Washington Post Video Interview with Steve Pearlstein

I recently sat down with The Washington Post's Steve Pearlstein for a conversation on the hard realities of leadership in crisis.  I've included a few bullet point higlights below, but encourage you to watch the brief interview.  I would greatly enjoy hearing your feedback.  Once again, my thanks to Steve Pearlstein and the Washington Post.

Podcasts & Reviews: 7 Lessons For Leading In Crisis

At the World Business Forum this past September, I had the pleasure of hosting a reception with the top business bloggers in the country who in attendance cover the events.

I’ve remained in contact with many of them, and recently connected with Jonathan Fields for a podcast to discuss my latest book, 7 Lessons for Leading In Crisis.  We also took a deeper dive on crisis-time leadership and social media. 

Here’s what Jonathan had to say about the conversation:

“In this candid interview, Bill and I cover everything from leading in a time of crisis to the true meaning of success on a personal level. He reveals not only his thoughts on business, but on family, life, passion and people. And, you’ll never believe what he’s been doing twice a day since the 70s; it’s something he says has been instrumental in his success.”

You can listen to the entire conversation here: Behind The Leader: A Candid Conversation with Bill 

* * * * * *

WBF alum, Steve Todd was gracious enough to review 7 Lessons for Leading In Crisis.  I’ve included a few excerpts below:

“Overall I enjoyed the unique point of view on the financial crisis, as well as the framework for evaluating leadership. It's a good reference book to keep handy during tough times.”

“If I want to evaluate my own leadership skills during a crisis, the book is an excellent place to turn. If I want to evaluate a public official, or a corporate executive, and formulate a thoughtful opinion of their performance during a crisis, I would refer to this book.”

You can read the rest of the review here: Book Review: 7 Lessons For Leading In Crisis.

Many thanks again to Steve and Jonathan!

The 10,226.94-Point Dow Doesn’t Matter, Either

Last month the Dow hit 10,000 for the first time since the 2008 financial crisis.  That same day I wrote a blog cautioning those who celebrated the number as a sign of post-recession resurgence.

Last Friday the Department of Labor released its latest report.  The news is decidedly grim.  Despite a climbing Dow and increased investor confidence, unemployment currently hovers at 10.2% (17.5%+ if you consider underemployed workers).

Last night the Dow rallied again to close at 10,226.94, its highest finish since Oct. 3, 2008.  Meanwhile, the predicament of the American worker remains the same.  By year’s end, 9.36 million men and women will be out of a job.  The Dow’s showing, though encouraging, doesn’t reflect the struggle to survive on Main Street.  In fact, there is an unfortunate inverse relationship emerging: as the Dow increases, the number of jobs decreases.  As financial markets improve, the real economy’s condition worsens.

It is not that the Dow increase doesn’t reflect any improvement – it’s a positive sign that investor confidence is on the rise.  But to tout it as the first charge of an 18-year bull market (as pundits are doing in likening our situation to the 1983 market upswing) is irresponsible and misleading.

Henry Blodget wrote an insightful piece yesterday to explain why 2009 is so vastly different from 1983, and why we’re not necessarily on a repeat course.  On top of stocks already being expensive and consumers staring down nearly 100% more debt, interest rates are currently at rock bottom (it was a decrease in record high rates beginning in 1983 which helped usher in the Bull Market).

What concerns me is the speed with which the media, certain economists, and many on Wall Street assume that one minor improvement is the first flake in a growing snowball of profit.  By hastily taking advantage of rock-bottom interest rates and a falling dollar – and betting on governments’ sustained stimulus-supported economy – investors risk creating a recovery bubble that has the potential to burst when stimuli are removed. 

In effect, this latest jump could become the spike before another lull; or worse, a plummet. 

It’s imperative we not assume that Dow jumps or dollar rebounds will automatically spark an inevitable recovery.  At this point, nothing is inevitable – neither the speed of recovery nor the shape of the recovery itself.  We must continue to look for long-lasting solutions, such as abstaining from short-term investing and incentivizing responsible behavior. 

Make no mistake – it’s not 1983.  Don’t uncork the champagne just yet.

