Economic crisis offers hard lessons in leadership

Since September 2008, the leadership and management practices of financial institutions have been widely discredited.

As a result, new thinking about organisations and leadership within financial services— and in business in general — has emerged.

The new leadership styles that prevail, and associated changes in management and governance structures, will shape the development of business institutions.

Popular conceptions of what constitutes good business leadership will extensively influence this new style.

Between the early 1980s and 2001, the “leader as hero” was a celebrated model.

Exemplars like Jack Welch at General Electric Company and Sir John Browne of BP shook up old organisations that were weighed down by processes and committees, and, shining clear light from the top, transformed their performance.

But after 2001, the dot-com bust and other factors pushed this individualistic model of leadership off the pedestal.

That downturn revealed the flaws, failures and even disgraceful conduct of some noteworthy individualistic leaders.

Better performance

Enthusiasm for the concept of “leadership teams” superseded the “leader-as-hero” model. Better performance, the theory posited, came from combining a variety of management talents and styles into a single cohesive and mutually supportive group.

Now we face another transition.

The economic crisis and the entanglement of so many trusted financial-services firms have once again shaken our confidence in the prevailing leadership style.

The most significant effect on leadership in business will probably be at the board of directors’ level.

Fearing the risks that have been exposed, board leaders will start by changing their own behaviours.

Directors want more visibility into corporate practices and risks, and more data to directly verify more dimensions of corporate performance.