With all of the doom and gloom the past couple of years, the pessimists prevail these days and everyone is complaining about something.  It's hard to believe that Obama came into office just over a year ago with a clear mandate, and today he's viewed by most as a one-term President.  Having said this, it's also helpful to look on the bright side.

Just over a year ago, we all had serious doubts about the strength of our financial system.  Today, the financial services industry is bracing for further regulation and government intervention, but the financial system has been saved.  Just over a year ago, the country was also in a condundrum about Iraq and Afghanistan.  Today, we still have significant challenges in the region, but it's clear we have an exit strategy.  Just over a year ago, we were in the midst of the Great Recession with little hope of turning the economy around.  Today, we have officially exited the recession and signs of hope continue to present themselves.

So, why all of the doom and gloom?  Well, people are still unemployed and worried about the future.  Their homes are worth far less than they once were and nearly everyone's net worth has been slashed.  As business owners, we have limited access to capital, no clear path for growth and an expectation of increased taxes in the future.  We also see the ridiculous spectacle that our federal government has become and we're weary of the partisan battling in Congress.  And on top of it all, we have a President who seems oblivious to these concerns by pushing a health care plan that would only increase the size of the government we have little confidence in.

But, look on the bright side.  The stimulus from the Fed combined with the financial strength of America's companies and financial institutions will allow us to grow.  The housing market is in the bottom and now beginning to show some signs of life in many markets around the country.  Americans are also fed up with the actions of our government in Washington, and it is highly likely that the forces supporting a constrained federal government will result in throwing out the incumbents.  And finally, regardless of the health care bill's outcome, much of it will never become a reality because entitlement reform simply cannot be postponed any further.

Things have been bad and much of the discussion is negative these days, but look on the bright side...the worst is over and good news is coming.     

3/9/10 

As I've been traveling the country this summer and talking with leaders from many different walks of life, the conversation has inevitably drifted to our assessments of when things will noticeably improve.  Back in March, I wrote a short piece on when things will start turning around so I thought I'd revisit the question.

Aside from the slowing rise of new unemployment claims, the 40% rally in the equity markets, and Q2 earnings reports which generally met or exceeded analyst expectations, the mood in this country is cautiously optimistic at best.  Interestingly, when the market corrected a bit this week (which is healthy and to be expected) it was somewhat surprising to hear some predict that the sky is falling and that we may retest the bottom.  It's clear that the fear and pain is just below the surface, and people will get scared quickly if a major correction occurs.  Having said this, almost everyone feels that things will get better in 2010.

But what are the triggers to get us moving?  In March, I pointed out that we watch two trends to predict improvement in the executive search business; namely CEO turnover and M&A activity.  Interestingly, CEO turnover has been reported to have increased 20% this past month, and while a month does not make a trend, it is the first sign that CEOs and Boards are ready to move on.  In addition, the private equity firms and investment banks are preparing for a healthy resurgence in the IPO market.  Lazard just hired a senior banker to lead their activities and private equity firms are preparing for IPOs to show returns for their investors.  Without exits and leverage, the deal market has been dead, but the signs are there for a significant increase in transactions over the next 12-18 months.

While these trends drive management turnover which is good for my business, they are also the signs that value creation opportunities are in greater abundance and that visibility is improving.  These leading indicators of a turnaround are improving, but two additional things need to happen to really clear the decks for growth.  First, the US Government needs to move past healthcare and demonstrate a unified focus on jobs and economic recovery.  Obama has tested our patience and more government spending will only postpone a recovery at this point.  Secondly, the government's role in the financial markets needs to be curtailed.  As one real estate investor told me, "There are great deals out there, but investors will not invest if they think there is another government subsidy or regulation coming out."

With Obama's poll numbers slipping and the timing for a vote in Congress quickly approaching, my bet is on a grand compromise to move past healthcare in the Fall.  Obama will work to improve his approval rating, and consumer confidence should improve; perhaps not in time for the holiday season but probably in time for the spring.  As a result, we should see solid growth in 2010 as long as these trends continue.  Whether the growth can be sustained to avoid a "W-shaped" recovery is a debate for another day, but I'm cautiously optimistic we'll be "breaking out in 2010".

What are your thoughts?  Do you see other key trends to watch?

As an executive recruiter and adviser focusing on the key roles of CEO, CFO and CIO, our clients consistently express the objective to recruit a leader who has in large part performed in a very similar capacity before.  This desire for "been there done that" executives begs the question, "Why is it that few companies choose to project talented leaders to the next level, and when should someone expect to get their first shot?"

