Category: Leadership

I haven't posted anything for almost two weeks because my family and I were on a vacation in Spain, a lovely place.  I came back to the usual pile of little chores.  As I sorted through things yesterday, I noticed a copy of Alan Webber's new book, The Rules of Thumb: 52 Truths for Winning at Business Without Losing Yourself.  I've always admired Alan for his work as co-founder of the iconic Fast Company, and found him charming when I finally met him at a recent dinner.  But I haven't worked with him and barely know him. 
So I don't have any particular personal reason to react to The Rules of Thumb the way I did — I started by looking at the book, and I felt the hook set-in as I read the opening quote from Talmud, What is hateful to you, do not to your fellow man.  This is the law: all the rest is commentary." 

And as I started reading, I felt the grip of Alan's charming and engaging writing style, his ability to observe, tell lovely stories.  Alan is far more gentle writer than Robert Townsend, but reading The Rules of Thumb still reminded me of the first time that I read the astounding Up the Organization.  It reads like the best 52 lightly intertwined blog posts I've ever read.  And it is a very fast read — dense without feeling dense — so you get more for the two hours (or less) it takes to read than any book I recall reading in a long time.

To give you a taste of the book, here are some of Alan's rules that I especially liked:

#1. When the going gets tough, the tough relax.
#10. A good question beats a good answer (This, by the way, is the reason the Nobel Prize winners often give for the success of their work — they framed the question better than their peers.)
#13. Learn to take no as a question (Alan provides great step-by-step advice here).
#16. Facts are facts. Stories are how we learn (A similar point to Made to Stick).
#17. Entrepreneurs choose serendipity over efficiency.
#23. Keep two lists: What gets you up in the morning? What keeps you up at night?
#30. The likeliest sources of ideas are in the most unlikely places (He makes a great argument for looking for inspiration in all the wrong places).
#44. When to comes to business, it helps if you actually know something about something (Google is a good example of this principle, so are Men's Wearhouse and Amazon).
#46. Tough leaders wear their hearts on their sleeves.
#51. Take your work seriously. Yourself, not so much.  (See this Vanity Fair article by Michael Lewis for a cautionary tale: AIG CEOJoe Cassano suffered from a horrible case of taking himself too seriously).

You may have heard similar rules like these before, but the power of book, and why you will enjoy reading it so much, is Alan's ability to tell compact and compelling stories that bring these ideas to life in ways that few others out there can do.  Alan, thanks for making my homecoming so enjoyable. You saved me from a couple hours of far less pleasant chores. Now I've got to deal with a couple hundred emails…..

Yesterday's Boston Globe published an excellent story by Drake Bennett called "Luck Inc," about the questionable value of books about how to build great companies (the graphic is to the left). Drake provides an excellent summary of the arguments in The Halo Effect that rip apart the methods used in many such books, as well as arguments from Hard Facts, the book Jeff Pfeffer and I wrote on evidence-based management.  The story focuses most heavily on new research by Michael Raynor and his colleagues, which apparently shows that luck (i.e., randomness) provides the best explanation for which companies enjoy exceptional performance and are then celebrated as superstars in books like Good to Great and In Search of Excellence.  This point makes sense to me, and in fact, follow-up studies of Peters and Waterman's excellent companies and Collins' good to great companies are consistent with that view  — and also consistent with an argument that — when it comes to picking which stocks will perform best — a "random walk" is mighty tough to beat — that most stock pickers don't top a randomly selected stock portfolio.  

I had a pretty detailed conversation with Drake, and although most of it focused on the drawbacks of these kinds of books, he ended-up quoting me as defending these books.  I think he was completely fair, and in any case, I am on record many places raising concerns about the suspect methods used in both In Search of Excellence and Good to Great. But I have an especially ambivalent reaction to Good to Great — let me explain why.

There are a lot of things that bother me about the book:

1. It is a very small and flawed sample.  Most notably, we have 11 companies that used the practices that Collins celebrates, but the sampling strategy made it impossible to discover how many companies used these practices yet failed to make the leap to greatness.

2. The main method was retrospective — they would label a company as "great" and then look for articles and do interviews to determine why it happened. This is a quite biased method — if you ask someone to explain the secrets of their success, you get a certain kind of story that differs from if you ask them to explain why the failed (regardless of actual performance). Winners will report having better leaders, being more focused, and persistent — and trying to untangle what is part of the sensemaking process versus what really happened is tough.

