The first cause of rarity may, in fact, be scarcity. According to research published in Harvard Business Review in April 2005, only 5% of leaders are naturally equipped for transformational leadership (another 10% can also be effective at transformation though it is noted that this group excels at “venture and consulting roles”). David Rooke and William Torbet based their article on 25 years of survey-based work with executives that revealed leadership “action logics” – basically ways of looking at the world and deciding which actions to take. The three action logics that are likely to succeed at transformation only tally up to 15% of the total.

Of greater concern is that 55% of the sample falls into three action logics correlated with sub-par organizational performance. It makes one want to consider putting a bit more chlorine in the talent pool. The authors did find, however, that individuals can change their action logic through a determined “voyage of personal understanding and development.”

How do you determine if the candidates you are considering are up to transformational change? I might suggest that you choose your search firm carefully and look for one with that specific expertise. Beyond that, there is additional research that holds some clues.

Charles Spinosa, Billy Glennon, and Luis Sota published a piece in the Winter 2008 issue of Business Strategy Review that identified four “core virtues” of industry-transforming leaders: The first is taking a stand to accomplish the impossible, reframing the transformation in a way that identifies what’s wrong, and then finding the resources and a plausible new business model.

The second is seeing and celebrating personal transformation in all of the people who are doing the hard work of transformation. No matter how compelling the mission, the authors maintain that leaders must recognize that individuals are “struggling to achieve their own particular definition of a good life.” Leaders have to have team members whose personal ambitions align with the “impossible” goal.

Third, effective leaders establish new norms that push the organization beyond the status quo. The authors call this “setting the corporate style.” It makes me recall leaders brought in to orchestrate transformation who put all of their focus, for example, on the go-to-market strategy and who didn’t spend much time on the unsexy back-end functions. They were then surprised when their brilliant strategy was derailed by IT, marketing, or some other functional group that had not been brought into the new way of doing things.

Finally, successful transformational leaders “listen for difference.” They work hard to hear what is unspoken and for what “they do not want to hear.” It starts with an understanding that others see things differently than you – and that difference has validity in the mind of the other person. The leader’s goal is to be able to create a synthesis that makes sense both to the leader and the “other.”

Leading transformation has never been easy. We are beginning, however, to understand why – and, better still, what can be done to improve your chances of success.

We’ll be exploring this topic in greater depth in the weeks ahead. What are your thoughts?

~ Eric McNulty

Actually, effective leaders are more likely to be the ones asking questions. Lots of them. When you accept that you do not know all of the system in which you operate, you begin to appreciate the need to continually probe. You understand that control is a concept that is elusive at best. You acknowledge that your next opportunity or vulnerability may emerge as suddenly as taillights in the fog on the highway.

Take, for example, Mohammed Bouazizi. Know him? At this point you should, although you are forgiven if you don’t. He was a young fruit seller in a street market in Tunisia. Like many, he lacked a license. For that offense, his scale was confiscated by an official and Mohammed knew that he would need to pay a bribe to get it back. This had happened before.

On this day, he didn’t pay the bribe. Instead he became angry. He yelled at the official who had confiscated his scale and she slapped him. Still angrier, he went to the appropriate government office but was denied entrance. His anger boiled over. He went to a gas station and bought a canister of gas. He walked into traffic, poured the gasoline over himself, and then lit himself on fire. And that’s how it began.

Street protests broke out in the aftermath of his self-immolation. They grew to the point that the government of Tunisia was toppled. The protests spread to Egypt, albeit with different grievances, and another government fell. They spread further, threatening governments in Bahrain and Libya.

On December 16, Tunisia’s ruler Zine Ben Ali did not know that he had a strategic interest in Mohammed Bouazizi. Neither did Egypt’s Hosni Mubarak nor Libya’s Moammar Gadhafi. Yet, suddenly, on December 17 they did. They found that their secure control of their nations to be an illusion. A single, unexpected act sparked protests that continue to rock the region three months later. Now NATO is engaged in military action in Libya. It is dramatic, violent demonstration of the Butterfly Effect.

