The real business of organizations

Is to build leaders.

At least that's what this Fortune survey of the Top Companies for Leaders 2007 says:

Of the many powerful forces driving companies to develop leaders more effectively, the most important is the world economy's long-term shift from dependence on financial capital toward human capital.

Even given the credit crunch, money for investment is more abundant than ever. It isn't the scarce resource in business anymore; human ability is. Hewitt global-practice leader Robert Gandossy, who oversaw the Top Companies for Leaders study, says, "Organizations need talented people a lot more than talented people need organizations."

You don't build leaders on the cheap, and you don't just bolt a development program onto existing HR procedures. Indeed, the biggest investment involved may be the time of the CEO and other executives.

Lots of companies claim they're interested in developing leaders, but the University of Michigan's Noel Tichy, a top authority on the subject, says that checking their commitment is easy: "Just show me the CEO's calendar." Yet the CEO's time is only the beginning. As those who report directly to the boss see what the focus is, they also become devoted to developing talent, as do their subordinates. It's called the cascading effect. Not that these companies rely solely on the power of example. Virtually all of them evaluate executives partly on how well they're developing people.

Spotting leaders early means working on their development early. That's a big change at most companies, where programs were long reserved for an elite group several years into their careers.

Many of the companies on this list are trying to move past that. They believe that nurturing future leaders earlier than other companies creates a competitive advantage that lasts for decades, as their talent pipelines become bigger, better, and more reliable.

It's the most elementary principle of learning: If you don't know how you've performed, you don't learn and you soon stop caring. Yet at many companies, feedback is rare, candid feedback even rarer. The companies on our list combine frequent, honest assessment with plenty of mentoring and support. So when people are told what skills they need to improve, they're also offered programs or coaching for doing it.

Though executives at these companies talk about their leadership-development programs, they realize the term isn't quite right. Developing leaders isn't a program; it's a way of living. For example, honest feedback has to be culturally okay. At many companies it isn't. Devoting significant time to mentoring has to be accepted. Working for nonprofits has to be encouraged, not just tolerated.

Such cultural norms can't be dictated; they have to be in the air. That's a big reason GE tops this list. Charles Coffin (CEO, 1892-1912) realized that GE's real priorities weren't light bulbs or electric motors but business leaders; developing them has been the company's focus ever since. All these companies are working on that kind of culture.

If this interests you, you might want to check my article on developing leadership. Let me know what you think about that :-)