3. Good to Great cites almost no prior research, even though there are literally thousands of more rigorous studies that are pertinent to claims in the book, especially studies of leadership. Indeed, as knowledge accumulates one study at a time, and there are few if any definitive studies. So any author who claims or implies that he or she has done THE definitive study is immediately suspect — indeed, it is something that well-trained researchers never do, even Nobel Prize winners.  I think that Collins needs to say — "this is just one study, we learned a lot from it, but it isn't definitive… and it has flaws."

4. Perhaps the biggest problem of all is that Collins makes bold and excessive claims based on the research; ironically, this book about the virtues of modest leaders reveals considerable hubris in its claims.  Perhaps that is necessary to get a bestseller — but, as an example, Malcolm Gladwell would never make such claims.

BUT despite all these concerns, what if Collins had actually reviewed and integrated rigorous research and had built a book based on that body of evidence?  If he had done so, he could have found considerable support for his ideas in published peer-reviewed research.  Although there is a good deal of randomness in the process, and Collins probably overstates the wallop packed by leaders, the fact remains that leaders do need help (it is a damn hard job), and the simple and compelling ideas in Collins' book are probably mostly right and have probably helped a lot of leaders and managers. Spreading the message to leaders that they need to face facts and to be persistent and humble strikes me as a good thing, and also consistent with studies from diverse places. 

So, although it is mediocre research, I think the message has done a lot of good. I just wish that Collins had shown more modesty.  The upshot is that I end-up being the one who defends Good to Great at the ending of the article. So I did say, and agree, that ""There's value in mastering the obvious," he says. "If Jim Collins's
impact is to get people to do stuff that they know they should do
already – facing the hard truths or being selfless or whatever – I
certainly don't think that's a bad thing." 

As I think about this now, perhaps the most important standard for business books is that, whatever basis is used to support the authors advice should be stated clearly and not be overblown. I don't expect a book by Jack Welch to be based on anything but his experience, and my favorite business book of all time, Orbiting The Giant Hairball, is based only on Gordon MacKenzie's personal experience and opinions — but you know where the claims have come from. 

Indeed, as I think of the books I have written, and things I am writing now, the lesson I take away is that my values and biases do affect what I write, but I also draw as heavily as I can on peer reviewed research, as that is so much of a part of my history and identity.  So I am going to start making more clear that what I write is best seen as "evidence-based opinion."  I also think that is the most honest way to describe what Gladwell does so well and Dan and Chip Heath do too… management is a craft, requiring a complex mix of experience and evidence.  Think of what great doctors do, it is much the same thing. If they ignore the evidence too much, they are making a big mistake, but they also need to take into consideration the particular case, what they and the patient want and value, and their clinical experience.  To that end, as Pfeffer and I wrote in Hard Facts, we believe that management will always be a craft, but that evidence needs to play a bigger role in how the craft is practiced — so "evidence-based opinion"" fits that perspective well.

That is the title of the essay I published this morning at HBR's Great Debate  about business schools.  I argue that one cause of the greed that is reinforced by many business schools is that economists and their assumptions usually rule roost: Many economists teach and believe that humans are selfish and greedy.  For example, one of the most influential theorists is Oliver Williamson. Here is a quote from one of his papers:

"Transaction
cost economics also subscribes to bounded rationality. Rather,however,
than work out of a myopic setup, transaction cost economics assumes that many economic
actors (especially within organizations) are capable of and engage in
foresight.Such
takes on special importance when coupled with the assumption that economic
actors engage
not merely in simple self-interest seeking but also engage in self-interest
seeking with guile."

The word guile means "treacherous cunning, skillfull deceit."  Drawing on a paper that Fabrizo Ferraro, Jeff Pfeffer, and I published a few years back, I argue that traveling through life with this assumption has powerful effects.  If you believe that people are entirely out for themselves, will lie and cheat to get what they want, and are hardwired that way, then you would be a fool to act otherwise yourself.  But — if you believe (as much research shows) that self-interest is a norm that can is stronger in some groups than others, and takes different forms in different groups than others, than this means that being a greedy selfish liar isn't our fate as human-beings, but is a consequence of the social group were are in, or how we are "primed" by what is going on around us. 

