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Published: November 30, 2004

 
 

Best Business Books 2004: Leadership

Sex, Shame, and Shareholder Value

We’ve been forced to go a bit afield in choosing this year’s best leadership books. In addition to the usual how-to manuals — two of which provide practical guidance for anyone interested in business — we’ve included two biographies, both abounding with lessons for executives. We’ve also included a work of fiction, and even one journalist’s salacious screed about corporate malfeasance. Given the observed dearth of leadership in the public and private sectors, it is not surprising that the authors of this year’s list of standouts focus on the mistakes leaders make, why they fail so often, and what they need to do to become both more effective and more ethical.

Intel Chairman Andy Grove, surveying the wreckage wrought by the business scandals of the first years of the 21st century, confessed that, “These days I’m ashamed I’m part of corporate America.” Three of the four business books we review here cite Tyco’s Dennis Kozlowski as their poster boy for leadership misbehavior. The implicit conclusion of the authors is that the “take charge” leadership treatises published in the late 1980s and early 1990s didn’t generate the right kind of behavior, so now they say it’s “back to basics.”

Authentic Leadership
During the 1990s, CEOs of most American companies focused on the bottom line with the single goal of creating shareholder wealth. The idea was for CEOs to look tough, act tough, and talk tough. Many of them would not have been caught dead discussing soft stuff like ethics, values, openness, or corporate responsibilities to customers, employees, and host communities. When the Enron/Andersen scandal broke, followed by a tidal wave of revelations of similar corporate crimes, the initial reactions among American business leaders ranged from deafening silence to “it’s just a few bad apples.” Not many spoke out in condemnation, and even fewer suggested the need for better executive behavior.

There is something refreshingly old-fashioned, therefore, about Bill George’s Authentic Leadership: Rediscovering the Secrets to Creating Lasting Value (Jossey-Bass, 2003). During the 10 years George was CEO of the medical technology company Medtronic Inc., he practiced a philosophy in which “shareholders come third” — the belief that investors can benefit only as the result of efforts of empowered employees who effectively serve customers. To that end, George promulgated such business values as producing top-quality products, treating employees with respect, and acting with integrity in dealing with all his company’s stakeholders. The bottom line: Medtronic created $60 billion in value on his watch, and investors saw shares appreciate at a compound rate of 32 percent a year.

He says the secret to his stewardship was the practice of “authentic leadership,” the traditional approach to running companies that had been the hallmark of such now nearly forgotten CEOs as Max DePree (Herman Miller), Jim Burke (Johnson & Johnson), David Packard (Hewlett-Packard), Ken Dayton (Dayton Hudson), and J. Irwin Miller (Cummins Engine). These are leaders, in George’s words, who were “committed to stewardship of their assets and to making a difference in the lives of the people they serve,” leaders who had “a deep sense of purpose” and who recognized “the importance of their service to society.”

In fact, unless young leaders are willing to commit themselves to such higher corporate purposes, George believes they shouldn’t bother to enter the profession of business. And he offers eight questions they need to ask themselves before making that commitment, including “How do I balance the conflicting needs of my customers and my employees with the requirement to make bottom-line numbers?” Importantly, he says there is no inherent contradiction between making one’s numbers (he did so himself 55 out of 56 quarters) and demonstrating ethical leadership; instead, he argues that leaders will not find the way to realize those two ends simultaneously if they don’t first establish doing so as their goal.

George doesn’t just spout pieties; he gives concrete examples of what such virtuous leadership entails: focusing on the long term, developing the overall leadership capacity of an organization, providing balance between work and family life, and creating a system of exemplary governance. Some of George’s own leadership practices were counterintuitive, even courageous — as when he bucked the politically correct “when in Rome, do as the Romans do” trend in global business. Rejecting such cultural relativism, he cogently explains why he established a single worldwide standard of ethics for all of Medtronic’s far-flung operations. Most important, George practiced what he preached. Hands down, this was the year’s best book written by a business leader, and is our choice for the best book in this category.

Alan Price’s Ready to Lead? A Story for Leaders and Their Mentors (Jossey-Bass, 2004) is a fictional account that aims at encouraging would-be leaders to follow a path similar to the one Bill George blazed at Medtronic. It is the story of a rising young executive (Mark) who, during his annual appraisal, is asked by his mentor (Patricia) to take on a special assignment. Before he agrees, she asks him, “Are you ready to lead?”

Although somewhat contrived, the book follows Mark on assignment over the next few months as he tries to help the managers of a subsidiary whose business is in trouble. Mark comes on strong with his initial diagnosis: The ship is sinking because nobody thinks the situation is serious, and everyone points to external factors as the cause of their problems. Worse, Mark tells them there is a woeful lack of accountability in which no one is willing to say what they will do, or do what they say.

After Mark ineffectively fumbles around trying to get people in the subsidiary to change, mentor Patricia teaches him that he, too, must become a mentor in order to lead. She teaches him that effective mentors/leaders create challenges that take people out of their comfort zone, while also creating safety nets so that they will be willing to try new things. Mark then proposes a new definition of leadership, which is “the unleashing of human passion toward a goal; while management is the organizing of skills and resources toward a goal.” While agreeing, Patricia proposes that leadership comes down to building “a community of purpose,” a conclusion shared by Medtronic’s George.

Stumble and Fall
Why CEOs Fail: The 11 Behaviors That Can Derail Your Climb to the Top — and How to Manage Them (Jossey-Bass, 2003), a leadership primer by executive coaches David L. Dotlich and Peter C. Cairo, starts with the premise that CEO failures are certainly costly in terms of money, but even more so in terms of negative publicity for companies, the undermining of competitive edge, and the driving away of good employees. They point out that many of history’s best-known CEO failures were considered strong leaders before they made sudden and fatal blunders: One year you’re a Fortune most admired executive, the next you’re Ken Lay! The authors argue that when executives act in illogical, idiosyncratic, or irrational ways, their behavior is not due to a momentary loss of judgment or insufficient brainpower. In fact, most of those who have crashed and burned had previously demonstrated the intellect, skills, and experience to lead their companies through the challenges they later encountered — but, for some reason, their mojo failed them.

Drawing on Daniel Goleman’s work on emotional intelligence, Dotlich and Cairo conclude that the reason leaders fail has more to do with who they are than with what they know. Leaders are vulnerable to identifiable “derailers,” that is, deeply ingrained personality traits that unconsciously affect their decisions and actions. Paradoxically, these derailers often are excesses of a leader’s greatest strengths. For example, a brilliant analyst may become frozen when under stress because his hardwired penchant for running the numbers is inappropriate for meeting a particular problem at hand — for instance, a sensitive personnel decision. The good news, the authors claim, is that such problems can be prevented if a leader recognizes the telltale signs of derailment, and then learns to act appropriately.

To help leaders with this process, Dotlich and Cairo identify and describe the symptoms of 11 derailers, most of which, like arrogance, volatility, aloofness, and perfectionism, seem perfectly intuitive. More usefully, they provide tests to help leaders see if they have crossed the danger line between the positive aspects of a potential derailer and its negative ones. How, for example, does one tell when healthy self-confidence crosses over to become arrogance? The authors say the willingness to fight for what one believes is a useful leadership trait, but the unwillingness to give up a fight, no matter what, gets leaders in trouble. Similarly, it is positive for leaders to believe their perspectives are correct after evaluating other points of view, but those who believe their perspectives are correct before evaluating others’ ideas are headed for derailment. They warn that leaders who enter the red zone of arrogance display diminished capacity to learn, refuse to be held accountable, are resistant to change, and are unable to recognize their limitations. The authors cite Tyco’s Kozlowski to demonstrate the point.

Triangulate the Truth
The cover of Christopher Byron’s Testosterone Inc.: Tales of CEOs Gone Wild (John Wiley & Sons, 2004) tells it all: Superimposed on Mt. Rushmore’s presidential visages are doctored photos of Jack Welch, Al Dunlap, Ron Perelman, and, yup, Kozlowski, all leering at a miniskirted pneumatic blonde. The book is basically four unauthorized — to say the least — biographies of these former CEOs, each with enough skeletons in his closet to decorate a Halloween ball. Unfortunately, Byron’s tawdry and titillating tales obscure what might have been, in other hands, a profoundly useful message: Power corrupts, and character counts, as much in the executive suite as in the Oval Office. The problem isn’t just the yachts, private jets, and other perks unwittingly paid for by shareholders. Byron, an author and columnist for the New York Post, also cites far more serious abuses of executive power that can lead to front-page scandals and destroy the credibility of executives and the companies that employ them.

Byron’s main target is Jack Welch. He sets out to document Welch’s dark side — reputed womanizing, adolescent partying, an insatiable need for power, and abusive behavior toward subordinates. But the picture that emerges of Welch is as fatally unbalanced as the official history of his GE turnaround, Control Your Own Destiny or Someone Else Will (by Noel Tichy and Stratford Sherman; Doubleday, 1993). And it is as absent of Welch’s positive contributions as his memoir, Jack: Straight from the Gut (Warner Business Books, 2001), is of the negatives. Perhaps if you read all three of these books you might be able to triangulate to something close to the truth.

Lost in Byron’s masterpiece of innuendo, supposition, and overstatement is an important message for business journalists, corporate boards, and shareholders: Be on the alert for early indicators of problems from ambitious executives who may be unconsciously seeking compensation for their impoverished childhoods, distant or missing parents, or whatever psychological wounds they carry. Shareholders of Tyco were the ones who ended up paying for the failure to spot the obvious danger signs in their CEO’s behavior. As Byron usefully points out, nobody wants to call attention to the negative side of executives when stock prices are rising; it is only after a company loses money — or the press runs stories about company-funded birthday parties for the First Spouse in Sardinia — that there is willingness to acknowledge unethical executive behavior and abuses of power.

Two Treasury Secretaries
Byron’s book also calls attention to the fact that what’s missing or glossed over in most leadership texts is the real stuff of organizational life: intramural machinations, manipulations, shifting alliances, clashes of ego, and inevitable struggles for wealth, fame, and power among ambitious men and women. To learn how leaders make their way through that thicket, readers may be best served by turning to history or biography, as works about two former U.S. secretaries of the treasury — separated by two centuries but united by their ultimate failures to cope with Washington politics — illustrate brilliantly.

Few people join the Cabinet with more preparation or relevant experience than did Paul O’Neill. Ron Suskind’s The Price of Loyalty: George W. Bush, the White House, and the Education of Paul O’Neill (Simon & Schuster, 2004) examines the 2001–02 period during which O’Neill served as the secretary of the treasury under President Bush. A rising star in the Ford administration, O’Neill served in the Office of Management and Budget, where he not only learned firsthand how the White House runs, but became close to two redoubtable public figures, Alan Greenspan and Dick Cheney.

After leaving government in 1977, O’Neill went to International Paper as a senior executive and then was recruited from his position on the board of directors of Alcoa to be its chairman and CEO. There, he famously changed the organizational model and challenged his managers to make Alcoa more than “a compliance company” by setting the environmental standards for the aluminum industry. Because of his government experience and well-earned reputation at Alcoa, he was an obvious choice to be treasury secretary, although he had a reputation for being outspoken and was not entirely in line with the president-elect’s positions.

Suskind describes O’Neill’s reluctance to take the position — a reluctance that was overcome by what he saw as a golden opportunity to act boldly to keep the economy growing and to solve the Social Security mess. In what amounts to a prenup meeting, former colleagues Greenspan and O’Neill engage in a fascinating discussion, carried out in a shorthand bred of years of working together, in which they conclude that tax cuts with triggers (cuts conditional on the health of the budget) are the best way to stimulate growth and, furthermore, open the possibility of reforming Social Security.

Despite feeling there might be difficult political battles ahead, O’Neill decides to take the job. Indeed, early in his tenure he begins to express concern about the substance of the administration’s economic and tax policies. He is an analyst through and through, focusing on key numbers and metrics and then building strategies around the assembled facts. He believes the public is entitled to truth and transparency, and he advocates using “Brandeis briefs,” a process by which policy is made by confronting opposing arguments. Indeed, his M.O. is to “trust process and the ends take care of themselves.”

Ah, as Jon Stewart would say, that might not be the way decisions are currently made on Pennsylvania Avenue. O’Neill starts to worry about his relationships with others in the administration, including the veep, who seems not particularly interested in his old buddy’s analyses, and the president, whose management style is to be “detached” from the process and substance of policy making. As the administration becomes increasingly focused on unseating Saddam Hussein, O’Neill feels his influence wane. At about this time, he senses that ideology is ruling over process, and that therefore his facts and analyses don’t count. Finally, he complains to Suskind that the president expected him to be loyal but hadn’t earned his loyalty.

As we know, O’Neill was forced out by the administration. A lesson to be drawn from his experience: It is a common failure of leaders to overestimate their ability to change the minds of peers and bosses, or even to influence their modes of decision making.

This is a particular problem for numbers guys, as the first person to sit in the secretary’s chair at Treasury also discovered. Ron Chernow’s Alexander Hamilton (Penguin Press, 2004) is the historical biography that business executives should turn to if they wish to learn what leadership is really about. Unique among the historians who write about politics in early America, Chernow has a profound knowledge of management and finance, and this fine book offers business readers a detailed analysis of how a “numbers man” with the greatest leadership potential of his era derailed his own career. Hamilton was quite possibly the United States’ finest civil servant, but he never achieved his goal of the presidency. The unraveling of his career is an object lesson in how not to lead.

