Leadership Professor

President in the Grey Flannel Suit: Nixon and Kennedy reconsidered

2010-09-25T06:31:00.000-07:00

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 Slate.com, 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:

http://www.slate.com/id/2268453/

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.

Essential to survival: Leadership and Organizations

2010-09-10T10:35:00.000-07:00

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:

http://www.nasa.gov/news/chile_assistance.html

http://www.washingtonpost.com/wp-dyn/content/article/2010/08/27/AR2010082704867.html

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

http://www.telegraph.co.uk/news/worldnews/southamerica/chile/7981437/Chilean-miners-new-medical-survival-kits-used-by-British-troops.html

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

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

2010-09-02T08:28:00.000-07:00

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

http://www.cnbc.com/id/15840232?video=1029053619&play=1

(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

http://www.pbs.org/wgbh/pages/frontline/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.

Forget GDP.

2009-10-02T09:02:00.000-07:00

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:

http://www.cfo.com/article.cfm/14443847?f=most_read

The trope of shareholder value

2009-09-16T10:50:00.000-07:00

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 http://views.washingtonpost.com/leadership/panelists/2009/09/aligning-rewards-and-hopes.html?hpid=smartliving0)

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 http://www.cnbc.com/id/15840232?video=1253982080&play=1).

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.

Financial crisis and leadership

2009-09-02T20:38:00.000-07:00

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:

http://www.vanityfair.com/politics/features/2009/10/henry-paulson200910?currentPage=1

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.

http://www.washingtonpost.com/wp-dyn/content/discussion/2009/08/28/DI2009082801337.html

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

Forbes world's-most-powerful-women list

2009-08-22T11:59:00.000-07:00

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:

http://www.forbes.com/2009/08/18/worlds-most-powerful-women-forbes-woman-power-women-09-angela-merkel_land.html

And the 2004 list here:

http://www.forbes.com/2004/08/18/04powomland.html

2009-05-31T10:57:00.001-07:00

Pay and circumstance. Uproar over bonuses and other compensation for bailed out financial firms, including AIG and Merrill (Bank of America), have prompted a public debate -- exactly what should business folks be paid? More specifically the public discussion has focused on Edward Liddy, the former interim head of AIG. (disclaimer, I am a Liddy fan, and not only because he earned his MBA from George Washington University).

Since some Congress members have suggested executive pay should mirror that of the US President, interest in Presidential pay has also emerged, prompting the business news channel Bloomberg TV to ask, what does it mean to be "Paid like the President?"

I estimated for Bloomberg that the overall direct and indirect compensation for the US President was between US$17 and 24 million (see the entire clip here http://www.youtube.com/watch?v=td289WcWvQg).

I calculated our figure not based on US government figures, although the guided us in several cases, but based on what it would cost someone in the private sector. For example, the cost of hiring a private jet from DC to Chicago costs between $US24K and 60K, but the president travels with 18 people which means he needs two. In another case, we figured the current Real Estate costs in downtown DC was about $32 per square foot, we learned the White House is about 55,000 sq. ft, the Oval Office is 800 sq. ft. You get the idea of how we arrived at this range without me putting you to sleep with a line by line estimate.

Back to Liddy who was grilled by Congress and made the straw man for the overpaid executive. In my view, this tag is completely off the mark. Liddy, a retired insurance executive, answered the call to public service when the government asked him to pick up the pieces for the failing insurance giant.

Liddy's pay = US$1.

Your read that right 100 cents. Liddy answered the call, yet became the stomping ground for congressional (very public) outrage over executive bonuses when he approved the executive bonuses (Liddy did not receive any pay, let alone a bonus). With thanks like this, no doubt it will be difficult to find a replacement. Indeed, it may be that Liddy found his job more difficult than he imagined. AIG was more a mess than anyone knew and the complicated financial and organizational structure made things almost unmanagable in my estimation.

The final analysis is not whether Liddy should be paid $17 million or whether Congressman should receive $1, both of these figures are probably the wrong ones to use. It does suggest however, that public service is different from private sector work, each entails a certain set of responsibilities and each has mechanisms for motivating differently. In my estimation, government imposed salary caps make about as much sense as government sponsored bailouts, but in times like these, sense is not always what gets us moving forward.

Leadership more important than $$

2009-05-20T18:07:00.000-07:00

Leadership is more important than money, that is what a recent survey of Federal employees found. Not surprising, we have known for years, or at least argued for years, that money was a pretty lousy motivator. The study, conducted by the Office of Personnel Management, jives (that is the technical term) with what other studies showed, that people are likely to leave their job because of their boss, not the benjamin (that means $$, my aim is to educate).

The notion that money doesn't serve as a primary motivator is not new, yet organizations continually use money (salary, stock options, other financial incentives) as a primary source of motivation. There may be a reason for this, some studies show that what is important is relative pay. In other words, perceived external equity the primary factors employees consider when looking for a new job or considering whether they want to move to another job.

The debate seems to be more than just theoretical (or in this case survey hypothetical), as investment banking firm Morgan Stanley recently revamped its compensation methods in anticipation of new guidelines from the TARP monitors. (see Financial Times article at http://www.ft.com/cms/s/0/585c155e-471f-11de-923e-00144feabdc0.html?nclick_check=1)

So this takes us back to the original issue, yes money may play a part in motivating employees, but smack (eg$$) and pay are only relative considerations. What seems to be more important is leadership and how you compare to others. Once again, we see that basic psychology tends to trump economics in explaining human behavior!

Here is a link to the original article that appeared in the Washington Post

http://www.washingtonpost.com/wp-dyn/content/article/2009/05/19/AR2009051903621.html?referrer=emailarticle

2009-05-14T11:52:00.000-07:00

Leadership, learning and organizations, that is the topic of this blog. I hope to begin a dialogue on important developments, theories, ideas, practices and events that relate to leadership, learning and organizations.

An interesting news item to get this thing rolling:

A recent headline noted that "Sergio Marchionne: Fiat chief with a can-do attitude"

Marchionne is an interesting figure in leadership. He turned around Fiat and is now seeking to create the 2nd largest auto company by buying Chrysler (US) and possibly Opel (a piece of GM's Europe business). The real question is whether he is an excellent manager or excellent at getting government financing to save companies (it may take both skills to turn Chrysler around).

Marchionne may be on to something. Under his leadership Fiat seems to be leading the way in Europe. His new thinking for the 'old world' put Fiat (up 4.7%), along with Hyundai(up 9.7%), as the only two car companies to see sales increase in April 2009 (source WSJ). Is he another Carlos Goshn, the turn around leader at Nissan? I just hope I can finally buy (an affordable) Alpha Romeo in the US, even if it has a Chrysler name plate. My preferences aside, while it's hard to guess American preferences for the likes of small cars by Fiat, it wasn't long ago that another Italian manufacturer took over a US name plate. No, I'm not talking about Illy coffee. The US military no longer carry Smith and Wesson side arms, they carry the (Southern Maryland made) Berretta!