Great Conversation On Leadership By James Heskett

Here is the best dialogue I've seen yet on authentic leadership and the perceived need many leaders have to wear "The Masks of Command." My thanks to Jim Heskett and HBS Working Knowledge for engaging these issues

Originally on posted on Harvard Business School - Working Knowledge by James Heskett, a Baker Foundation Professor, Emeritus, at Harvard Business School.

Summing Up

Do authentic leaders need "masks of command"? Instructors seek case studies posing issues that provoke discussion on both sides of an issue and raise many questions. We seem to have found such an issue this month: Can the "masks of command" coexist with authentic leadership?

Those arguing that the two can coexist cite situations, generally involving adversity, in which the "greater good" is served by masking a leader's feelings. Frances Pratt argued that "… we must be careful (and caring) in the way we tell people difficult things. I do not believe that this makes us inauthentic." As Marlis Krichewsky put it, "Playing with the mask when the situation allows it strengthens the team spirit." Dan Erwin commented, "… rather than a single underlying, authentic and true self, individuals are a collection of masks tied to particular social or work settings." While agreeing in general, Ann Parker voiced a note of caution: "All leaders at times mask their feelings, especially fear or uncertainty. The danger is that for some they begin to believe that the mask is who they really are."

Others were not so sanguine. Richard Neff offered the opinion that "The(re) is no right or one way to lead … It should, however, always be authentic. Otherwise it's not leadership at all." Kamal Gupta pointed out that "Speaking the truth with your team always helps. It builds trust." Shadreck Saili commented, "When a leader builds a mask around him/her … you close yourself from learning." Joe Schmid had no doubt, saying, "I'll simpl(ify) the question substituting 'two faced' for 'mask.' Can a two faced leader be 'authentic'? … Absolutely not." M. Mushato was even more emphatic: "The mask concept explains most if not all of mankind's woes of today."

Those arguing a middle ground put forth some interesting suggestions, such as Leamon Duncan's: "… sometimes leaders must mask feelings and emotions in order to exhibit calm in the midst of chaos…. It's after the battle when the leader shares how they actually felt or the range of emotions they were experiencing…. Be who you are, lead how you prefer to be led."

The importance of self-awareness in the use of "masks" was stressed repeatedly. As Richard Strasser said, "… to lead with authenticity, a leader needs to be very comfortable with who he is as a person." Brian Woodward put it this way: "The most important and powerful conversations occur between the individual leader and his/her leader's mask."

Questions raised were as interesting as the comments. Although she didn't pose it as a question, Dianne Jacobs challenged us to think about whether "the experience and consequences of practicing leadership (and the use of masks) will be different for women"? (She believes they are.) Dr. Kervokian asked whether what is authentic is relative to "environmental and cultural norms." Then there were those who asked just what functions "masks" serve? David Broderick said, "The main reason masks exist is for leaders to hide their flaws from their followers." Srini commented that "'Authentic Leaders' do not have the need for a mask." What do you think?

Click Here to read the entire article.

Focus On The Short-Term Hurts Companies

This article originally appeared on the Wall Street Journal Web site on October 29th.

We have passed through the eye of the worst financial storm in 80 years, but now we have to deal with the devastation left behind. In its wake the Great Recession destroyed trillions in economic value and left 25 million Americans, or 17 percent of the work force, without full-time jobs.

Those who fear a repeat crisis are right to be concerned. We have endured similar crises before like the savings and loan debacle, the collapse of Long-Term Capital Management, and the dot com implosion. Unfortunately, Wall Street ignored these lessons and recreated the short-term practices leading to the 2008 financial meltdown.

To prevent recurrence, we cannot just pass quick-fix solutions. Measures like regulating executive pay merely treat symptoms of larger problems, and may distract us from actions required to rebuild a sustainable economy.

This crisis wasn't caused by subprime mortgages; it was caused by subprime leadership. Its root cause is leaders who practice short-termism. The culture of short-termism—investing for short-term gains at the expense of long-term accumulation—has taken hold on Wall Street. Managerial capitalism has replaced financial capitalism as holding periods for stocks dropped from eight years in the 1960s to as low as six months today.

Warren Buffett once said that the best holding period is "forever." That philosophy earned him $40 billion and the reputation as America's best investor. Unfortunately, long-term value investing is decidedly out of favor these days. Instead, investors pursuing short-term returns pressure corporate leaders to meet quarterly expectations rather than creating long-term sustainability and growth.

