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Friday, June 20, 2008

Leadership in Business: Over-rated and Over-paid

Leadership is one of the most talked about topics in the business world. There is no widely accepted definition. In big company meetings you will hear, "everyone in this company is a leader" or "we want you to be leaders and not managers" (your titles will still be managers:-)), etc. etc. There are thousands of books written on leadership. People are constantly fascinated by this topic.

There is a fundamental difference between leadership for self-good and leadership for good-of-others. All leadership in the business world is for self-good. People want to lead for money, power, fame, respect, etc. On the other hand, leadership for good-of-others comes with self-sacrifice. Think of what Martin Luther King, Gandhi, and Mother Teresa did for the world and the sacrifices they made. It is not right to put these two leaderships in the same category. In this brief article, I will focus on leadership for self-good and show that leadership in the business world is over-rated and over-paid.

To understand this fascination with leadership in the business world, we should look at the past. Let's start with the current structure of the corporations. The hierarchical structure of corporations comes from the military. Thousands of years ago, this was the only way people knew how to organize large numbers of people. Only the privileged noblemen, royalties, etc. were educated and were allowed to acquire the necessary knowledge and skills for decision making. Hence, the Command and Control policy of "leaders" comes from the same background. Humans have an innate tendency to look for heroes behind anything and everything successful. I don't know why that is but one of the reasons might be that humans, in general, think linearly and lack understanding of systems. The rulers of the past became powerful, respected, rich, and famous. The logic is that the leadership skills of these rulers were largely responsible for their success. Hence, most people in the corporate world interested in becoming powerful, respected, rich, or famous (or in keeping their jobs) are interested in leadership.

Business leaders are responsible for maximizing shareholder value and in return the shareholders pay the business leaders a lot of money. Now, the business leaders, depending on their intelligence and past experiences, adopt different philosophies to run the companies. Some control all decision making in the company and some empower other people to make decisions. In any case, if they are delivering expected results, they get to keep their jobs and become rich and famous. In some cases, the business leaders are passionate about the mission of the company and that inspires people around them. Even then, the leaders would not be interested in the jobs if there were no financial rewards.

CEOs (leaders) make a lot of money irrespective of how the company performs. They may make $5M/year if the company is not doing well and $10M/year if the company does well (these are arbitrary numbers). There are only a few CEOs like Warren Buffett who only take $100k/year in fixed salary and rest of the compensation depends on the company performance. If the CEOs get sacked, they take millions of $ with them. Somehow, the companies still survive without them and when they were at their jobs, the boards had declared them invaluable. One of my favorite examples of human misjudgment is when a board sacks the CEO and hires a turn-around specialist CEO. By the time the "turn-around guy" is hired, the sacked CEO had put in measures to fix the problems. However these measures do take time to bear results. When the new CEO comes on board, magically within a few months the company starts doing better. The reason for the "turn-around" is that the measures taken by the sacked CEO start bearing fruit and not the magic from the new CEO. Unbelievable!

The most common leadership policy I have noticed is BDCI (Blame Deflection Credit Inflection) which is good policy if one would like to be continued to be paid for the "leadership position" and to go to the next level in the hierarchy. The reason is very simple. Mistakes are not tolerated in hierarchical systems and leaders are not supposed to make mistakes so the leaders blame it on someone else (Blame Deflection). Also, due to the short term focus of the corporate world, leaders have to consistently show that they are adding value and their salaries are justified so they try to get credit for visible accomplishments. (Credit Inflection) The sad thing is that this policy gets emulated across the company if the leaders follow it.

Even with self-good as the common objective of all business leaders, some are admired, some are feared (at least until they are in power), and many others are forgotten. What do the admired leaders do that the others don't? Good Business Leaders (GBL) have the following attributes:

1. GBL understand that the self-good does not have to come at the expense of others. They make extraordinary effort to reward good results and to serve self-interest of people who work for them.

2. GBL have the ability to create a clear shared-vision inside the company and align all employees to execute on it. They are excellent communicators.

3. GBL have passion for their job. They don't just do it for the money.

4. GBL have high integrity and they hold their team members accountable. They are results-driven.

5. GBL don't worry about the short term ups and downs of the stock market . They manage the business for the long term.

6. GBL adopt multi-disciplinary/systems approach to problem solving. They are good at prioritizing problems correctly.

7. GBL create an environment inside the company in which the employees thrive. They empower employees with decision making and focus on policy-making.

8. GBL adapt the company-culture, technology, processes, resources-in accordance with the change in the environment in which the company operates. They enable the company to evolve.

9. GBL understand the company's sustainable competitive advantage. They sharpen the company's sustainable competitive advantage.

These attributes can easily be learned. However, executing them consistently may be little difficult. So, you see that leadership is not a complicated mystical quality only a few possess. Anyone with basic intelligence can learn to be a leader. If anyone can become a leader, then the huge salaries of CEOs are not justified. In the US, on average a CEO makes 300x more than the average employee. There is something wrong with this picture.

The future of corporations will be different because there is a paradigm shift occurring in the business world. The Internet has created a mass collaboration platform and has taken away the geographical boundaries. We have a lot of data available to recognize patterns and make more informed decisions. Information barrier has fallen i.e. people in higher levels of hierarchy don't necessarily have more information. Companies are becoming open to adopting innovation occurring outside the company. Hierarchy is disappearing in the new companies. Customers are taking new roles as competitors, partners, and vendors. Employees and customers can easily express their opinions via blogs/podcasts/wikis etc. to the public and make the leaders accountable for actions.

The future corporation will be less hierarchical and more open. And, it will be able to harness the brains of all the masses-employee, customers, partners, vendors, etc. The leadership qualities may remain the same but the value assigned to leaders may go down along with their pay:-)

Your thoughts?