One small way that business schools can contribute to the greed problem is to teach students — especially in economics classes — that self-interest with guile is a norm, as is self-interest with grace and concern about others.  Indeed, I think that an interesting comparison here might be the internal norms at the now defunct Merrill Lynch versus Goldman-Sachs.  I have had Stanford students tell me for decades that Merrill is (or was) fundamentally dog eat dog world to live in and there is no incentive for helping coworkers and you get ahead by ignoring them, doing your work, and occasionally sticking a knife in their back.  Beyond my gossip, check out this little column by Dan and Chip Heath and Paul Stiles book Riding the Bull. Indeed, as former customer of Merrill, I saw this in small way, where every interaction we had with our stockbroker was aimed at creating churn rather than doing things in ur best interest — and we were constantly getting screwed by unexpected and hidden fees… all these behaviors are consistent with norms about treating insiders and insiders in a way that is consistent with "self-interest with guile." In contrast, although Goldman-Sachs isn't perfect, they operate under a drastically different set of norms, where although yes, the profit motive is there as it should be, there are very strong norms for being responsive to colleagues, sharing information. for telling the absolute truth, for what I might call "self-interest with grace and concern for others."   A comparison of the assumptions made in these two firms, and the impact on practices and actions, could be most instructive for MBAs.

It is interesting that Steve Kerr — former chief learning officer of Goldman — is arguing that business schools don't matter much, but what really matters is what happens in companies.  That may be true, but perhaps he would agree with me that whether a company's practices and actions are (implicitly) based on "self-interest with guile" versus "self-interest with grace and concern for others" has a huge impact, and more generally, the assumptions that leaders and followers make about human nature have a huge impact on everything from hiring and firing practices, to incentive and promotion schemes, to whether or not people are truthful or deceitful during interactions with customers.

P.S. The paper I am basing this on is co-authored with Fabrizio Ferraro and Jeffrey Pfeffer: "Economic language and assumptions: How theory can become self-fulfilling, Academy of Management Review, 30:8-24"

I wrote an opinion piece for the new BusinessWeek, which is now available online and in the current print version of the magazine.  The graphic in the magazine is above — it is pretty graphic!   They seem to be calling it The Peter Principle Lives, although the PDF of the final I saw was called "In Praise of Simple Competence."  In any event, the argument is that our collective lust for extreme levels of performance led to all kinds of incompetence and cheating — think Bernie Madoff and Barry Bonds. And the pressure to create a false illusion of superstardom contributed to the meltdown; notably, reasonable and relatively safe returns weren't good enough for financial service firms and their shareholders, so they rolled the dice in dangerous ways that were another kind of incompetence.  I argue that  perhaps one path out of the current mess is a return to the celebration of simple competence. As I say in the piece, this notion was inspired by The Peter Principle, which I took as a plea for simple competence.

 It was really fun to write, but the process of cutting it down to 800 words or so was painful — although having great editors helps. As I wrote earlier in the week, BusinessWeek has also published the foreword that I wrote to the new edition of The Peter Principle online, which you can get here.

P.S. This basis of some of the ideas in the opinion piece are in this post, also called In Praise of Simple Competence.

As I wrote earlier in the week, there is quite a debate going over at the Harvard Business Review website about whether business schools are to blame for the meltdown.  There are 50 comments, nearly all thoughtful.  After reading them and thinking about it more, I guess where I am at is that, yes, the question of whether business schools are to blame is kind of silly — they are just one part of a bigger system that needs overall repair.  But I tilted further toward believing they are part of the problem after first reading a long and rather pompous defense of business schools (which seems to accept no responsibility at all) from "Professor Sir Andrew Likierman,"  Dean of the London Business School and then a response from from Robin Humphreys, who described himself as a non-MBA with 40 years of experience. Sir Andrew rambles on, but here is the key part for understanding Humphreys' response:

As to where our graduates go – it is true that a high proportion of
them in recent years have gone into investment banking. There is a very
simple explanation for this: investment banks were paying the most to
attract the best talent. That, too was part of the normal operation of
the market cycle – and it is now correcting itself. Business schools will continue to attract talent and continue to
train people to be better managers. They will continue to be places
where a wide variety of ideas are generated. They should not be
convenient scapegoats for today’s financial problems.

