Getting the global view: Nestle, led by Peter Brabeck-Letmathe, climbs to the #1 spot in this year's Best Companies for Leaders.

How can a food and beverage company that wants to sell 8,500 brands in 86 countries become all things to all customers yet maintain its focus and keep its identity intact? Nestle CEO Peter Brabeck-Letmathe says it all hinges on the talent that his company nurtures. "We want to make sure that employees at all our regional companies maintain their original cultures, but follow the same Nestle principles," says the Austrian-born Brabeck. "We don't want to transform a Chinese into a Chilean or an American into an Australian. All we're asking for is that he or she embrace the common values that we have."

The company's Management and Leadership Principles state that "people are Nestle's most important asset." It seems to work. "Nestle puts its money where its mouth is," explains Robert Hooijberg, professor of organizational behavior at the International Institute for Management Development (IMD) in Lausanne, Switzerland. He says the food giant spends heavily on its high potential managers by putting them through a rigorous program of executive development at Nestle's training center in Rive-Reine, not far from the corporate headquarters in the small Swiss town of Vevey.

There, nearly 2,000 junior executives selected from all over the world undergo a monthlong induction into Nestle's corporate philosophy, work together on team projects and meet the company's top brass in groups as well as one on one. Brabeck, 60, spends at least four weeks a year at the training center. He sees it as his key task. "Leadership development," he says, "is perhaps one of the most important duties that I have."

It was Nestle's commitment to developing leaders that led a panel of judges, including Hooijberg (see list, below left), to conclude at a five-hour meeting in New York that the Swiss company deserved to be cited as the Best International Company for Leadership Development. After two years of examining U.S. leadership development practices, Chief Executive this time cast a wider net, focusing on European and Asian companies. Judges found European practices particularly impressive. "The Europeans have a leg up on their American counterparts," says Michael Mankins, a judge and managing partner of Marakon Associates in San Francisco. "These companies recognize that developing 'bench strength' is the key to unlocking future performance and value."

Are the Asians Coming?

This year's Best 20 span the globe from Finland to South Korea and from France to India and Japan. What unites them is the acute understanding that companies based outside the huge U.S. market can compete only if they learn to create different faces to present to a wide range of constituencies. One key point of difference is that some American CEOs think of leadership development and diversity as different objectives. But the European experience, in particular, suggests they are inseparably intertwined. "We are confronted with diversity because there's no such thing as a united Europe," says Benoit Potier, chairman of Paris-based Air Liquide, whose company is ranked No. 15. "Diversity has to become a manager's policy."

Potier, whose $10 billion company has adopted English as its official language, says that training leadership is so important for a company that operates all over the world because far-flung executives have to understand how to take risks, and when. "We coach people on how to take risks," he says. "But risk-taking is culture specific. That's why we need diversity in management. At the same time, not the same kind of management is required in all business environments. So we create an environment profile and match the management profile to it. My task is to place the right kind of people in the right kind of environment."

Air Liquide has clearly been making the right choices since it's been around for more than 100 years, says Rakesh Khurana, associate professor at Harvard Business School and another juror on the Best 20 panel. If a company has survived that long, he says, "there's something in the DNA that's good."

Asian-based companies are younger than European multinationals and are therefore different animals. Founding families at Asian companies tend to play stronger roles. Samsung Electronics, for example, is controlled by the Samsung group, which is dominated by the second generation of the Lee family. Yet Chairman Lee Kun Hee "has really placed a huge amount of emphasis on professionalizing talent and bringing in the best and the brightest," says Kyung Yoon, vice chairman of Heidrick & Struggles and a judge.

As a result, CEO Yun Jong-Yong, a professional manager, has used the various divisions of the company to breed talent so strong that one of his managers, Chin Dae-Je, became Minister of Information and Communications, and Chief Marketing Officer Eric Kim has just been tapped to join Intel. There is, in short, an external market for Samsung talent, which is one of the factors the judges cited in assessing a company's leadership development.

Toyota, too, is dominated by a founding family, the Toyodas, yet the company has groomed and trained a series of top managers, including current CEO Fujio Cho, who have worked their way up by rotating through a series of international assignments.

