Saturday, September 25, 2010

President in the Grey Flannel Suit: Nixon and Kennedy reconsidered

A heated debate in leadership centers around the nature of how physical traits impact one's potential to lead. Systematic research shows that certain characteristics, such as height and attractiveness, can predict leadership (if even just a little bit). Taller people earn more money than shorter people (about $800) per year, and people who are slightly more attractive have better jobs (but not really beautiful people, we don't take really beautiful people seriously).

But the difference between what people attribute to leaders isn't always indicative of leadership effectiveness. A recent article at, a product of the Washington Post, recently revisited the Kennedy-Nixon debate. Those of you who have taken my class know that I like to refer to the debates as a bit of conventional wisdom, that illustrates the point of how physical characteristics can have an impact.

Here is a link to the article:

There are a lot of examples of how physical characteristics impact perceptions of one's leadership ability . . . I look forward to hearing other examples readers of this blog might recognize. Stay tuned for a soon to appear blog, Joaquin Pheonix and the high art of deception.

Friday, September 10, 2010

Essential to survival: Leadership and Organizations

Imagine this horrific leadership scenario. You are trapped in a mine 2300 feet underground with 32 of your colleagues with no real knowledge of when you will get out. What do you do to survive? Some of the more basic human survival needs, such as food and water will be lowered to you through a small hole, but the questions you don’t have answered are similarly troubling. What do we do with our time, how do we organize ourselves, how to we keep up hope with no clear solution in our sights?

No, this is not some crazy organizational behavior exercise to test team cohesion, it is a real situation faced by 33 miners trapped in a Chilean mine. The answer to the question: Form a structure, keep to your normal routine, and keep your mind occupied. That is what NASA psychologists suggested when asked to lend their expertise to the improve the chances that the miners can keep themselves focused the mission. See the links here:

Also proving useful is lessons learned from the wars in Iraq and Afghanistan.

What can be learned from this effort, social organization, psychology, and leadership are essential to survival in the most extreme situations.

Thursday, September 2, 2010

Systematic thinking WAS THE PROBLEM in the mortgage crisis . . . ignoring the idiosyncratic warning signs of impending disaster

This blog focuses on applying organizational behavior and leadership concepts to current events. Last year, I focused attention on the financial meltdown of 2008 and its aftermath. It makes sense to carry the financial crisis theme into the first blog of this semester before moving on to other issues. One area of interest for me as a researcher and observe of events is how learning breaks down in organizations and the consequences of these break downs for organizational viability.

Evidence that learning is breaking down takes several forms. One form of evidence can be found when an individual in a powerful position recognizes a challenge to conventional wisdom, but writes it off as anecdotal because he cannot find systematic evidence of a trend.

While many write off anecdotes as untrustworthy information, an anecdote often provides an early warning sign of impending disaster.

An example of failing to take seriously anecdotal information occurred prior to the subprime mortgage meltdown when regulators noticed homeowners began to default on their mortgages, but failed to see systematic trends and therefore took no action. An interview with US Federal Reserve Chairman Alan Greenspan on CNBC highlights the problem.

Click here for a link to a section of the interview in the CNBC documentary House of Cards

(Unfortunately, the section where Greenspan discusses how and why he discounted early warning signs as ‘anecdotal’ is only the DVD that must be purchased.

The reason that regulators such as Greenspan ignored the data was because of a fundamental disbelief in the nature of anecdotal data. Greenspan, by his own admission, ignored early warning signs of the subprime meltdown because the signs were simply stories, one time events, even willy-nilly Yet, by the time the meltdown went into full force, subprime accounted for as much as 20 % of the entire mortgages in the country. The stories proved more than anecdotes, they were in fact representative of a larger situation.

To understand the problem that results from valuing systematic trends over anecdote is to understand why organizations often overlook early warning signs of disaster. Systematic evidence of impending disaster is just as likely to displays itself in a story, personal accounts, even sketchy evidence, as it is to display itself in systematic evidence such as statistics or trends.

Systematic evidence of problems often occurs too late in the cycle of disaster to be of much good to ward off the crisis. Some have even referred to reliance on non-systematic data as a biases that limits decision making. See Max Bazerman’s wonderful text on this topic, Judgment in Managerial Decision Making.

But the failure to heed antidotal or seemingly idiosyncratic data is not as rational as some may lead us to believe. In fact, failure to heed early warning signs is itself a bias, ignoring certain data at the expense of other data (what sociologists refer to as cognitive ‘editing’) is a skill, something developed over time – a quality of judgment. In many ways, those in the storm of the financial crisis ignored the behavioral or psychological side, they wrote off the use of judgment as irrational, when in fact they are simply embracing their own form of bias . . . which seems to have been a pandemic of bias during the financial crisis.

A recent documentary by the group at Frontline entitled The Warning

exposes some of the oddities of Greenspan’s thinking. For example, did you know his philosophy on free-markets with little or no government regulation, his so-called ‘laissez-faire’ approach, is based on a philosophy put forth by cold war novelist Ayn Rand? Rand wrote novels such as Atlas Shrugged a favorite of corporate titans that supports only the use of strict rational logic in business and economics.

By his own admission, the principles to which he had clung, and which dominated US economic policy for almost two decades was not a systematic philosophy that describes how the world really works, but rather a system of belief about how things ‘should work’. I am not necessarily saying that the ideas of ‘objectivism’ the philosophy of Ayn Rand isn’t without merit, every young capitalist, including myself goes through a phase of admiring the objectivist world view. But then we must grow up, and come to terms with the idea that laissez-faire is really characterized by lazy thinking.