Many corporate leaders fell prey to playing this short-term game. They bought into the widely-believed myths that a company's stock price represents its true economic value and that success can be measured by comparing quarterly earnings to security analysts' expectations.

They hyped their stock prices with short-term actions or made value-destroying acquisitions that crimped their long-term competitiveness, often putting their entire business at risk. Many of their firms, like General Motors, AIG and Citigroup, are barely surviving now.

According to a McKinsey study, 65 to 70 percent of mergers and acquisitions destroy shareholder value. But CEOs seeking quick fixes for long-term strategic problems often ignore these statistical realities.

No sooner do companies complete their merger binges than activist investors buy small ownership positions to pressure management into spin-offs, divestitures, or other balance sheet chicanery. By this time the companies are so loaded down with debt and pressured to meet quarterly earnings expectations that they abandon their strategies and spin off the lifeblood of their businesses.

Harvard University Professor Michael Porter, the world's leading academic strategist, noted recently, "Capital markets can be toxic to strategy." Porter argues that creating economic value is not the same as creating shareholder value because it requires focus on strategic growth instead of short-term earnings. The Aspen Institute echoes this sentiment. It recently issued a clarion call for "Overcoming Short-termism" that was endorsed by 28 national leaders.

The reality is that it still takes nearly a decade to create lasting shareholder value through breakthrough new products like blockbuster drugs, innovative distribution networks like Wal-Mart and Starbucks, or a values-based, collaborative culture like IBM's.

To prevent future crises, we need a new generation of leaders that recognizes the pitfalls inherent to practicing short-termism. These leaders must be ready for the long-haul effort that is required to create sustainable value, even if they have to constrain short-term results.

I am encouraged that many such leaders are emerging at the helm of major companies and Wall Street firms. Dan Vasella of Novartis and Jeff Kindler of Pfizer are transforming their pharmaceutical firms into 21st century health care leaders, just as Indra Nooyi of PepsiCo and Ken Powell of General Mills are becoming role models for developing sustainable consumer goods companies. Richard Davis of U.S. Bancorp and Jamie Dimon of JP Morgan are demonstrating how banks can balance risk-taking with sound financial management.

If the U.S. wants to be the world's leading economic power, President Obama needs to reinforce a long-term focus by shifting his efforts to building a sustainable economy, rather than bowing to pressures for instant gratification. This means refocusing national priorities on health care innovation, renewable energy sources, high-tech manufacturing, and broadened use of information technology. The government can facilitate this shift with a graduated capital gains tax favoring long-term investments and start-up companies, increased permanent R&D tax credits, expanded investment tax credits, and skills-based retraining programs.

Then a new generation of corporate and Wall Street leaders, supported by elected leaders, can build a sustainable economy that creates wealth and jobs for all Americans.

Overzealous Punditry Is Hurting America

Walter Cronkite once said, “Objective journalism and an opinion column are about as similar as the Bible and Playboy magazine.” 

In my opinion, when the latter begins to masquerade as the former – when journalist’s opinions adorn the garbs of objectivity – we face a crisis of journalistic integrity.

This is precisely the situation we find ourselves in today.

A highly partisan culture has emerged in the mainstream and side stream media, releasing a rancor which perpetuates the single-mindedness and inflexible partisanship that now roil the country. “Info-tainers” and shock-jock radio hosts, with rants against opposing party politicians and lambasts of differing viewpoints, contribute little to the constructive debate about how we can fix today’s true problems and continue ensuring that America stays at the respectability forefront.

These media rabble-rousers would not necessarily concern me if they were TV, radio, and internet aberrations, the exceptions to the broadcast-news rule.  But they have become the standard, setting a bar for irrational and incendiary political reporting and bouncing the “vitri-ball” back-and-forth from station to station, from blog to blog.

The sharp divide they engender between parties and politicians is a direct threat to American productivity and progress, and therefore eventually our respectability as an economic and political leader.  Their brand of demonizing politics fosters a culture wherein political stalemates are valued over prudent legislation.  This needs to stop, for everyone’s sake.

As David Gergen and I explored, this socio-political reality can permanently cripple America.  From healthcare reform to climate change, from economic relief to the wars in the Middle East, Americans remain seemingly incapable of reaching anything resembling consensus because politicians and constituents alike have been feeding on this tradition.

Gergen took this conversation a step further in his recent article for the US News and World Report.  Discussing what he sees as a leadership deficit in America, Gergen observes that the current media tone does not help the situation:

The president and his supporters have tended to blame the blogosphere and 24-hour news channels that feature extreme voices and manufacture artificial controversies. They have a point. There was a time in the lives of many today when the culture and the media environment were more civil and the country was more united. The 1940s, '50s, and early '60s had ugly moments—remember McCarthy? And Dallas?—but the overall tone was more positive. Was it any accident that those years also spawned Truman, Marshall, Eisenhower, and Kennedy?

Today’s leaders are facing a no-win situation because the media have pinned them in a corner.  Every decision is either overly lauded or ruthlessly decried.  While accountability is imperative, and while we should continue to ask tough questions, we should also realize that the “shout-them-down” approach serves no long-term purpose and only brings momentary self-satisfaction.  This is engendering a culture of skepticism, disbelief, and partisanship that is detrimental to our hopes for continued progress.

And while I wouldn’t say that overzealous punditry is the root cause of partisan disconnect in America, it is certainly more than just a symptom: it is an accelerator.  Today’s news culture makes things worse.

The President has called time and time again for our country’s leaders to rise above pettiness and assume the mantle of dispassionate, consensus-centric leadership.  I agree wholeheartedly that this culture shift is the only means by which we can hope for a return to prosperity, and must acknowledge that any effort counter to that is hurting our country.

Talking heads cheapen discourse.  They tout easy solutions.  They speak in truculent soundbites.  Their invective hurts America.

Our problems are real.  Let’s discuss them in a real way.

Auto Crucible: Will Americans Drive Chrysler's New Brands?

Fiats and Alfa Romeos will cruise America’s streets again.  But just how many is up to the American consumer.

According to the New York Times, Chrysler will unveil a new product line next week, cutting several poorly performing models – like the Chrysler Sebring – to make room for joint Chrysler-Fiat CEO Sergio Marchionne’s foreign high-performers, like the Fiat 500. 

And in splitting the Dodge brand into separate “Dodge Car” and “Ram Truck” divisions, Mr. Marchionne will have expanded the Chrysler company into six unique brands – this, while General Motors is scaling back its number of brands to four. 

This is all part of an aggressive strategy by Mr. Marchionne to regain Chrysler’s dwindling market cap, and make new strides with two somewhat familiar but mainly exotic (and “environmentally smart”) brands, Fiat and Alfa Romeo.

Given this refreshed approach, bolstered by new brands and a dynamic, consumer oriented leadership under Mr. Marchionne, could we be on the verge of a consumer return to Chrysler?

As one New York Times source said, “I’m sure Americans love Italian suits. Whether they love Italian cars is yet to be seen.”

From a business leadership standpoint I applaud Mr. Marchionne’s confidence and ambition during this American automobile crisis.  He is eliminating sources of waste, i.e. poor performing cars, and introducing new vehicles and technology that are likely to appeal to today’s car buyer who is seeking lower costs and higher efficiency. 

However, the main unknown in this equation is whether or not the American consumer is ready to put their trust back in what is now a tainted Chrysler brand.  The financial crisis not only rocked the automobile industry, it shook consumer confidence in American cars, and Chrysler is no stranger to this trend having seen sales drop 42% in September.

American cars have been outperformed by foreign competitors for years, but its yet to be seen whether this infusion of Italian innovation is enough to bring Chrysler back to market relevancy.

Gridiron Leadership Gap

Under fire for a lackluster season, Washington Redskins head Coach Jim Zorn recently had his play calling duties usurped by owner Dan Snyder.  And though Zorn technically remains the Head Coach and team leader, those duties have transferred, not to a member of his chosen staff, but to an “offensive consultant.”  Coach Zorn’s statements about the change are hardly surprising: "I don't look at that as a positive.”

The Washington Post’s “On Leadership” panel recently examined this issue through the lens of the following question:

“As the Washington Redskins have learned with Coach Jim Zorn, whose play-calling responsibilities were handed over to an offensive consultant, it's tricky bringing in someone to help compensate for a particular weakness of a leader without appearing to undermine his leadership. In your experience, are there effective ways to pull that off, or is it a doomed strategy?”

Some savvy leadership minds weighed in on this issue, and the resounding consensus seemed to be that the course the Skins have taken is a “doomed” leadership strategy.  We all seem to agree that:

1)      “Consultants” cannot function as leaders – it is contrary to the nature of their purpose

2)      Coach Zorn has effectively been stripped of his ability to lead effectively.  The mystique and respect of his position have evaporated as he has been publicly branded as inept.

3)      Dan Snyder should have completely restructured the team’s leadership, or worked from within (and privately) to improve it.  Now he is left without a leader going into a daunting 9-game stretch.

My initial response centered on the idea that there can only be one captain of the ship.  In the same way I am skeptical of dual-CEO structures in business, I’m skeptical of a situation in professional football where there is not a central, galvanizing figure.  Not everyone can be Vince Lombardi, but certainly every team needs one go-to problem solver, one go-to decision-maker.  And if that problem-solver, that master strategist, proves unsuccessful, it is in the organization’s best interest to make a clean break.

Football teams are just like corporations – there is a great deal of talent and consequently a large concentration of healthy egos.  In my experience, the best way to channel those talents and direct those egos is through the effective stewardship of a single authentic, values-driven leader. 

Healthcare Is Not A Popularity Contest

The Washington Post’s Fred Hiatt cut to the public option core in yesterday’s Shirking Cost Control.  On the issue of health care reform he asserts, “The ‘public option’ is dangerous not for what it might do but for what it allows the politicians not to do.”  

According to Hiatt, politicians are attempting to avoid making “unpalatable” political decisions regarding special interests and industry cost-cutting by enacting a solution without proven – and for quite some time, provable – efficacy and cost-saving ability.  Our politicians, he argues, are shirking the real responsibility incumbent to the reform discussion – asking tough questions and reaching bipartisan consensus – and are instead opting to ride the wave of public option popularity (at least among the majority Democrats).

I have my own thoughts on health care reform, but they are beside the point; Hiatt speaks to a reality that plagues political and business leaders alike beyond a single issues such as health care. When faced with difficult issues, leaders often opt to promote popular and self-protecting solutions instead of those that risk popularity in the interest of true, consensus-driven solutions.

This is particularly true in times of crisis.  We only need to look at leaders at firms like AIG, Lehman Brothers, and General Motors for examples of those who made easy, self-serving, and short-term decisions that helped them weather a single storm and make short-term profits, but eventually led to their implosion.

There is no doubt we face a crisis on health care, and that reality no doubt weighs heavily on our politicians as they attempt to frame a solution.  However, it is imperative that they not hide behind potential solutions as a means of shirking the responsibility to find real ones.

Gusto: An Authentic Mask

Earlier this month, Jim Heskett wrote an article for the HBS Working Knowledge series centered on authentic leadership and the “Masks of Command.”  Jim’s article, which highlights several concepts I also explore in Authentic Leadership, spurred a great conversation.  I wanted to respond to one of the issues raised as a means of continuing the dialogue around authentic leadership, a hugely important issue during this time of economic crisis and political hostility. 

Many of those who made comments asked whether transparency equates to authenticity. They highlight the need for authentic leaders to share with their employees their fears and concerns as often and easily as they share their optimistic projections and commendations.  This transparency, they argue, projects a human quality that employees can understand and follow with confidence.

In many respects I agree.  My experience at Litton, Honeywell, and Medtronic taught me that people are far more interested in heeding forthright and candid leaders, than robotic leaders who recycle high-flying rhetoric and blind optimism.

But, as I explore in 7 Lessons for Leading in Crisis, just as it’s important for leaders to be transparent and share their concerns in a crisis (particularly their hand in contributing to that crisis), it is equally important that they then make an about face and project confidence, both internally and externally, in leading the company forward.

Exuberant confidence may sometimes overshadow internal doubts, but this does not create a compromise of authenticity.  Leading with gusto is simply a necessity of strong leadership in a crisis.