Here is Humphreys' reaction:

Andrew Likierman makes the point that the investment banks were
paying the most to attract the best talent. The 'talent' churned out by
business schools is rather like the 'talent' responsible for the
British economy over the past 12 years. It has an extremely narrow
focus on "the numbers" to the exclusion of all other metrics of
organisational performance and a similar belief that the numbers are
all that matters. Talk to the vast majority of MBA graduates of any
business school about the relevance of managing and leading people to
achieve outcomes and a blank look descends over their faces. They don't
do people, as they cannot be measured in black & white terms; it's
all grey.

As for the ethical perspective, why are we surprised about the
levels of greed that have been seen in the pursuit of "the numbers"?
People at work do what they believe they are measured on and what they
believe they are rewarded for. It's like night following day – no
surprise at all.

If you read Sir Andrew's comment, on the surface, it all seems completely reasonable in some ways, but the thing disturbs me is a complete refusal to accept any responsibility  at all– it is an argument for inaction (or perhaps impotence, another way to read it is that it is an argument that business schools are powerless pawns in the marketplace).  Regardless, it is an absolute refusal to accept even a tiny bit of responsibility for the problem,– and thus, by implication to accept even a tiny bit of responsibility for changing things.   I am reminded of the F.M. Cornford's 1908 classic book (which I have blogged about before and you can get free online) Microcosmographia Academica.  Cornford has a lovely line about academic politics: "There is only one argument for doing something; the rest are arguments for
doing nothing."   In the great tradition of academic politics, Sir Andrew offers us an argument for doing nothing.  In this vein, Cornford offers many arguments for doing nothing, but perhaps the one that applies best to Sir Andrew is "The Principle of the Wedge," which Cornford explains is "you should not act justly now
for fear of raising expectations that you may act still more justly in the
future — expectations which you are afraid you will not have the courage
to satisfy."  

Also, Sir Andrew makes seems to present business schools as places where many ideas float around and none really rule roost.  As I will be writing later in the HBR discussion,although business schools do have many different disciplines,  the top dog is usually economics and the often not very implicit assumption that economics in its rawest form — unbridled selfish self-interest — is how human beings will and can behave.  And even if we could stop them from their selfish pursuits, it would be a bad idea. There are other voices in all business schools, but this is usually the one that is the loudest and most powerful.

Check out the rest of the debate, it is fascinating.

The Harvard Business Review is hosting an online "debate" on How to Fix Business Schools.   The first salvo is fired by Joel Podolny, a long time academic who just took a job Apple as a a vice-president and is now the "dean" of of Apple University.  A bunch of us will be joining the debate.  I wrote something placing the blame partly on the excessive stature given to the field of economics in business schools, although that is one part of a complex set of problems — I am not sure when it will appear.  Another issue, which Joel touches on, is that most business schools focus more on teaching people how to talk about management than teaching them to actually do it.  As an academic who is paid to talk and write about management, it is pretty clear to me by now that it is a lot easier to talk about than to actually do it!  By the way, Joel is one of the rare academics who actually seems to talk about and do it well. 

I wasn't surprised to read that Rick Wagoner had been canned as part of the deal to get more bailout money from Washington.  Scapegoating is a useful temporary measure for pleasing external critics.  But it is often a symbolic act that is done in lieu of any substantive changes.  As I have written before, and in detail, I believe that a core problem with GM is their broken culture — see the first post (which has more hits than anything I ever posted) and the follow-ups here and here, plus the comments are very telling.

I wonder, have people at GM changed their behavior in meetings — are the new top dogs still doing all the talking?  Are they doing anything to actually get in touch with the experience of owning a GM car? Or are they still acting like all that really matters is the GM pecking order, regardless of the quality of the ideas, the cars, and the experience of owning a GM car?   That's the real question.  Clearly, under Wagoner's leadership, there was an inability (certainly on his part) to grasp and implement the need for a cultural change and GM still has too many product lines and far too many choices of options (this both complicates the manufacturing and supply chain, and screws-up the selling and buying experience — making it longer and so that people are less satisfied because they have too many choices, see The Paradox of Choice).  It seems they are finally trying to do something about it (Anyone want to buy the Hummer brand? GM might give it to you for free!)

