Leadership: Why corporates do a poor job developing leaders?
Punjab in August of 1947 was the most violent place on the surface of the earth. Under the burden of partition, communal passions had been let loose. Viceroy Mountbatten’s task force of 55,000 heavily armed professional soldiers was unable to maintain peace. Twelve of Punjab districts were aflame covering an area larger than all of Palestine. The atrocities committed were among the worst of humanity. Eighteen hundred miles from Punjab, the situation was expected to be even worse in Calcutta. Memories of 1946 Calcutta killings were still fresh in the minds of the city’s residents. However, the presence of a frail unarmed 78-year-old Mahatma Gandhi had checked violence in the most violent city in Asia. Louis Mountbatten later wrote to him, “In Punjab we have 55,000 soldiers and large-scale rioting on our hands. In Bengal, our force consists of one man and there is no rioting.”
Great business leaders are similar to great entrepreneurs in at least one way, they reside in the realm of ideas, beliefs, and intuition. They do not accept the constraints of reality, their world is a world of imagination. This is not to say that they reject analytical techniques, rather they have the courage to understand their limits and reject blind faith. They can see patterns where others see random structures. They don’t just make contrary bets themselves, rather influence people around them by sheer strength of their conviction to do the same.
The concept of ‘Leadership’ is among the more romanticized in business studies. That is also because it is among the most studied but least understood. So far it has not been fit in a robust 2X2 matrix. This is a domain that is best studied by example. In that sense, its study is largely descriptive rather than predictive.
John P. Kotter points out that management is characteristically different from leadership. He states management is about dealing with complexity while leadership is about dealing with change. Complexity is managed by planning, organizing, and controlling. In contrast, change is managed by setting direction, aligning people, and sustaining motivation. He further elaborates that successful corporations develop leaders by encouraging decentralization to create challenging jobs.
Let’s explore some tools to counter the argument that successful managers can be systematically developed into successful leaders.
Herd behavior
Modern corporations are organized internally in such a way to take maximum advantage of the fact that different managers have different errors of judgment. It is assumed that these errors will not be perfectly correlated. Consensus decisions may result in decisions with lower errors due to aggregation. Thus, decisions are made by committees or through a vertical chain of command where different levels act as quality valves. However, individuals in group decision making are subject to herd behavior. Especially, in performance-driven organizations where career concerns are present.
In ‘A simple model of herd behavior’, Abhijit Banerjee described a sequential decision model. Consider customers in a restaurant with prior preference probabilities of 51% and 49% for A and B respectively. Apart from this external signal customers also possess internal signals. Consider a case as shown in the figure. The first customer ‘a’s internal and external signals align, he opts for restaurant A. For second customer internal signal is contradictory. However, he observes ‘a’s response and concludes his internal signal to be A. This results in a situation where the internal signal of b gets canceled and he also opts for restaurant A. By mathematical induction, all following contrarian internal signals will get canceled.
The idea of group decision making is to introduce as much information into the decision-making process as possible. But, herd behavior as described above leads to loss of information and the resulting equilibrium is inefficient.
This analysis raises concerns about, whether managers groomed in an environment that encourages people to do what other people are doing rather than using their own information are fit for a leadership role. This also implies companies organized around group decision making are in a poor position to develop leaders.
Performance evaluation
US economist Canice Prendergast wrote ‘A Theory of Yes Men’ in 1993. He argues, that employees conform to the opinion of their superiors when firms use subjective performance evaluation. Such situations arise in areas where obtaining an objective measure of performance is difficult. This leads to information loss, the true opinion of the employee is not discovered. Such organizations unknowingly tend towards decision making getting centralized towards the opinion of superiors. He concludes that there is a trade-off between inducing workers to exert effort by means of a performance review and encouraging them to be honest in their opinions.
Subjective performance appraisals are an integral part of the managerial review process. Capital allocation and budgeting decisions can’t be evaluated objectively in a dynamic environment. From the above discussion, we realize that modern corporations have a tendency to encourage sycophancy within their rank and file. This is antithetical to the development of leaders.
Training
$14 billion, that is the amount US companies alone spent on leadership development programs in 2012. While only 7 percent of senior managers polled by a UK business school think that their companies develop global leaders effectively. The problem with training programs is that they follow a one-size-fits-all approach. They encourage off-site locations, resulting in losing context and poor retention.
Warren Bennis opined that our age seems lacking in leadership. He further added that leaders aren’t born; they are made — mostly self-made. There is a profound gap in the way companies are organized around control mechanisms. Whereas, leadership development is about empowerment, not control. Warren proposes that leaders are made of a tripod of qualities namely, ambition, competence, and integrity. Organizations need to construct a social structure alongside their formal structure of control which provides opportunities for managers to perform and senior leaders to segment their workforce. These segments can then be subjected to workshops for further development tailored to both personal as well as organizational context.
Looks like modern corporations do not provide a conducive environment for leadership development. There exist successful leadership programs like that at GE. They seem to be exceptions rather than the rule.
Murphy and Zábojník (2007) studied long-term trends in the CEO labor market and found that external CEOs have become more prevalent and receive higher compensation than internal CEOs.
Systematically building a leader is an uncertain endeavor. Successful leaders are anomalies in an ecosystem designed for managers. Corporations have to look outside when they can not find such rare anomalies within.
Mahatma Gandhi was an anomaly in India’s struggle for independence. In the age of conquest and expansion, his message of non-violence humbled the British Empire. He was the only leader resolutely opposed to partition till the end. He had spent years in India’s villages and had an intuitive feeling for the bloodshed that would ensue with partition. While all other leaders had underestimated the scale of violence that would erupt and overestimated their own ability to deal with it.
“Ultimately you must forget about technique. The further you progress, the fewer teachings there are. The great path is really no path.” — Ueshiba Morihei