The financial crisis that came to a climax in 2008 revealed several important insights into the psychology of learning from failure. Assumptions about the nature financial markets and how they works, personal investment in prior success, organizational tendency to downplay failure and over emphasize success result not simply from systematic bias, but rather from efforts to maintain ‘alleged’ systematic thinking at the expense of good judgment. In the end, learning broke down.

How is a great leader to assess these warning signs and separate the representative anecdote from the non-representative one. The first is to hold your biases loosely and be open to challenges. Had Greenspan and those like him been smart enough to recognize the limits of ‘objectivism’ and embraced the subjective, we might all be in better shape today.

Friday, October 2, 2009

Forget GDP.

Forget GDP. That is the advice offered by several economists, including Nobel prize winner Joseph Stiglitz. Their position is that too much focus on GDP (Gross Domestic Product), at the expense of other more telling indicators, actually contributed to the economic crisis. GDP has long been an important indicator of economic growth made up of all goods and services. But there are some huge problems.

Like most accounting measures, GDP can be manipulated to say what you want it to say. At least in the short term. Take this example. In 2007, a boom year for the US economy, about 41 % of corporate profits came in the financial sector. Translation: profits were generated not through improving or selling goods and services, but through borrowing. Even more chilling, according to the economists, the profit write offs (translation - losses) in 2008 actually wiped out all GDP growth for the past five years. While the world celebrated GDP growth from 2002 through 2007, we were celebrating not real profits, but borrowed profits that we couldn't sustain.

Relying on a measure such as GDP in my estimation, is that it doesn't provide any early warning signs of problems. That should be one goal of a measure - what is the health (or vulnerability) of the system.

It seems that GDP may be a trope, just like shareholder value is often a trope. (see previous blog for more on this) "Our accounting framework affects how we see the world, and our accounting framework is flawed," said Stieglitz. This sounds like something an organizational behavior professor would say. Perhaps at least some economists may have been paying attention in class after all.

The economists did suggest an alternative measure, one that takes into account well-being, environmental impact, and other 'non-economic' indicators. See more at CFO online:

Wednesday, September 16, 2009

The trope of shareholder value

Once the crisis is over (yes, despite the fact that some have declared that the recession is over, there are signs the crisis remains) and the financial industry moves towards serious cultural adjustment, it will eventually have to consider the role of standards, compensation, and rewards. As Marshall Goldsmith recently argued in the Washington Post, financial incentives in the industry need to be more in line with desired practices (he even cites Steve Kerr's article about the folly of rewards). (see Goldsmith's article here

At many major firms now on the government doll, as well as organizations across industries, incentives remain exactly where leadership wants them -- in finding clever and resilient forms of executive compensation. The issue isn't that incentives aren't aligned with organizational goals, the problem is the goals themselves -- the goal is high executive compensation, not return to share holders – in many cases, little regard exists for long term consequences, risk or even in many cases the shareholders. It wasn't a problem of poor goal setting, it was the goals themselves, and they rewarded exactly the kind of behavior that was desired.

Another set of incentives that will need to be considered comes in the form of other people's money. CNBC reporter Charles Gasparino argues that what allowed investment banks to take on such huge risks (measured often in borrowing as much or more than 30 times equity), was the fact that these publicly traded companies were gambling with shareholder's money. (See him talk about it here

We can talk all we want about shareholder value, but until incentives are aligned with shareholder value, not simply short-term one time profits, often in the form of short term trading returns, - the whole discussion of shareholder value is simply a trope.

Wednesday, September 2, 2009

Financial crisis and leadership

The current financial crisis provides some incredible examples of leadership -- especially the challenges and unintended consequences of action. The situation faced by then Treasure Secretary Henry Paulson represents some of those challenges. A recent article in Vanity Fair (as well as other sources including PBS Frontline Series - Inside The Meltdown) paints him as a reluctant government interventionist. Here is a link to the Vanity Fair story that was provided to me by Mike Nothum a student in my MBA class:

Despite the still unknown consequences of these decisions, we can begin to see some of the short term consequences, as Erik Ballinger drew my attention to a story by David Cho in The Washington Post about who benefited and who has yet to benefit from the bailout cash -- suggesting that the too big to fail banks grown even bigger.

Not only are consequences unforeseen, our interpretation of the events is likely to continue to shift for some time.

Saturday, August 22, 2009

Forbes world's-most-powerful-women list

The recent Forbe's survey provides some insight into how things have changed for women in business in a short time. Carly Fiorina, former CEO of Hewlett-Packard, proves to be a real influence on today's list. She was unexpectedly (and unfairly I believe) ousted by HP's all male board. Then, as a very public advisor for Presidential candidate John McCain, made the unfortunate blunder stating that McCain was not qualified to run a company like HP. Despite some of the harsh treatment she has received from critics, she proves a trail blazer for inclusiveness in the executive suite.

To see how things have changed since Fiorina became the 1st female CEO of a Fortune 500 company, let's take a quick look at who holds the top spots on the list today compared to 5 years ago.

In 2009, of the top two spots, both are in government service, German Chancellor Angela Merkel and US FDIC Chair Sheila Bair. The next eight spots are held by Chief Executive Officers of major corporations. (Self interested insight: George Washington University (Law School) grad Mary Shapiro, Chair of the Securities and Exchange Commission, should be ranked higher, she came in only at 56).

In contrast to 2004, the first year Forbes began the ranking, Carly was ranked 10th, and the only Chief executive in the top 10, behind the likes of then first lady Laura Bush, Senator Hillary Rodham Clinton, and sitting in the top spot, then National Security Advisor Condoleezza Rice.

Did Carly help more women make it to the top, there seems to be an argument that she did, if for no other reason than by blazing the trail for women in the Executive suite.

Check out the 2009 list here:

And the 2004 list here: