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Enthusiasm for the concept of “leadership teams” superseded the “leader-as-hero” model.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.

Boards will revise formal governance structures, adjust team composition, and reconsider the personality and skills of the people placed in top positions.

Those in authority must have foresight and lead by example.

They must motivate and inspire on a moral basis, through aspiration as well as rewards and punishments.

It is precisely this calm, considered and ethical leadership, required to lead large numbers of people when the economy is tough, that seems to have been in such short supply recently.

Guided by their boards, many institutions will recommit to public responsibility.

Trust and simplicity will become major selling points.

Enterprises in banking or in business in general industry that can command greater trust or offer closer connections with their customers will enjoy substantial opportunities.

There could be a renaissance of institutions with a tradition grounded in cooperatives or member-owned organisations.

Many companies will also need to find structures and processes, both formal and informal, that challenge thinking and retain productive dissent.

The leadership-team structure will be left intact, but its potential will be tapped in new ways.

Teams will be populated with more diverse personalities, whose challenge will be to work together to set some new directions and renew moral leadership while paying closer attention to day-to-day execution.

These leadership team members will have to learn to recognise the power of the unknowable.

We must promote leaders for whom doubt and uncertainty are simply a part of the human condition, not the enemy of action or a sign of weakness.

They must tolerate questioning and doubt within their own organisations, and apply it productively themselves.

The makeup and management of executive teams may have to change.

The evidence is clear that the most productive teams contain diverse people.

The dynamics of team interaction often make it hard to preserve diversity, even though it is diversity that makes the team productive.

Moreover, in a typical leadership team, the variety of personality types tends to make the team itself short-lived.

People who want to get things done drive out those who value perspective and understanding as much as action.

As those latter individuals go, so does the ability to challenge.

And those who shrink from conflict will also disapprove of the kind of open dissent that encourages better leadership and decision making.

That is a different definition of productive teamwork than has been applied in the past.

If people recognise this, we should see improvements in the organisation and management of executive teams and boards.

In composing teams, boards will tend to favour a diversity of characteristics, and they should guard against the drift toward homogenisation.

Further, power and control will be separated more actively and structurally.

There may be a segregated, internal governance structure in some organisations — beyond the chief executive’s control, but one broad in scope— whose role will be to audit and hold to account those with primary decision-making authority.

When you consider that only 25 per cent of new CEOs today come from outside the company, this type of governance structure seems even more necessary.

The outsider’s perspective is not coming from top executives.

What we will need is tightly limited roles and processes, a separate voice and perspective, and a smaller number of resources and processes.

This spare, collective and relatively informal approach will require leaders who are unusually holistic, integrative and dispassionate in their character and thinking.

This is not a time for leaders who will be waylaid by details, nor for those who are convinced they see the future clearly and want their organisations to fall in line.

Rather, they must see the general patterns, and see them better than others.

The most successful leaders of these newly transformed organisations will do one more thing distinctively well.

They will set the overall purpose and mission of the organisation, not just its strategy. Indeed, they will often concentrate on corporate purpose or mission, leaving strategies to the executive team.

If we are fortunate, the leaders who emerge this time will be honest, robust and farsighted enough that their prevailing style will last for some time.

Mr Rawlinson is a Booz & Company partner based in London, where he leads the organisation, change and leadership practice.