Findings from a landmark government-funded report on Australian leadership quality have been released to much fanfare. But are the results worth the hype? AHRI Chairman Peter Wilson AM (FCPHR) argues the report is fundamentally flawed.
Melbourne University’s Centre for Workplace Leadership (CWL) has trumpeted the release of its Study on Australian Leadership (SAL) as the most significant in a generation. It concludes that Australian leadership quality has underperformed and needs a makeover.
The study makes the claims that Australian leadership quality is weak because 40 per cent of companies are not hitting key profitability and return-on-investment targets, and that public organisations outperform private ones. Both claims reflect a fundamental misunderstanding of how these targets are set by the two sectors.
Private sector organisations, exposed to open business competition, usually set targets on a ‘stretch’ or ‘outperform’ expectation of hitting a predicted median or a third-quartile outcome – with a resulting statistical expectation of 50 to 75 per cent failure rate, well above the 40 per cent recorded in the SAL.
Alternatively, public sector organisations, with near monopoly power or minimum statutory service requirements, set and hit ‘low-ball’ targets. It’s like comparing a group of students exposed to open competition over which they have no control, to a group of students who mark their own examination papers.
From the perspective of what’s good for the economy, I would contend that it makes sense for competitive private players to set exacting stretch targets that they might just miss, rather than an approach that is predicated on everyone winning a prize.
Other flaws in the SAL study include failing to disentangle leadership from other core drivers of performance such as competitiveness and productivity. It concludes that Australian organisations don’t get the basics right, but seems to assume a “cascade of objectives” from top to bottom, which is 1980s or 1990s thinking at best. Modern organisations devolve autonomy to their front lines which set business objectives that deliver group goals.
Australian organisations aren’t innovative enough, according to the SAL, because only 18 per cent of private organisations report radical innovation annually, compared to public bodies. But public bodies can be more risk-prone because they can recapitalise failures more easily from taxpayer funds. In addition, the SAL ignores the implications of the Global Innovation Index it quotes, where Australia ranks 17 out of 141 countries. That places us well inside the top quartile.
The SAL also claims Australian leadership quality lags because leaders aren’t well trained, with only 25 per cent having achieved secondary level qualifications or less. That claim neglects to mention that many business leaders work hard to undertake late entry study at universities, as well as courses at professional associations such as the Australian Institute of Company Directors, the CPA, and my own organisation.
SAL claims few senior leaders seek advice externally. The US Centre for Creative Leadership has quantified a well-accepted ratio, which shows these come from on-the-job experience (70 per cent), talking to external business authorities (20 per cent) or readings and downloads (10 per cent). So in any one year, only one in five will need reference to an external authority. Further, the SAL’s conclusion conflicts with its own data which shows about 75-80 per cent of leaders seek external advice at least once a year.
The SAL misunderstands the relation between executive leadership development and frontline management training, and points to a mis-investment of $10 on the former compared to every $1 on the latter. Frontline management training is directive, executional and process-driven. Executive training today is about assessing and strategising systemic risk and ambiguity as it affects business. Pressures in the latter area have increased enormously in recent years.
The SAL study points to a lack of diversity in management, but ASX companies have made progress since 2009, with an improvement of 8.3 per cent to 23.3 per cent female gender representation on boards. Female workplace participation is rising at the expense of men, and all people are working longer. The challenge is not to squeeze out more “pale, male and stale leaders” stated at SAL’s launch, but to get workforce participation rates, in general, to rise.