geithner as Treasury Secretary broke. The index shot up, ending the day 6.5% higher. Given the size of the US stock market, the economic impact of that people decision at that time represented about 2.5 trillion dollars!
Making great people decisions systematically for a long time is actually the key for building a great nation. Consider for example the cases of Jamaica and Singapore, both of which were almost identical twins in 1965. Both of them were former British colonies that had recently become independent, with similar size, population, and income per capita. At that time, the founding fathers of Singapore decided to focus on talent as the key for their national development, and provided scholarships for some of the top potentials to study abroad in the best universities of the world and go back to work for the government. They set up what is perhaps the best civil service in the world, and adopted many of the best practices for developing people and making people decisions in the public sector.
Some 50 years down the road, Jamaica remains a poor nation which based its development mostly on its natural resources and tourism. By focusing on talent and making great people decisions in the public sector, by contrast, Singapore has become the most competitive nation on earth according to the latest IMD ranking. Its income per capita has increased since then by more than 700% in constant dollars, while that of most developed nations has increased by less than 200%. A few similar cases, although not as dramatic as that of Singapore, can be found in other parts of the world, such as that of Chile within Latin America over the last few decades.
It’s not natural resources or size that are required to build a great nation. It is all about talent. Jim Collins, considered by Fortune to be the greatest living business thinker, found in his compelling research for his bestselling book “Good to Great” that the two foundational conditions for building lasting greatness in an organization were to have the right leader at the very top and to make great people decisions at the senior levels. Exactly the same formula applies for building great nations.
What to do
Given our hardwired brains, political traditions, and additional constraints in the public sector, improving people decisions in the public sector is, of course, a long march. But precisely because of this, an urgent start is needed.
First, while our brains have been shaped through evolution over the millennia, they can also be reshaped by better software. For this reason, it is imperative to start an educational process on the general population about the great impact and difficulty of making great people decisions at the top, as well as the best practices in order to master them. Unless the general population becomes more aware of this critical issue, we won’t improve the way in which we cast our votes, and governments will never get the political support to invest in the right type and caliber of public leaders.
Second, political leaders need to realize the urgent need to appoint outstanding leaders at the very top. No system, process, or code of best practice has any value if there isn’t at the very top of any public sector unit a passionate leader who focuses primarily on great hiring, development, and appointment decisions. This is a top-down process, and requires tremendous leadership at the peak.
Third, public sector leaders need to source more openly, both considering candidates within other units of the administration as well as, increasingly, more candidates from the private sector.
In addition, public leaders need to adjust the screening process while assessing candidates. While cognitive skills and experience are a threshold competency for any leadership job, emotional intelligence-based competencies are the key for outstanding performance in any leadership role, both in the private and public sector. The ability to properly manage themselves and their relationships with others is the key for effective public leaders who will be able to motivate their colleagues towards top individual and collective performance.
In addition, civil services need to implement outstanding development programs. Paradoxically, as nations develop, it may become harder to get the right talent into the public sector. In the case of Singapore, for example, most of its success was based on outstanding fellowship programs for some of the highest potentials. Candidates were given the chance to study at the best global schools, while making a commitment to go back to work for the administration. As the nation has become richer, many individuals now have the chance to finance their own studies without the need to commit to going back to the public sector. Within this context, great development programs are not only key for developing the skills of those in the public sector, but also for attracting and retaining the best. All of our research has shown that people usually don’t leave a job primarily for economic reasons, but because of a bad boss and limited challenges and development opportunities.
And last but not least, governments would do well to review their compensation policies. How can we possibly say that we want to attract the best public leaders when we are only willing to pay them a fraction of what they would make in the private sector? Singapore is perhaps the most significant exception in this regard. It is as competitive as the private sector at a junior level for the top potentials, and is even the country with the highest pay levels at the very top of the government. This, however, did not happen initially but over time, once the general population understood, as a result of great education and great people decisions, both the integrity and competence of their public officials as well as the huge cost of a bad government and the insignificant cost of a great administration.
As Peter Drucker put it, the most important and truly unique contribution of management in the 20th century was the 50-fold increase of the productivity of the manual worker in manufacturing. And, as he went on to say, the most important contribution management needs to make in the 21st century is to similarly increase the productivity of the knowledge worker. This is the great opportunity of our times. It will, however, never happen without strong governments and great administrations. And this just won’t be possible without great people decisions in the public sector.
Claudio Fernández-Aráoz is the author of Great People Decisions (NJ: Wiley 2007). A Senior Adviser of the executive search firm Egon Zehnder, he was a member of its Global Executive Committee for over ten years, as well as the leader of its Management Appraisal practice, Professional Development, and the development of the firm’s Intellectual Capital. An advisor to several progressive governments, he is a frequent keynote speaker at major business gatherings globally.