Choosing Your Leaders Wisely: The Key to Long-Term Success

Choosing the right leader for an organization is one of the most consequential decisions a board can make. A leader’s vision, strategy, and values set the tone for the entire company, shaping not just its immediate performance but also its long-term viability. Yet, many boards struggle with this responsibility, often miscalculating what qualities will serve their company best. A recent example of this struggle comes from Nike, where CEO John Donahoe stepped down after his tenure was marked by a singular focus on cost-cutting. This raises the question: Why did this approach fail, and what does it reveal about the broader challenges in selecting the right leadership?

The risks of a numbers-first leadership approach; John Donahoe's leadership at Nike faced significant challenges, particularly due to his emphasis on cost-cutting as a primary strategy. While cost-cutting is often touted as a quick way to boost margins and profits, its short-term focus can cripple a business if not executed carefully. The case of Nike is a powerful illustration. Under Donahoe’s leadership, Nike shifted away from its traditional market-focused strategy, with efforts to reimagine the company through different products, sales channels, and structures. Unfortunately, this approach didn’t resonate well with Nike’s core identity, and the company saw a devastating impact on its financial performance. By the time he stepped down, $28 billion had been wiped off Nike’s stock value.

This wasn’t just about a bad quarter or a few strategic missteps. It pointed to a deeper issue: a disconnect between leadership strategy and the company’s DNA. Donahoe did not come from the sportswear industry, and his strategy seemed to lack the nuance of understanding Nike’s heritage, market position, and consumer loyalty. His focus on the numbers—without fully appreciating the ethos that made Nike a global brand—alienated stakeholders and stunted innovation. ?Cost-cutting is a common trap. Many new CEO's, often guided by external consultancy agencies, fall into this pattern as a way to "trim the fat" and improve short-term performance. According to PWC’s 2017 CEO Survey, 62% of CEO s begin their tenure with some form of cost-cutting initiative. While this may seem prudent, overzealous cost-cutting can inadvertently shift focus away from core competencies, innovation, and long-term value creation, leading to lasting damage.

A balanced approach to cost management

Cost-cutting is not inherently harmful, but it must be done in balance. In their book Fit for Growth, Deniz Caglar and his co-authors stress the importance of investing in what makes your organization truly unique in the marketplace. Cutting costs shouldn’t mean stifling creativity or eroding the brand’s essence. Rather, leaders must identify areas that are critical for growth and innovation, while managing costs in non-essential areas. Caglar’s principle applies not just to operational efficiencies but also to leadership itself. Too often, cost-cutting is confined to the shop floor, while top leadership continues to enjoy significant perks and compensations. A value-driven leader must "walk the talk" by leading by example. If cuts are necessary, they should be felt across all levels of the organization, including at the top.

The importance of industry expertise

John Donahoe’s lack of background in Nike’s core industry also highlights a critical aspect of leadership selection: the importance of industry knowledge. Leaders who come from outside an industry often bring fresh perspectives, but this can also backfire if they don’t respect or understand the organization's heritage. ?Nike, a company built on innovation in sports and lifestyle apparel, requires a leader who can understand its market, its athletes, and its global fan base. Leaders who overlook these crucial aspects risk creating strategies that are out of sync with the company's strengths, leading to strategic misalignments and, ultimately, failure. This highlights the importance of choosing leaders who not only have a strong strategic mindset but also a deep appreciation for the company’s DNA. The most successful leaders are those who honour the history and values of the company while steering it toward future growth.

The role of tenure and succession planning

Leadership is not just about who holds the reins today, but also how long they hold them. Research suggests that senior leaders should serve for 4 to 8 years to ensure fresh perspectives and prevent stagnation. Regular leadership transitions are key to keeping the company agile and responsive to changing market conditions. Moreover, succession planning should balance internal and external candidates. Studies show that 75% of new leaders should be promoted internally, while 25% can be recruited externally. This mix ensures that the company retains its institutional knowledge and culture while also benefiting from outside perspectives that can drive innovation.

A values-driven leader

In the end, the most crucial quality in a leader is not just business acumen or financial expertise, but values. A values-driven leader is one who aligns their vision with the company’s core mission, culture, and stakeholders. This alignment fosters trust, loyalty, and long-term success. When choosing a leader, boards should prioritize those who value the organization and its legacy, rather than someone who sees the role as a platform for short-term financial gains. Such leaders are rare, but when you meet one, it’s evident. They inspire teams, create sustainable growth, and leave the company in better shape than they found it.

Choose your leader wisely

Choosing a leader is a complex and weighty responsibility. The example of John Donahoe at Nike serves as a cautionary tale about the risks of cost-cutting, industry disconnect, and short-term thinking. Successful leaders are those who understand the delicate balance between innovation and tradition, who invest in the company’s unique strengths, and who lead with values that resonate throughout the organization. Boards should not shy away from this difficult task but must approach it with the seriousness and foresight it deserves. After all, the future of the company rests on this decision.