Perhaps the most surprising appearances on this year's Best 20 list are Infosys and Wipro, the burgeoning outsourcing companies in India. These are young companies and are still managed by their founders, yet their embrace of General Electric-style management development techniques has catapulted them into the top tier in a short period of time (see sidebar, left).

Successful internal CEO successions appear to be a hallmark of success. Nestle has been in operation since 1866 and has had relatively few CEOs over the years. Little wonder, since the average duration of employment at the $70 billion conglomerate is more than 27 years, while the 12 members of the executive board have worked for Nestle for a combined 349 years. Brabeck himself joined 36 years ago in ice-cream sales and has run the group since 1997. Nestle puts such a premium on an orderly succession, says Brabeck, that "on the day I became the CEO. I started grooming my successor. And there are several people who are capable of succeeding me one day."

At Air Liquide, Potier, 47, is young enough that he hasn't identified a successor. But he says he'll need to know "at least three to five years in advance" of retirement. Judging by the low turnover rate at the company--at some divisions it's less than 2 percent--Potier might run Air Liquide for quite a while longer. He's already been at the company for 27 years.

Potier spends between 20 and 25 percent of his time dealing with human resources issues and tries to get to know as many high-potential leaders as possible. On the whole, Air Liquide's executive board tends "to have good knowledge of 400 to 450 people at the top level," he says. "And then we cascade it down to the HR level, where they know everybody in their country."

European Fault Line

Having the right mix of home-grown and acquired talent is a key factor, says IMD's Hooijberg. He believes the ratio should be around 70 percent home-grown versus 30 percent imported talent. That way, he says, a company can both maintain its corporate culture and make sure it has benchmarked its talent against the best in the class. Air Liquide has narrowly missed this mark: According to Potier, about 80 percent of the company's mid- to top-level managers rise from within the ranks. But the company is very aggressive in seeking new talent. "We're on permanent lookout for very young people," the chairman says, "taking them from universities to train them to become managers."

If there is a fault line in Europe between those CEOs who manage leadership well versus those who struggle with it, it would appear to be this: The Scandinavians, the Swiss and the Dutch--in short, nationalities whose home markets are small--do a better job than those Europeans whose home markets are much larger, such as Germany, Spain and Italy. It's noteworthy that four French companies--L'Oreal, Air Liquide, Schneider Electric and Schlumberger--made the Best 20 list while only two German companies did--BMW and Siemens.

Siemens, based in Munich, which is ranked No. 16, in many ways has just carried out a textbook case of CEO succession planning: On January 1, Heinrich Von Pierer is stepping down as CEO of the company, which has more than 400,000 employees, and Klaus Kleinfeld, most recently CEO of Siemens' North American unit, will be elevated to that job.

The company does, in fact, use most of the traditional development tools, such as 360-degree oral reviews as well as written reviews of the top 500 to 600 managers. But although Siemens is a global company in terms of sales, its management makeup remains very German. All of its executive board members are German, a situation that Jurgen Radomski, management board member responsible for human resources, says "will have to change." The company fears that high potentials might start looking elsewhere if they see their non-Germanness hampering their career chances.

At the moment it does, acknowledges Radomski. "It would be very hard for a Spanish or a French manager to run this company," he says. "He would have to be intimately aware of all the German cultural constraints."

Such corporate monoculture cost Siemens ground in the Best 20 ranking, with jurors pointing out that diversity in the top executive echelon helps attract more and varied talent. At Air Liquide, only half of the executive board is French. At Nestle, only one of 12 board members is Swiss.

Siemens has been working doggedly at making its corporate culture more international. It has institutionalized country rotations and made sure that all of its top managers have been through several overseas tours of duty. The company runs a large number of training programs, including executive MBAs, at several top U.S. and European business schools. But its development base would have a hard time matching Nestle's formidable training ground at IMD, which it has helped found and which it finances generously.

