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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 key leadership capabilities needed to make those choices turn out to be analytical ones — and that’s one big reason we believe Nissan Motor Company’s Carlos Ghosn, IBM’s Louis V. Gerstner Jr., the Intel Corporation’s Craig R. Barrett, and the Capital One Financial Corporation’s Richard D. Fairbank are fast becoming the most frequently praised business leaders of the new millennium. Most didn’t turn up on published lists of great leaders until quite recently. Whereas emotional intelligence (EQ) was the name of the leadership game back in the 1990s, old-fashioned IQ now seems to be making a comeback in the executive suite.

Mr. Gerstner personifies the anticharismatic, antivisionary, antiemotional leader. In the press, the Gerstner leadership style is typically characterized as no-nonsense, left-brained, impersonal, decisive, and cerebral. He is also said to be objective, consistent, and demanding — traits he looks for in others on his executive team. Mr. Gerstner’s successor at IBM, Sam Palmisano, is known to set challenging profit objectives for his direct reports, and then to be unwilling to accept arguments that they are unachievable. And he keeps vigilant track of the numbers, checking sales data weekly. Significantly, Mr. Palmisano does this with a smile and without abuse: You either perform or you are out, no hard feelings, nothing personal. And, if this seems to work, it is exactly because it is objective and impersonal: Yellow-light leaders are not Nice Guys, caring and emotionally available; instead, they are seen to be Good Guys by their subordinates because their consistent and objective behavior inspires trust.

Forty-five percent of the leaders in our study are reported by their subordinates to be behaving more analytically today than in the past. Why is this type of leadership emerging in an era of uncertainty? Probably because unemotional CEOs like Lou Gerstner and Carlos Ghosn aren’t “in love” with the existing technologies, products, or strategies. Therefore, they can evaluate those with an open mind and, if finding them wanting, walk away from them quickly and completely. When former Johnson & Johnson CEO Jim Burke (himself a high-EQ leader) chaired the committee that selected Mr. Gerstner as IBM’s CEO, his traits of mental toughness and strategic acuity were exactly what the company’s board was looking for. As Mr. Burke told Fortune, “We needed somebody who was by instinct, training, and interest very strategic in his thinking. Everybody knew that was one of Lou’s hallmarks. He thinks strategically about everything. I once asked him if he thought strategically about his dog.”

Patient Action
Setting the right strategic course is a major challenge facing executives in adverse times because it is difficult to interpret the economic and competitive environment accurately. Unfortunately, the usual indicators of recessionary trouble — declining sales, increasing inventories, reduced orders — are of little analytical use when their causes are unknown: Is the problem limited to one’s industry, or is there a general recession? Is the problem national or global? Is it a passing cloud or a climatic shift? Has there been a technological transformation in the industry?

To answer such complex questions requires appropriate data and, especially, disciplined thought. The temptation for executives is to be overly optimistic about future conditions. That behavior is chronic in such industries as energy, publishing, toys, and fashion, and inevitably leads to trouble when euphoric executives overinvest by betting on the come. On the other hand, Cassandra-like predictions of crisis can be just as dangerous to the health of a company. Some jittery executives interpret every passing cumulus as a sign of an impending hurricane, and head immediately for the storm shelter. In contrast, analytical executives are able to “look at a storm with some composure,” in President John Adams’s words. Particularly in short-cycle industries, executives like Craig Barrett learn to read downward signs and to plan accordingly, avoiding short-term panic and positioning themselves to catch the next wave of, for example, innovation.

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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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