Keys to the kingdom
Written by: John Letzing
Photo by: Vojtěch Vlk
The transfer of top management posts from expats to locals has been a difficult process. Find out what’s behind the controversy and surplus of hard feelings.
WITH HIS FIRM gaze and commanding tone, Radomír Sabela is the very image of leadership. As a Czech in the top spot at an international firm (CEO of Philips CR) Sabela is fairly extraordinary, and has become something of a doyen among local execs, a credible figure willing and able to proffer blunt criticism of the quality of local contemporaries. When Philips built a new display factory in Hranice and placed ads looking for mid-level executives, the meager response was disheartening. So Sabela spoke up, and struck a chord with the media. “The phrase I used was that it was complicated filling the second tier (of management) with good Czech managers,” relates Sabela. “Why? Because they are not that mobile, they are not going to take a risky position in a new organization, and they are scared of an international environment. And this should be improved.”
That Sabela’s criticisms are shared by many international firms here is obvious when glancing at a current list of their top people – from directors of telecom operators to department store chains, the names are resoundingly foreign. Even when a company has been operating here for the better part of the past decade, such as Unilever (established in the Czech Republic in 1992), the manager is more often than not an expat. This presents more than a few unsettling questions. A decade after the demise of socialism, what are the factors still holding the local talent pool back?
Asked why they haven’t localized the top spot, Unilever spokesman Ladislav Červenka responds that the firm’s policy “is not simply to substitute internationals with locals.” At the same time, he also points out that Unilever has, worldwide, “one of the smallest percentages of expats in top management.” So what rates the Czech Republic as an exception? It’s not necessarily a deficiency in local talent; Červenka says the firm has sent numerous Czechs out to management positions abroad, including one former director now at company headquarters in Holland. Most likely, the major concern is that placing a Czech in charge in a Czech environment will subject that person to the temptations of a developing market that relies, to an extraordinary degree, on personal relations and networking. Ideally, there should be no national boundaries in management. As Sabela quite succinctly puts it, “mature management is international management.” Unfortunately, an excessive number of Czechs feel otherwise. Many seem to consider time in an international firm as hazardous survival in occupied territory, and their position vis-a-vis foreigners as one of chronic victimization. If this mentality prevails, locals will continue defining themselves in opposition to foreign colleagues and bosses and hinder their own and their company’s potential by clinging to national pride. Rather than accept criticism of these tendencies from outsiders, some have been known to take personal offense and circle the wagons. George Tesař, a Czech-American consultant and marketing professor, recently published an article in Ekonom that excoriated the skills of a certain unnamed company head in Brno. The manager, recognizing himself in the harsh description, immediately contacted Tesař and offered to “take care of him” next time he dared come back to town. Such inflated emotional reactions are not confined to locals. Václav Klaus’ “Czech way” economic policies, involving voucher privatization to friends and contacts who squandered money and potential, made international businesses feel particularly insulted and put them off the idea of going local. As Gerald McDermott, a former economic advisor to the government now teaching at the Wharton School of business in Philadelphia, says, “the whole voucher experience left a bad taste in the mouths of foreigners – they got burned. And the Czech Republic still ranks as one of the most corrupt in the region. This makes foreigners very wary about allowing their Czech counterparts to take more control.”
Hiding behind a nationalist veneer to do business the “Czech way”, though still prevalent, is untenable – globalization is not a trend, it’s reality. And the only culture that matters within corporations is a particular firm’s corporate philosophy. Philips, for example, is a world unto its own – the Philips way is the only way. By becoming as much a Philips employee as a Czech, Radomír Sabela fit the company’s needs perfectly. By his own admission, this is at least partly why he became the successor (in 2000) to Jaap Aardse, and is the first Philips CEO here to be local. An important expression of Sabela’s dedication to company above country has been a willingness to travel. Not many Czechs are willing to move a mere 80 km away, much less six time zones away. Most simply refuse to wriggle free of the lattice of friends and social connections that support them. Which, ironically, will limit their opportunities right here in the place they refuse to leave. Sabela, for his part, worked his way up ladders around the globe by taking posts in locations as remote as South America and Asia.
Coupled with mobility, there must also be patience. What Sabela meant when he cited a lack of volition among locals “to take a risky position in a new environment” is that many refuse to submit to a system where promotion is only guaranteed by tangible results. Granted, the first tier of management at Philips’ Hranice tube factory is almost entirely made up of international managers; only the second tier was opened to locals. The problem, as Sabela pointed out at the time, was that Czechs took this as an affront, and virtually ignored the opportunity. “Why should we take orders from foreigners in our country,” thought many candidates, without taking the time to reason that proving themselves in a lower level would likely mean eventual promotion to the next; it should be noted that Czech managers are reaping the benefits of patience. Many who were once, in the words of Gerald McDermott, “mere window dressing,” are now taking on substantive roles in decision making. McDermott acknowledges that presently, at firms such as Volkswagen (German)-owned Škoda Auto, “it has improved… they (Czechs) are clearly running day-to-day operations, even if Volkswagen frequently asserts itself.”