The Swiss simply have refined leadership development practices. According to Brabeck, Nestle "has three levels of relationship with IMD: first, regular courses for Nestle employees; then partnership programs where some top IMD professors and Nestle top executives from one of our business groups work together on a project; and finally, IMD acting as an outside consultant to Nestle on a specific issue."

He says that at its Rive-Reine International Training Center Nestle offers "myriad courses--in finance, marketing at the highest management level and so on. But the most important, fundamental reason for having this center is to use it as a platform for conveying the values and the principles of Nestle's leadership."

To do so, Nestle doesn't use outside professors or trainers but rather brings in company management to be the instructors. "We all get involved in these courses," Brabeck says, "which allows people who come from all over the world to have direct contact with the top management." Brabeck is against using headhunters to go after external talent. "Our policy is to have home-grown top management," he says. "But we're constantly benchmarking against our competitors," such as Unilever and Danone in Europe and P & G, Kraft, Coca-Cola and PepsiCo in America."

Jeff Sonnenfeld, a judge who is associate dean at Yale's School of Management, disputes Brabeck's view that all European multinationals are more culturally sophisticated than their U.S. competitors. "In his case, that's true," says Sonnenfeld. "But you can look at an awful lot of companies that have taken a European colonial power view of the world with very centralized decision-making." And he notes that very few non-Europeans are CEOs of European companies, in contrast with the U.S. experience of allowing non-Americans to run such icons as McDonald's and Coca-Cola. The Europeans, it would appear, do not have a monopoly on global leadership.

RELATED ARTICLE: Best 20 International

1. Nestle

Peter Brabeck-Letmathe (Switzerland)

2. BP

John Browne (Britain)

3. Novartis

Daniel Vasella (Switzerland)

4. L'Oreal

Lindsay Owen-Jones (France)

5. Samsung Electronics

Yun Jong-Yong (South Korea)

6. Toyota

Fujio Cho (Japan)

7. BMW 

Helmut Panke (Germany)

8. Ikea

Anders Dahlvig (Sweden)

9. Infosys

Nandan M. Nilekani (India)

10. Wipro

Azim Premji (India)

11. Unilever

Niall FitzGerald (Anglo-Dutch)

12. Tetra Laval 

Larry G. Pillard (France)

13. Nokia

Jorma Ollila (Finland)

14. Cadbury Schweppes 

Todd Stitzer (Britain)

15. Air Liquide

Benoit Potier (France)

16. Siemens

Heinrich Von Pierer (Germany)

17. Schneider Electric

Henri Lachmann (France)

18. Canon

Fujio Mitaral (Japan)

19. Roche

Franz B. Humer (Switzerland)

20. Schlumberger

Andrew Gould (France)

RELATED ARTICLE

CRITERIA

* Development practices -- Does the company have a formal training process that involves the CEO and directors? Are high-potential managers moved through a series of increasingly responsible positions internationally?

* Profitability -- Over time, has the company achieved relatively high levels of profit?

* External market for talent -- Do other companies attempt to recruit a target company's high-potential managers?

* Management mix -- The judges believed that a company with 20 or 30 percent of its high-potentials who have been recruited from outside is better-positioned than a company which relies on internal development alone.

* Reputation -- A company such as Royal Dutch/Shell may have excellent leadership development and profitability, but its oil reserves accounting scandal reflects deep internal problems.

* Longevity -- The judges felt companies that have survived and prospered over long periods of time have consistently developed strong leadership.

JUDGES

* Jay Desai

President and CEO

Institute of Global Competitiveness

Cary, N.C.

* Rakesh Khurana

Associate Professor

Harvard Business School

Boston

* Robert Hooijberg

Professor, International Institute for Management Development (IMD)

Lausanne, Switzerland

* Michael C. Mankins

Managing Partner

Marakon Associates

San Francisco

* Jeffrey Sonnenfeld

Associate Dean, Executive Programs

Yale School of Management 

President and CEO

Chief Executive Leadership Institute

New Haven

* Kyung H. Yoon

Vice Chairman

Heidrick & Struggles

Menlo Park, Calif.

