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(originally published by Booz & Company)


Leadership Lessons and the Economic Crisis

Predictably, one result of the economic crisis is the cry for a new style of leadership. In thinking about what qualities are needed as we move forward, it’s helpful to consider where we’ve been and what the times will require from the next generation of leaders.

Since September 2008, the leadership and management practices of financial institutions have been widely discredited. This has precipitated new thinking about organizations and leadership within financial-services — and in business in general. The new leadership styles that prevail, and associated changes in management and governance structures, will shape the development of business institutions generally. It isn’t yet clear what norms and values the new industry leaders will champion, but the pressures on them are evident, and the history of managerial culture suggests that we will see some major transitions, and some unexpected ones.

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 organizations 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, including those of Enron, WorldCom, Tyco, and Parmalat.

The “leader as hero” model was superseded by enthusiasm for the concept of “leadership teams.” Better performance, the theory ran, came from combining a variety of management talents and styles into a single cohesive and mutually supportive group. In 2006, Booz & Company’s annual study of CEO succession trends was titled “The Era of the Inclusive Leader.” Life at the top became more touchy-feely. The team-based model was well suited to a generation of CEOs who were less hierarchical, less schooled in the military, and more collaborative by inclination than those who preceded them.

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. With apologies to Winston Churchill, never in the field of commercial business has so much been damaged for so many by so few. The failure of expectations has been widespread, severe, and rapid. That discredits past leadership practices — but what will replace them?

The quickest impact on business leadership in business will probably be felt at the board of directors level. Driven by fear of the risks that have been exposed, board leaders will start by changing their own behaviors. Directors want more visibility into corporate practices and risks, and more data to directly verify more dimensions of corporate performance. They feel their positions are much more on the line, and they are starting to ask for the staff and capabilities to do more checking up, probing more deeply even in areas historically left to management.

Boards will revise formal governance structures, adjust team composition, and reconsider the personality and skills of the people placed in top positions. As always, they will respond to prevailing interpretations of recent history. In seeking a new form of leadership, boards will start with the oldest truths: Those in authority must have foresight, and they must 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 organizations, of which there are many in Europe (including some, like Rabobank Group in the Netherlands, that have weathered the storm in financial services reasonably well). As corporate governance writer Marjorie Kelly has suggested, a broader scope of alternatives to the shareholder-centric corporate model will be tested, and some will win favor.

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  1. Richard Rawlinson, “Leadership Lessons and the Economic Crisis: Where We’ve Come From and Where We’re Headed” (PDF), Booz & Company white paper, July 2009: The paper on which this article is based says this crisis will be a powerful catalyst for change in both the theory and practice of leadership and governance.
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