The world is increasingly like that. As we have globalized and become more interconnected, our systems have become more intricate and more intertwined. Small actions in one place can have a dramatic impact around the globe – including on your organization.

How are you to lead in such a chaotic, seemingly unpredictable world? It isn’t easy. First, accept that your world does not end with your four walls: all of the messiness left out by our management systems doesn’t disappear just because it isn’t seen on the spreadsheet. Second, increase the scope and sensitivity of your sensors: be attuned to and through your entire stakeholder ecosystem. And third, act in ways that guides the system toward the future you desire: actively promote fairness, transparency, accountability, and trustworthiness at every turn if that is the kind of world in which you want to live.

Two simple maxims can guide you: Mahatma Gandhi said, “Be the change you want to see in the world.” Warren Bennis said, “If you want to be a better leader, be a better person.” See, it’s simple. Deceptively so.

What do you think?

Eric

Businesses go through life stages much like human beings. Most (successful) corporations have the following stages – birth, infancy, adolescence, prime, bureaucracy, and death.  Civilizations too have a similar lifecycle.  This should be no surprise – corporations and civilizations are a group of individuals.

Atrophy of mental and physical capabilities for individuals is inevitable – whereas corporations could be injected with “fresh blood” to extend sustenance. That begs the questions: “Why do we observe atrophy in the corporate world?” and “Is it irreversible, or at the least can it be prolonged?”

I do not believe that atrophy is inevitable and am sharing my perspective on how entrepreneurial vitality may be sustained for firms in “adulthood.”

Before I explore the remedies, let’s try and understand why this happens.

Clearly, birth requires a remarkable vision combined with exceptional luck and perseverance. Growing beyond infancy requires the ability to attract like-minded partners with complementary skills. That is the foundation to achieve adolescence. However, as the business grows, the skills that created it either become less relevant or are supplanted by what it takes to run a “going concern” with established procedures. The professional values of those attracted to established firms are often different from those of “creators.” These “maintainers” typically have strong process knowledge, but tend to be less forward thinking. Employees in these mature phases are more likely to be risk-averse, and are more motivated more by desire to stave off competition than by the desire to outsmart the competition.

My view is that the desire to protect what we have, instead of focusing on expansion, ultimately leads to demise.  While traditional big-company employees bring skills that creative entrepreneurs may not possess, inability to maintain a healthy mix of thinking styles and career motivations precipitates downfall. Death is unavoidable – but a healthy life can be extended if the cultural DNA is understood and refined to sustain positive energy.

To prolong the healthy years, corporations should focus on three areas:

1. Recruit and position employees based on keen knowledge of their motivations and skills,

2. Offer significant variable incentives connected to individual performance,

3. Incubate a semi-autonomous innovation group whose sole mission is to build for the future in partnership with the C-Suite.

A few thoughts on each of the above –

1. Employees are typically either “maintainers” or “creators.” The latter are less equipped to run the operations. However, they are the lifeline for a better future. The “maintainers” are less likely to be visionaries, but manage the day to day. Knowing and benefiting from each employees proclivity is critical. Similarly, understanding the motivations of employees is essential. Ignoring the competencies and/or motivators or expecting any individual to demonstrate both capabilities is a recipe for failure.
2. One of the factors stifling creativity is weak linkage between performance and financial rewards. Larger organizations tend to attract individuals who seek stability and eschew the volatility of significant performance driven variable compensation. To prevent this retrenching mentality, performance reviews must be transparent and highly differentiated in rewards. The consistent connectivity between individual performance and reward is missing in many large organizations. Stronger linkage allows firms to achieve more of an “up or out” culture, which differentially rewards top performers. That is of course not to suggest that all employees should be in the “up or out” category – this should be somewhat role dependent. The weaker the link between individual performance and compensation, the more the incentive to focus on individual survival over collective achievement.
3. The skills it takes to focus on today’s operations are distinct from those needed for a stronger tomorrow. The risk is often that the future is sacrificed for the present. California is in the throes of one such debate – over a light rail system. The remarkable U.S. highway network may not have been constructed if the needs of today always subsumed those for tomorrow. Therefore, it is critical to incubate an innovation group, solely focused on creating a better tomorrow. The financial and organizational support for this visionary group must be independent of the vagaries of current circumstances. That is not to suggest that this group should be oblivious to the present day realities. A disciplined approach to innovation will not guarantee a stronger future, but is critical if one is to harbor positive hopes for the future.

Stages in life are inevitable for corporations just as they are for human beings. The quality and longevity of the life can be vastly improved if C-Suite leadership recognizes this, and actively works to shape the anthropology of its organization.

Murli

Since its failed merger with Time Warner, AOL has been the poster child of shareholder value destroyed through a failed merger – not to mention the many careers disrupted and other fallout. Coincidentally, the 10^th anniversary of that ill-fated mega-deal was marked just about a month ago. The New York Times noted:

“The trail of despair in subsequent years included countless job losses, the decimation of retirement accounts, investigations by the Securities and Exchange Commission and the Justice Department, and countless executive upheavals. Today, the combined values of the companies, which have been separated, is about one-seventh of their worth on the day of the merger.”

At the conference, Huffington said, “There was such a merger of vision that I wanted to execute this vision with him. This is the best thing to do.”

I know neither Ms. Huffington nor Mr. Armstrong. I have no financial interest in either company (save from any AOL holdings I may have as part of a broad index fund). In fact, I wish them well. I’m a big fan of content and want as many of my fellow writers to have decently paying gigs as possible. However, I always get a funny feeling with the leaders of merging organizations talk about vision as the basis for coming together.

Depending upon which data you believe, history shows that somewhere between 50 – 75% of mergers fail to generate any shareholder value.  That’s not a good record. Some of that blame goes to the unholy combination of bankers and lawyers chasing lucrative fees along with executives who get massive payouts upon the consummation of the deal: forces that unleash the seductive forces of short-term gain that tend to cloud one’s assessment of how realistic those synergies really are, how difficult the integration may be, what conflicts there will be between cultures, and other stumbling blocks on the road to some post-merger Nirvana. The poor success rate also shows that boards fail to be effective in vetting potential deals.

There is a difference between a leader with a vision and a visionary leader. The former is about an individual (or in this case two) with an idea of a world that might be. They can see a bright and shining future. They may even see the road that they think will get them there.  They are passionate about this vision. Unfortunately, vision alone won’t get you there.

Visionary leaders have the ability to bring together a wide range of stakeholders to co-create a future that incorporates all of their interests. It is not just the leader’s vision but rather a shared vision. They unleash energy and ideas. They bring out the best in people. They are willing to take input and are open to challenges to their assumptions.  They are crystal clear about purpose – who their company serves and what problem it will help them solve – and values – how they will conduct business.

Armstrong described the marriage as “a laser-focused deal” focused on “content, content, content.” The world is awash in content and “the deal” is just one point in what is a long, hard journey to create a vibrant and sustainable enterprise.

Huffington and Armstrong certainly have a vision. We have yet to see if they are visionary. The leadership challenges have just begun.

What do you think?

Eric McNulty

The external measure is one with which executives in any organization can agree. Great effort goes into articulating missions and visions – and then trying to align activities to achieve the desired objective. Simple in concept but difficult in practice. From my days in business publishing I can tell you that this is an “evergreen” topic: one on which a company can publish profitably forever.

That brings us to the internal dimension, which is where I believe the answer lies. One only has so much control over opportunities but one has great control over one’s capacity to lead. With purposeful action, it is infinitely expandable. I have interviewed dozens of leaders from the corporate world, non-profits, and government organizations and the truly effective ones have two things in common in terms of how they build their capacity: they are self-aware and they are curious – they are lifelong learners who ask a lot of questions.

The question that immediately jumps to mind is whether most traditional leadership development programs can either instill or unlock these qualities. I’d give high marks to some – such as the week-long programs run by the Center for Creative Leadership. Unfortunately, more and more development is done in bite-size morsels, increasingly online and built around fairly narrow pre- and post-evaluations of specific skills. I think you’ll find that most of those who are self-aware and curious developed these traits somewhere other than the corporate training room.

In fact, leadership capacity building is something a leader must ultimately do for him or herself. It is not like learning the budgeting process or memorizing five tips for coaching – the person must be committed to and invested in the process as well as the outcome. It is hard work, scary at times because it requires admitting vulnerabilities and being open to personal growth. For those who truly embrace this approach, it is a rewarding journey that is never complete.

However, organizations have extraordinary and easy opportunities to encourage self-awareness and curiosity. One is to find ways to embrace meditation, journaling, or other self-exploration activities. Make it explicit that the company wants its executives to engage in these activities and that the time spent doing them is not “wasted.” Reimburse people for money spent on notebooks and other supplies. Make a brief essay on what the person has learned about him or herself over the past 12 months part of the annual review. For those organizations that embrace coaching, they already have a perfect venue for getting started.

Second, encourage book clubs (and not just to read management books), film groups, and other activities that bring people together for something other than work. These endeavors broaden people’s outlook and engage them in different modes of thinking. They’ll also begin to know their colleagues as people and not just as co-workers. They will learn and their curiosity will be stimulated.

Finally, provide opportunities for community service. Leadership guru Warren Bennis has said that if you want to become a better leader, become a better person. Companies can be conduits for volunteer efforts that both engage the organization more deeply with its constituencies and provide chances for executives to learn more about themselves. Howard Schultz, CEO of Starbucks, took a large cadre of store managers for a week of service in New Orleans to help reconnect them to the organizations core values. Harriet Green, CEO of Premier Farnell, credits having a cause in addition to a mission – in this case, addressing climate change –with helping her turn the company around. The company offered paid time for employees to volunteer in their neighborhoods on issues related to climate, for example.

One thing that each of the options that I have mentioned is that they are opportunities offered. Just looking at who steps up to take advantage of these outlets and who makes the most of them will give great insight into who are your true high potentials and help them reach that potential. They are far less costly than bringing in a legion of consultants or building a massive leadership development enterprise (and note that I don’t recommend eliminating all traditional training). The benefits, however, can be priceless.

What do you think?

Eric McNulty

I am going to do the obvious thing and agree with Buffett and Friedman. I am incredibly lucky to have been born in a country that had free quality education to offer. I’m lucky that medical care was available and reasonably priced (as an asthmatic with a number of allergies I likely would have died in childhood had I been born a century earlier). I am lucky that there were parks in which to play and air fit to breathe. I am lucky that my parents could devote time to me rather than working 12 hours-a-day, six days-a-week in a factory. I am lucky that I always had a roof over my head and nutritious food on the table.

I am lucky that my state university offered a quality, affordable education and that I was graduated without debt. I am lucky to have had a number of people throughout my career who gave me sound advice, took me under their wing, and offered me the chance to succeed.

I am lucky to have a family that has always been supportive and rarely a burden. They have given much and asked little by comparison. I am lucky to have friends who have been steady, loyal companions and colleagues with whom it has been a pleasure to work through the years. I am lucky that I was on American flight 11 on September 10, 2001 rather than September 11 (the date I was originally booked to fly).

I am lucky that I get to spend my time thinking and writing about leadership and sustainability. There have been many times in history when such pursuits would have been an unimaginable luxury.

When one spends time examining leadership and talent, there is a lot of what “I” have accomplished, innovated, and achieved. I don’t want to take anything away from anyone as individuals have scaled impressive heights. Rarely, however, have they done it alone and rarer still have the done it without a damn good bit of luck.

I am proud of what I have made of myself; so too may you. Let neither of us let another day go by without appreciating just how lucky we have been. Let us also reflect as one year ends and another begins how we can pay that luck forward to ensure that the next generation can be as lucky as we have been. I feel especially lucky to be engaged with people who understand that transformational leadership will be required if we are to rise above simple self-interest and meet the global challenges of education, sustainability, poverty, and health that lie ahead – and who are willing to act.

I hope that you are with us. We’d be lucky to have you.

Eric McNulty

I was reminded of this while reading Tom Friedman’s column in the International Herald Tribune on a recent flight back from Europe. Friedman was bemoaning short-sightedness with regard to the big issues we face as a society. Here’s what he said about the options leaders face with regard to climate change:

“If the climate-deniers are right — but we combat climate change anyway — we’ll have slightly higher energy prices but cleaner air, more renewable energy, a stronger dollar, more innovative industries and enemies with less money. If the deniers are wrong and we do nothing, your kids will meet the sudden stop at the end.”

Friedman’s thinking reflects something similar to a decision making framework I offer to those who must wrestle with how to lead their organizations to adapt to the Pillar Trends — the Five Rs:

• Reap: What do you have the potential to gain with this decision? Competitive advantage? Higher revenue? Lower costs? Be as exhaustive as you can in thinking about what the upside offers;
• Risk: What might you lose if you fail to make this decision or if you make the wrong one? Time? Money? Reputation? Relationships? Again, be exhaustive and include others for whom the decision may have ramifications;
• Recruit: Who else can, and should, you bring into your effort? Look to those who will either share the impact or who can offer resources to help move you forward.
• Repeal: How easy will it be to reverse course if you need to? No decision is perfect and you will likely need to alter it over time. This perspective helps move the focus from the short-term to the mid-term;
• Regret: What is the worst case if you make this decision? What is the worst case if you do not? Be brutally honest. This perspective can move you from the middle ground to the horizon.

You’ll have data for some of these factors, but not for all. You’ll have to look inside yourself and think about what you see as your purpose and that of your organization (and if the answer you get is “make the quarterly number,” look harder). You will think about the consequences for others. You will think about your legacy.

We have a natural bias toward the status quo that must be overcome. Making the big decisions, the tough calls, is the core of leadership. Will you be ready when you are called upon?

Eric McNulty

One could dismiss it as “those crazy French.” After all, it’s almost a rite of passage for a French worker to take to the streets to protest something. Strikes are relatively common. However, this is a quandary that more and more developed nations are going to face: the aging of the population is one of the Pillar Trends that is going to reshape our world over the next few decades. The U.S. is wrestling with this issue. Every E.U. nation has it staring right at them. Even China is concerned. The world’s population is getting older and with this comes increasing pressure on those programs that provide the funds to keep them housed and fed in their “golden years.”

How does this concern CEOs? First, what if those are your workers – or your customers – in the streets? What if those are your goods stuck in a distribution center because there is no fuel? More important, however, is how to deal with the increasing social tension that is coming as the world reaches limits on resources, goods and services that citizens have come to take for granted (or, in the developing world, have long coveted do not want to be denied). Companies are part of the social context and can become targets of popular ire as much as governments. Not long ago, Coca-Cola faced vociferous protests in India over water issues.

And ire there is. In France it is workers protesting. In the U.K., thousands of people have been out to oppose the recently announced cuts in public spending announced by the recently elected Cameron-Clegg coalition government. Across the pond, the Tea Party has stirred the U.S. electorate such that the impending election feels more like a burgeoning barroom brawl. There is an impending “rice crisis” in Southeast Asia. Climate change, another of the Pillar Trends, is unleashing weirder, more destructive weather. The list goes on and on.

In short, CEOs and other non-political dealers are going to have to lead in an increasingly unsettled and angry world. It is also an increasingly transparent and connected world (yes, another of the Pillar Trends) making leadership all the trickier.

What does all of this mean for leaders? Here are a few of the implications:

1. Understanding Society as a System: For most of the time since the creation of the corporation as a legal entity, corporate leaders have been trained to take and rewarded for having a micro view of the world: the company’s financial performance was paramount and “externalities” – environmental damage, social injustice, and the rest – were secondary at best. CEOs like those at GE, Coca-Cola, Unilever, and others have begun to realize that companies don’t operate in a void and they must take responsibility for their total impact on people’s lives and the environment if they are to retain social permission to exist. Firms are part of an overall societal system and they must understand where and how they fit into that system – and how to fulfill that purpose profitably.
2. Managing the Tension between Urban Haves and Have Nots. “Urbanization [another Pillar Trend] will stimulate innovation, creativity, and economic growth while at the same time intensifying social and economic inequalities and conflict-filled political polarization,” according to the World Economic Forum. For CEOs of multinational firms, this has “best of times, worst of times” implications as more and more people will bring their products into their lives thanks to their growing affluence while others will react more violently against iconic global brands as symbols of oppression. Leaders are going to have to be diplomats offering potential solutions to social issues as well as goods to sell.
3. Leading in an Era of Short Supply: Until recently, the question of resources had largely been ones of “From where?” and “At what price?” rather than “If?” Price is certainly a constant issue and demands from the growing economies of China, India, and others are likely to push to cost of basic materials upward. More significant, however, are changes such as the retrenchment of the ice caps at the North and South Poles as well as glaciers at the “third pole” in the Himalayas and other mountainous regions around the world portend dramatic shifts in the availability of fresh water for drinking and irrigation in the world’s populated regions. Military experts in many nations regard water- and food-related conflicts as a major global risk: one study from the University of California/Berkeley suggested that a 1⁰ Celsius rise in temperatures in Africa would increase the likelihood of conflict by 55%, which would result in more than 390,000 combat deaths. Leaders will have to be much more cognizant of the impact their firms and their products have on overall supply and the environment.

What do you think?

Eric McNulty

Photo credit: EPA/GUILLAUME HORCAJUELO

Here’s the nut of the case:

“…assume that you’re one of nine independent directors of the Acme Corporation. It has come to your attention that the CEO has appropriated resources for his personal use and acted in ways that violate the stated values of the organization, values that he has espoused during his five-year tenure. According to the firm’s contract with him, these are “cause” for dismissal if the board chooses to invoke them. The two executives making the information available to the board are the only ones who know anything about the CEO’s violations.”

They go on to explain that one group of directors wants to fire the CEO for cause (acting transparently and denying the CEO $25 million in options), a second wants to fire him but not for cause (taking up a shareholder value argument that they should avoid a lawsuit that could depress the stock price and distract the company), and a lone director wants him disciplined but not removed.

In Hurd’s case, the “cause clause” was apparently so weak it was almost impossible to enforce. Upon announcement of Hurd’s departure, HP lost $13 billion in market value.

I think that the first step for Acme’s board should be positively opaque: an examination of the evidence to see if it is absolutely correct and irrefutable. This must be done in private to ensure that the CEO is not convicted unnecessarily in the court of public opinion. A trumped up charge, by a disgruntled party or disenfranchised board, must not be allowed to surface.

Assuming that the evidence is there, all other actions must be completely transparent. How they operate and the way they make decisions are critical to the trust that investors, and indeed the general public, will have in the firm going forward. Trust is the best bulwark against a share price freefall, an erosion of customer loyalty, and a decline in employee engagement. The removal must not be allowed to become a sideshow. The board must act decisively and in the full light of day.

To move back to the HP case, the deeper question must be the competency of the board if they negotiated a contract with an unenforceable clause for terminating the CEO based on cause. This arose perhaps from an attitude that surfaced in several of the comments on the HBS site: CEOs are a special case because of the extraordinary risk they take in running a large company and, secondly, that it is in the company’s interest to pay separation costs no matter what in order to avoid a messy law suit.

The former seems to assume some sort of divine right of CEOs; the second that integrity is trumped by a “lesser of two evils” strategy. I say “bollocks” to both. CEOs are compensated extraordinarily well in part because of the high risk nature of their jobs. This doesn’t extend to violating company policies and values. CEOs carry extraordinary responsibility and with it exceptional accountability. If the offense in question is one for which a division head or even department manager would be shown the door, the CEO should expect the same treatment. Board members are also paid well – supposedly to be qualified representatives of the shareholders. They are not there to be lapdogs to the CEO. A company’s legal counsel’s job is to protect the interest of the firm and its shareholders, not gather posies to toss at a CEO candidate.

I’m happy to see that there was strong sentiment amongst some of those commenting on the HBS case that Acme’s CEO should be sacked although there was also a second group shied away from this for fear of the effect on share price. The long-term interests of our businesses and the economy at large are best served when shareholders demand performance from boards and boards, in turn, provide proper oversight of the CEO.

Kelvin