RELATED ARTICLE: Q & A

Adapting to Local Tastes--Worldwide

Nestle's CEO on the difference between U.S. and European managers

Would you say the approach to leadership development in America is different from Europe?

I'd say they are quite distinctly different. Most American companies are basically exporting an American way of life. We don't. We don't have anything to export, because we don't have a very strong home market. We have some values that we have inherited from the Swiss cultural heritage, but otherwise we are fully adapted to the local environment.

My feeling is that we, as Europeans, develop leadership differently from Americans. The question is whether you can teach leadership or not. I've seen more leaders who were born during their careers than I have seen born leaders. There's a way of helping to develop leadership.

What kind of leadership qualities would you like to see in your successor?

Of course, it has to be somebody who can inspire people. You have to be able to have a broad range of understanding different cultures because otherwise you won't be able to motivate so many people from different cultures. It's also a leadership quality that will create sufficient space so that we can run this company in a decentralized manner and not in a top-down manner. Decentralization is one of Nestle's cornerstones. We feel this is one of the reasons we're so successful.

Moreover, an American company usually stands at the service of its CEO, while in Europe, at Nestle, the CEO is at the service of the company. That's why if you have to replace the CEO of Nestle, you cannot just go to a headhunter and ask to find someone from another company. It would be difficult unless this person happens to have an intimate understanding of what constitutes our strength.

Is mentoring the key practice at Nestle?

It's certainly key to me. Because as a good mentor you have to understand the person and monitor personal development and maturity of people you're responsible for. And you make yourself responsible for them getting the right training, taking the right courses and getting the right job opportunities.

Any other key practices?

We have a concept here that we call value-added leadership. That means that basically we want everybody to get involved. If a person can add value, we want him to be involved--and not because of his position on the organizational chart. If I have nothing to say, I don't get involved. This of course means that responsibilities are being handed down to the lowest level as often and as much as possible. The principle is very simple: Members of the Nestle management board are more concerned with adding value to the company than with exercising their formal authority.

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How would you compare your leadership development system with that of P & G?

I was invited recently to speak to about 400 top European managers of P & G and I was surprised to see that in general terms we aren't so far from each other in our values and beliefs. But one of the main differences between us was that we at Nestle don't believe there is a global consumer, we believe there is only a local consumer. That's what differentiates our business philosophy.

RELATED ARTICLE: INDIA

Building New GEs?

Both Wipro and Infosys are still managed by their founders, but they are investing heavily in leadership development. Both outsourcers are benchmarking their practices against those of General Electric. Wipro Chairman Azim Premji relies on CEO Vivek Paul, a GE alum, for those insights. Infosys CEO Nandan Nilekani has examined GE practices and has vowed to "develop programs in India that equal them," says Jay Desai, one of this year's judges and president of the Institute of Global Competitiveness.

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Wipro's main corporate campus, just outside Bangalore, hosts the company's Floating Learning Center, so-called because participants must cross a moat of water to enter. The center has 70 full-time faculty members and 40 training rooms spread across four other cities. The company spends $135 per employee every year, and with 35,000 employees, this is no small sum for India.

Continuous learning is a key theme. The average employee undergoes technology training of eight to 10 days and is specifically groomed for leadership three days out of every year. The so-called Talent Transformation program has recently added lessons in business skills, ranging from customer relationship management to enterprise resource planning. For potential leaders, Wipro trains managers in revenue generation, profit-and-loss responsibilities and team building. Strategic leaders get immersed in exercises designed to instill vision, values, global thinking and execution.

At Infosys, managers are groomed into global leaders at the Infosys Leadership Institute in Mysore. The center trains up to 1,000 employees annually. "We want it to develop high-quality leaders who are creative and can set standards, and also help them be influential in a multicultural marketplace," says Nilekani of the center.

Infosys is seeking to fill up to 80 percent of its new senior management positions from the institute. It is not easy to make the cut. Out of some 25,000 employees at Infosys, 2,000 go through managerial schooling after which 400 are identified for leadership roles.

Neither company can name a graduate who has made it into the corner office yet. But the programs are young and the companies have only begun to make their mark on the global stage.

--Rebecca Fannin