While it is completely understandable to seek leaders who have done it before, at some point someone gave these leaders their first shot.  So why is it that companies continually seek the "been there done that" leader?  First of all, it's simply lower risk to recruit a CFO, for example, who has done it before; one of the most common requirements in nearly all of our public company CFO searches is having previous public company CFO experience.  The risk of assessment is lower and the risks associated with the transition and responsibilities as a corporate officer are mitigated.  Secondly, the short term orientation in most companies requires an immediate impact with limited time to develop a leader.  As a result, the experienced leader can hit the ground running and the new leader can lead with limited oversight from the Board or the CEO.  Finally, these are extremely difficult times and the stakes are high.  In what is arguably a buyer's market for talent in the most trying of times, why would you hire and project a talent over someone who has already proven they can handle the job?

These are the drivers behind the emphasis on "been there done that" executives, but when does it make sense to take a risk and give someone their first shot?  Clearly, the best time is when you have invested the time and energy in developing a talent and you've worked with them for many years.  I would argue that this is the most overlooked answer today.  Companies know the strengths and weaknesses of their existing succession candidates, but they choose to go outside rather than promote from within.  This can be a mistake and a costly one, but companies do it over and over again; sending a signal to the organization that leaders must leave to ascend while the company takes a risk on someone they really don't know.

But clearly the more difficult challenge is recruiting someone from the outside and projecting them to the next level.  In addition to assessing the challenges in your current environment and examing why a candidate has not been given the opportunity to ascend in their previous company, we suggest looking closely for three key attributes.  Aside from the compelling personal qualities and leadership skills that any talent must have to be considered for the next level, the "groundswell effect" must be evident.  Basically, the leader should have a groundswell of support from key mentors and people who have followed or been developed by this key leader.  When other key leaders are consistently supportive and entrust their careers with someone, this is a key indicator of future success.  Secondly, the leader should have led in a fairly autonomous organization, where he or she had direct responsibility for making an impact and can point to the successes and failures associated with the challenge over time.  Finally, the leader should be battle-tested evidenced by taking on very difficult challenges.  These situations are sometimes difficult to assess, but the learning curve is steep and the ability to handle the challenges in a new role at the next level won't be quite so daunting.

While today's environment has placed a renewed emphasis on "been there done that" executives, the cycle will shift and soon we will be back in a market for talent where the supply fails to meet the demand.  This will coincide with the retirement of a generation of leaders, and the companies who understand how to project talents will win.  Let us know your thoughts and experiences and how you assess the ability of key leaders to ascend to the next level. 

We're all angry about the bonuses at AIG and on Wall Street but I say, "Enough about the bonuses!"  Going back to the day several weeks ago when Wall Street announced $18B in bonuses, we've been listening to the outrage and feeling more and more angry.  Remember when Obama called those bonuses "irresponsible" just a couple of weeks into his presidency?  Well, AIG then announces bonuses of $165M this past week and we've reached the tipping point.

Well I say, enough already.  This debate is topical and we all can relate to it, but that's exactly why it's been blown out of proportion.  In the grand scheme of things, these bonuses are small rounding errors in the whole mess, but it really puts things in perspective.  When the news is dominated by multi-billion dollar bailout packages nearly every week for one thing or another, the money starts to lose it's meaning.  How many zeros are in a trillion?  So when we think about some executive at AIG or some Wall Street firm bringing home a $5M or $10M bonus, we get angry.  Why should they get paid when their companies got us into this mess?

What we should really be angry about is that Congress has been acting just as irresponsibly, and in the name of fixing things!  How can Congress honestly get on their high horse and grandstand when they didn't even take the time to read the bill that gave AIG the discretion to determine the amount of these bonuses?  You can't have it both ways.  Regardless of your political leanings, Congress is being exposed for how irresponsibly they spend our money.  It's really that simple.

The bottomline from my perspective is that we need continued action by Treasury and the Fed to fix the financial system.  Let's keep Congress out of the spending business and allow our companies to make their own decisions on how to allocate capital.  Executives in financial services make a lot of money.  Unless the government plans to nationalize the banks (and they don't), we're just going to have to let great CEOs like John Mack and Jamie Dimon make those decisions.  Quite frankly, I'd rather have those two guys making more decisions, and I hope this uproar over bonuses doesn't empower Congress to really screw things up.

What do you think?  Do you think that capping bonuses or having AIG executives pay them back will make any positive difference?  Could it actually have huge negative consequences?