|The curious case of Baťa
Ah yes, Bat’a. Ask the average person in the street and they’ll say the footwear company is as Czech as a plate full of dumplings – the fact that Bat’a is now based in Toronto is not common knowledge. Tomáš J. Bat’a went into exile after the German occupation in the late 1930s, and some years on the communists nationalized his Czech factories. Fortunately, he had many other international branches with which to keep the company going. When Bat’a resurfaced here in the ’90s, it brought with it a corps of international managers with up-to-date know-how. It was a bitter irony of the post-socialist world that an old Czech treasure would require the expertise of foreigners. This changed in July of 2000, when Michal Jánský took over from Bengt Gunnarsson in the role of General Director for Bat’a in the Czech and Slovak Republics. The first local to run the legendary company in its modern incarnation, Jánský is in charge of all retail and manufacturing operations (he worked his way up over the course of the last ten years from his initial position as a buyer). Asked if he felt he represented a trend of young Czechs taking over at international firms, Jánský says, “if we’re talking about top positions only, Czech managers have not yet been able to get there, to a significant extent.” One of the few and the proud, Jánský owes much to Bat’a’s training programs, held both here and abroad, as well as contact with the firm’s experienced international managers. That contact remains a benefit to this day: “We still take advantage of outside experience,” says Jánský. “Our manufacturing division in Dolní Němčí is run under the leadership of my colleague from the UK.”
A global outlook, locally
The benefits of localizing management are undeniable. The same social bonds that tend to hinder growth here can, in healthy doses, be used for positive gain. There is a local “boys’ club”, as one Czech manager puts it, and in order to get into the club and utilize its advantages, one must not only speak the language well (as many expat managers do not), but be keyed into the culture. The degree to which the Czech business world is dominated by a boys’ club is debatable, though most invariably rank it high on the list, somewhere between Japan and Russia. “We’re a very ‘high content’ culture,” says Rostya Gordon-Smith, director of HR consulting firm People Impact. “Japanese and Czechs are high content, while Americans and English are low content. In a high content culture, the personal relationship – who you know – plays a very great role.” Expat managers, who may come from environments like the US, where, as Tesař says, “companies look at the person as a resource, not as a part of some system,” may find it difficult to operate in such a cozy nest.
Bruno Le Ciclé
Of course, the degree to which a parent company would even want their executives in the club is sometimes difficult to gauge, or control. Having a manager in too deep can be destructive. Bruno Le Ciclé, CEO of Nestlé Czech Republic, acknowledges a need to bring locals on board. He boasts that currently a number of his direct subordinates are Czech, and that “the proportion of Czechs will increase over time.” But his criteria, as with many other international players, is that a local must get out of here and spend time abroad before he or she can be fully trusted. Andrea Colantoni, a recruitment specialist in Prague, says that his clients are making a stronger effort than ever before to pull locals into their management. “All in all, I think they (international firms) have been reasonably successful in exchanging their expatriates for locals,” avers Colantoni, though he adds a word of caution: “I say reasonably, because I am convinced that some companies made a trade-off between cost and performance, while others decided to take a calculated risk.”
One glaring hindrance to developing local managerial talent has been the education system. The theoretical approach of most Czech university business programs leaves much to be desired – “it’s a sort of classical education that isn’t focused on anything,” says Tesař, who is currently scouting potential local partners for a new MBA program. He cites a lack of initiative on the part of major Czech universities to get involved with on-site, nuts and bolts training. “Like Charles University – they’re a very traditional school. We had a meeting with one of the faculties and they came right out and told us, ‘we don’t do applied research’…meaning basically, ‘we don’t like to get our hands dirty, and working directly with companies is unacceptable’. Every university in the West works with companies, but here, they don’t.”
Rostya Gordon-Smith points to an educational deficiency that goes deeper than the university level: “If you put together a 27-year-old Czech manager and a 27-year-old manager from abroad, they might look the same, they might wear the same Hugo Boss clothing,” she says, “but the foreign manager has a great advantage, because since kindergarten, he’s worked on team projects, he’s learned presentation skills, negotiation skills, and how to talk to people. Our education system doesn’t cater to future business people. It caters to future technicians and academics.” Instead of leaders, the system breeds employees who frequently lack soft skills, which include more nebulous qualities like leadership and charisma. “To be honest,” says Sabela of his Czech peers in management, “even after ten or eleven years, there is not enough leadership skill.” For an HR specialist like Gordon-Smith, there is a specific term for what’s missing: Emotional Intelligence. “With Czech managers there has been a great stress on IQ, and on the technical side,” she says. “Most of these people don’t have emotional intelligence…which means being able to emphasize a good self image, and to have resonance and influence over people.” Because it’s generally agreed that things like soft skills and emotional intelligence are formed at an early age.