Hamilton was perhaps the most brilliant, articulate, accomplished, and farsighted of the Founding Fathers. As well-educated as Adams and Jefferson, he matched their classical scholarship while adding deep practical knowledge of finance, economics, technology, government administration, and business management. He was also the most modern of the founders, a wonk like O’Neill who knew how to run the numbers, and did, producing significant technical reports on such subjects as banking, retiring the national debt, and creating incentives for entrepreneurs. His fertile mind was always racing, devising new plans and financial schemes: The cerebral Hamilton invented sophisticated managerial systems of accounting, planning, and control, some of which are still in use. Moreover, like O’Neill, he had courage, ambition, energy, and a willingness to sacrifice personal financial gain to serve his country. A principled and loyal patriot, as a young man serving in the Revolutionary Army he demonstrated great promise as a leader. Subsequently, he became the second most powerful man in America, developing the best resume to succeed Washington and Adams as president (and he was said to be even prettier than John Edwards). Hamilton is today remembered as “the father of American capitalism,” having won the great ideological battle with Jefferson to create the economic system we enjoy today.

Brilliant Martinet
But Hamilton never became president because he was insecure, insensitive, opinionated, verbose, compulsive, headstrong, belligerent, proud, and lacking in self-awareness and self-discipline. He was a martinet, and an overstretched, overreaching micromanager. Brilliant in staff support to Washington, he was ineffective when operating on his own. A solo practitioner of the art of leadership, not only would he not tolerate fools, he wouldn’t belly up to the bar with lesser intellects who might have become allies and followers. His charm was reserved for the ladies, and therein lay a great weakness: a sense of invincibility that led him to believe he could get away with anything. When a marital infidelity became public knowledge, he compounded the problem, ham-fistedly turning what might merely have been an embarrassment into an act of self-destruction.

Hamilton thought of himself as the paragon of virtue but, in fact, often acted without integrity: He treated those who disagreed with him as disloyal, and went for their jugular. It was not enough for him to win every argument; it was necessary for his opponents to lose, and even better for them to be humiliated publicly. “The intellectual spoilsport among the founding fathers,” as Chernow puts it, he seems never to have considered that he could be wrong about anything. A contemporary cited his “pertinacious adherence to opinions he had once formed.” This arrogance made him a lightning rod for criticism. Hamilton did not understand the need to nurture relationships, and his insensitivity turned former friends and colleagues into foes: For all their differences, Madison, Jefferson, and Adams found common cause in a distrust of Hamilton.

As a leader, Hamilton was a realist, believing men were basically bad: selfish and dishonest. He had no faith in “the people” and no interest in presenting them with hopeful, inspiring visions of a better tomorrow. Hence, he tried to lead without listening to the needs of followers. A generous and feeling man in private, he was all head and no heart in public affairs. Caught up in the minutiae of details and facts, he lost sight of the central task of leadership: creating followers. According to Chernow, Hamilton believed it was only necessary to be “right” on the issues:

Hamilton lived in a world of moral absolutes and was not especially prone to compromise or consensus building. Where Washington and Jefferson had a gift for voicing the hope of ordinary people, Hamilton had no special interest in echoing popular preferences … he lacked what Woodrow Wilson defined as an essential ingredient for political leadership: “profound sympathy with those whom he leads — a sympathy which is insight — an insight which is of the heart rather than of the intellect.”

But Chernow’s book isn’t just about how not to lead. The hero of this biography of Hamilton turns out to be George Washington, the leader you would follow into battle and trust to sire your new nation. Washington, who “consulted much, pondered much, resolved slowly, resolved surely,” was no match for Hamilton intellectually, but he had unerringly good instincts and impeccable judgment. Chernow describes how Washington united a divided nation under the worst of circumstances, and channeled Hamilton’s self-destructive behavior into invaluable service for the fledgling nation. Indeed, there is a useful leadership lesson on almost every page of this remarkable biography.

Today’s business executives may sometimes feel that they’ve been cursed to live in unsettling times. But the challenges of leadership, as this disparate sextet of books demonstrates, never really change — they simply reappear in new and different forms.

Author Profiles:


Bruce A. Pasternack (pasternack_bruce@bah.com) is a senior vice president with Booz Allen Hamilton in San Francisco. He is the coauthor, with Albert J. Viscio, of The Centerless Corporation: A New Model for Transforming Your Organization for Growth and Prosperity (Simon & Schuster, 1998).

James O’Toole (otoole_jim@bah.com) is a research professor in the Center for Effective Organizations at the University of Southern California. His research and writings have been in the areas of political philosophy, planning, corporate culture, and leadership. He has written 13 books, including Leading Change: Overcoming the Ideology of Comfort and the Tyranny of Custom (Jossey-Bass, 1995).
 
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