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 / Second Quarter 2002 / Issue 27(originally published by Booz & Company)


Yellow-Light Leadership: How the World’s Best Companies Manage Uncertainty

The recession has moved the most advanced CEOs beyond "the vision thing."

Illustration by Dave Plunkert
Winston Churchill in 1940. Rudolph Giuliani in 2001. They have “what it takes,” said Fortune magazine, in a story about crisis leadership last November. The article implied corporate America is in a financial crisis and, like New York City after September 11, is sorely in need of the Churchill and Giuliani “take charge” brand of leadership.

But corporate leaders will ape both these men’s flair for the dramatic at their peril, for Fortune’s major premise was false. In late 2001, the survival of American industry wasn’t hanging in the balance, recession or no, even when compounded by the terrible events of September. And Fortune’s minor premise — that forceful, visionary, and emotional leadership is more effective in adverse times than careful, analytical, and cerebral management (or, as Fortune wrote, “After years of losing ground to its dowdy cousin, Management, Leadership is back”) — is, at best, an oversimplification.

In fact, our research finds that the CEOs whose companies are best weathering the recent downturn are practicing old-fashioned, pragmatic management by the numbers — what we call yellow-light leadership. This conclusion is based on an onging Booz Allen Hamilton study of about 40 Fortune 500 companies, conducted with the Center for Effective Organizations at the University of Southern California and initiated in 2001.

This finding is significant because it casts doubt on the conventional wisdom that says there are only two models of leadership. One is visionary, or “green-light,” leadership, appropriate to periods of economic growth. The other is crisis, or “red-light,” leadership, best applied when companies, industries, and economies are tumbling. Our ongoing research suggests that while there is value in both the green-light and red-light models, neither extreme is effective in times of uncertainty.

Green, Red, or Yellow
Of course, a recession, like a ball game, isn’t over till it’s over, but our preliminary findings in this study follow patterns in behavior we have seen before. Many CEOs in the 1990s overreacted to the Peter Drucker/Warren Bennis admonition that corporations are “overmanaged and underled.” In the process, they became so carried away with “the vision thing” that they lost sight of the numbers. In light of the countless failures of visionary dot-com CEOs (and charismatic high-tech supernovas such as PeopleSoft Inc.’s David Duffield), we now know many companies have been overled and undermanaged, a bias that has hurt performance far more than declining economic growth. Indeed, there is evidence that the recession did not cause the problems many companies have experienced in the severe downturn of 2001 and 2002. Instead, adverse economic conditions have exposed underlying managerial sloppiness that was concealed by late-1990s hypergrowth.

In the go-go ’90s, most students of business were attracted to the hands-off green-light leadership model in which CEOs are, in the words of Harvard University’s Ronald Heifetz, “above the fray.” Such leaders are said to spend their time defining organizational vision, values, and purpose, and creating conditions in which their followers (the preferred title is “associates”) are de facto co-leaders with requisite authority and resources to make operating decisions without approval of the person at the top. During that Golden Age of Growth, the business press was replete with tales of such visionary leaders, among them the CEOs of Cisco Systems, Southwest Airlines, Hewlett-Packard, Schwab, Corning, and, sure enough, Enron.

In the last decade, the red-light model had fewer advocates — largely because it was reserved for bad times when the survival of an enterprise was threatened and rapid turnarounds were required. When leaders are in this mode, they “take charge” (put themselves visibly on the line), present a “burning platform” (a compelling case for change), offer a plan of action, hold employees’ feet to the fire, and extrude those who don’t get with the drill. In the extreme, this model was exemplified by Al Dunlap, but it also was used, in one form or another in the 1980s, by Lee Iacocca at the Chrysler Corporation, Robert Crandall at American Airlines Inc., and Jack Welch at General Electric Company during the crisis periods of their tenures. Curiously — one might say confusingly — it was a “soft” variation of this typically “hard-nosed” form of leadership that former Mayor Giuliani was said to have manifested after September 11. (He had been noted for the harder variant in his earlier efforts to rid New York of crime and grime.)

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  1. Bruce A. Pasternack, “Leadership: Dreamers with Deadlines,” s+b, Fourth Quarter 2001 Click here.
  2. Gary Hamel, “What CEOs Can Learn from America,” Fortune, November 12, 2001 Click here.
  3. Jerry Useem, “What It Takes,” Fortune, November 12, 2001 Click here.
  4. James O’Toole, Leadership A to Z: A Guide for the Appropriately Ambitious (Jossey-Bass Inc., 1999)
  5. Alec Levenson, Leveraging Adversity for Strategic Advantage, Working Paper, March 2002, Center for Effective Organizations, Marshall School of Business, University of Southern California
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