Petr Hermann, at 29 years of age, is a good example of the future of Czech management. A regional director with Schneider Electric, he oversees the technical outfitting of major greenfield projects, including the new Toyota Peugeot Citroe¨n Automobile plant in Kolín. For years, says Hermann, hope for Czechs to climb the corporate ladder at his French-owned firm seemed dim. “In the past, my Czech colleagues and I were a bit afraid that management would always be purely international, and that we’d have difficulties being promoted,” he says. Hermann adds that now things are changing, and he strongly believes that since Schneider began more aggressively transferring accountability to locals, it has benefited.
|Loyalty – the decisive factor
Of the numerous foreign banks operating in this country, only a few are doing so under Czech managment. What are the pros and cons of having a “local” in charge?
“Banks like Citibank and ABN Amro are global banks. Their policy calls for appointing people to management positions who are not citizens of the countries where their branches are located,” explains Radovan Vávra, Komerční banka’s former general director, who was recently rumored to become the new CEO of GE Capital Bank in Prague. Howewer, both Vávra and the bank’s representatives denied this information toThe Prague Tribune. Vávra claims that if the foreign bank appoints a local manager, there is a risk. “At least in so-called developing markets – in Latin America or eastern Europe,” he says, explaining that a bank director might act as a national economist. His greatest loyalty would be to his native land rather than to his parent bank, and he says that the “loyalty factor” was the reason for the management change-over in KB after it was privatized by Société Générale of France. “When someone buys a bank, he wants to control it through people whose qualifications are supplemented by many years with the firm, because banking is about trust,” notes Vávra. The loyalty of KB’s current French management is buttressed by tens of years spent with the company, something no one in the Czech Republic can yet offer.
While the talent of youthful hires should be lauded, there are two problems: youth lacks experience, and the social effect of predominance of kids often fresh out of school can be unsettling. In practice, anyone with a few gray hairs tends to be cast aside to make room for more fortunate and polished upstarts. Tesař, when conducting management training sessions, sees the rift up close. In one session on B2B marketing, “half the group was under 35, and the other over 40,” he recalls. “And those two groups couldn’t even communicate…there is a conflict here.” The ire of elders is often warranted; as Gordon-Smith points out, the young often garner favor for little more than being young. “I mean, how much experience can they have?” she asks. “Being a great manager doesn’t only require knowledge or leadership skills. You’ve got to go through milestones in your career – you fall on your face, learn from mistakes and continue on. And young managers don’t have that.” Accordingly, it will take a good amount of time before Hermann and contemporaries breach the top tier. Given that they continue to progress at the rate that they have.
There are real concerns inherent in the current model. What might be good for breeding young management here may simultaneously be disastrous for the social fabric. Young execs with international training, and what are typically viewed as “western” habits, may feel successful, but often are also made to feel like foreigners in their own country. And one of the most glaring deficiencies of Czech managers – their reluctance to commute long distances – could also endanger traditional stability if changed. Even if they do manage a seamless transition to increased mobility, the ultimate test for young locals will no doubt be whether they can avoid submitting to the cronyism and encumbering faux-nationalism that’s plagued the preceding generation. If they can look beyond their identity as Czechs, and see themselves simply as successful managers, the issue of localizing management here and all of its associated social tension will certainly become a part of the past.
|We vote for us
The organization Comenius annually issues a ranking of companies. But while its “Czech 100 Best” purports to be a genuine consideration of merit, in reality it’s more of a popularity contest. “It’s just sort of the Czech inner circle congratulating itself,” says one local analyst, adding, “you see the same thing in western Europe, but the effects are more extensive here.” Meaning, less is done here to distinguish “100 Best” honorees from companies that are actually, from a numbers point of view, the best performers. Unfortunately, local management has been prone to buying into the scam and taking part, thereby allowing themselves to be viewed as individuals who would sacrifice integrity in exchange for cozy relations with fellow Czechs. The 100 Best is but one example why international companies hesitate to place these local managers in charge of their operations. A Comenius employee reached by phone, who preferred to remain anonymous, described the voting committee: “half of them we know personally, others we receive their data from partner companies.” While companies technically don’t have to pay a fee to crack the 100 Best, anyone, according to the employee, can contribute to the fund that supports it and show up at its gala fe^te to sip champagne and press the flesh. The employee concedes that social contacts play a decisive role in voting. “When you ask someone who is the 100 best,” he says, “of course they may think, well, Škoda cars are the best, but I don’t work with them, so why would I vote for them?” Examples from past lists where “who you know” has had more influence than “what you know” abound: of the highest-ranked 25 firms in the 1996 list, five filed for bankruptcy within the next few years, including Chemapol (#4) and Vitkovice (#23). Of course there is IPB Bank, which garnered a 2nd place ranking in 1999, a year before it imploded and nearly drag-ged the country’s GDP down a full three to four percentage points with it.