In addition to these, executive MBAs and web-based self-study modules are worst practice leadership development when implemented too late in an executive’s career.

The US research, in which Hay Group surveyed 564 companies with at least US$8 billion ($10.2 billion) in revenue from around the world, instead found that companies with best practice leadership used a number of other practices.

Such companies provide rotational job assignments for high potentials and assist leaders at all levels to focus on creating a work climate that motivates employees to perform at their best. They also provide training and coaching to help leadership teams, as well as the individual leaders, work together more effectively.

The study also found the top companies for identifying and fostering leadership talent perform better on the stock market. Their average five-year total shareholder return beat the S&P 500 over the same period by 3.53 per cent. This period covers both the bleak years following the downturn and September 11, as well as a recent surge in the S&P.

The research highlighted an impending talent and leadership shortage for many businesses around the world. This would inevitably cause ripple effects elsewhere in business, according to Hay Group, particularly in placing further upward pressure on salaries and work-life balance issues.

It would also force organisations to pay a premium to hire talent from the outside, which is financially costly, takes time and sometimes fails.

As such, focusing on identifying and managing the talents of high potential candidates will rise to the top of the agenda, according to Mary Fontaine, vice-president and general manager of Hay Group’s McClelland Center for Research and Innovation.

“Organisations that are able to identify, develop, and promote their leaders from within will find themselves better positioned than their peers to win the war for leaders — and to safeguard their organisational futures,” she said.

“The top companies are already focused on this. Those companies which are not prepared will be forced to rely on external recruitment — which is usually much more expensive and less dependable than internal promotion.”

It takes about three years to identify a high potential, according to Fontaine, and another 10 to prepare them for the executive suite.

“The costs and risks of recruiting from the outside can be even higher. Yet how many major companies have a 13-year horizon in place for their talent development programs?”