I am rooting for the automobile industry, especially for all those people who so desperately need jobs.  But as the old saying goes, the definition of insanity is doing the same thing over and over again, while hoping that something different happens.  This isn't a bad description of how GM has been ran for years.  Time well tell if this change is just window dressing.  Of course, a rebound in the economy will help them — but it also will mask the core problems they have if they somehow manage to survive.

I wrote a rave for Joker One about a week ago, after hearing an interview on Fresh Air and reading the first 100 pages.  I have since finished the book, and I thought it was one of the best books I've read in a long time.  The Sunday New York Times had a very positive review — I especially agree with the comments about the books unflinching honesty.  When I see how much responsibility author Donovan Campbell takes and versus the finger pointing and blamestorming we now see in corporate America and government too it helps me understand the stark contrast between real a leader that cares about his or her followers versus so-called leaders that only care about themselves. As reviewer James Glanz put it so well 'a central virtue of “Joker One” is that the narrative is honest — and remarkably detailed, relying on Campbell’s logbooks and diary, as well as his formidable memory — even when the story makes him or the Marines look bad.' 

I got this quote from Paul, and then found it was in Drucker's New York Times Obituary. I love it, but find it a useful half-truth, as meetings are necessary for setting the stage for work and work does often get done in them (albeit often not very efficiently). I think the biggest danger is when meetings become a substitute for work, or there are so many it is impossible to get anything else done: I recall an executive I interviewed at manufacturing company years ago who told me that her company was so meeting intensive that she only went to about 25% of the meetings she was "expected" to attend, and even then, she had no time do her other work. Now, that is a sign that something is wrong!

Check out the difference between Warren Buffett
and some of his peers:

“When Lehman Bros. CEO Richard Fuld testified on
Capitol Hill this month, members of Congress grilled him to own up. Fuld said
he takes full responsibility for his decisions, that he "felt horrible
about it," but that the largest bankruptcy in history was due to
circumstances beyond his control. Likewise, a trio of former AIG chief
executives — Hank Greenberg, Martin Sullivan and Robert Willumstad — deflected
blame in oral and written testimony to Congress.” From USA Today.

‘Mozilo says he was blindsided. “Nobody saw this
coming,” he told investors in a conference call. “S&P and Moody’s didn’t,
but they simply downgrade bonds. They don’t take hits. Bear Stearns certainly
didn’t.” Mozilo’s take seems to be that aggressive lending by mortgage
companies had nothing to do with the industry’s troubles: “It was the
deterioration in real estate values that was the base cause. We had none of
these problems as real estate values were going up.”  Mozilo also blames the Federal Reserve. “The
Fed knowing that well over 60% of the loans made were indexed to the Fed funds
rate, increased the rate seventeen times. You never knew when they were going
to stop. So for a Fed governor to say the lending industry had this coming is
unbelievable when the Fed was a contributing factor to this.’  On former Countrywide CEO Angelo Mozilo, from BusinessWeek.

‘"Our industry … needs a bridge to span the
financial chasm that has opened up before us," General Motors CEO Rick
Wagoner told the Senate Banking Committee in prepared testimony. He blamed the industry's
predicament not on failures by management but on the deepening global financial
crisis.’   On GM CEO Rick Wagoner in
November 2008, From the Associated
Press.

‘General Motors Corp
on Monday unveiled an unusually frank advertisement acknowledging it had
"disappointed" and sometimes even "betrayed" American
consumers as it lobbies to clinch the federal aid it needs to stay afloat into
next month. The print advertisement marked
a sharp break from GM's public stance of just several weeks ago when it sought
to justify its bid for a U.S. government on the grounds that the credit crisis had undermined its
business in ways executives could never have foreseen. "While we're still
the U.S. sales leader, we acknowledge we have disappointed you," the ad
said. "At times we violated your trust by letting our quality fall below
industry standards and our designs became lackluster."  GM CEO Rick Wagoner backtracks in December
2008, from Reuters.

‘Even the world's
best-known investor couldn't get it right in 2008, apologizing to his
shareholders for doing "some dumb things" with their money.  Billionaire Warren Buffett said in his annual
letter to shareholders that while last year was a bad year for all investors,
he made some mistakes that he now regrets. "I made some errors of
omission, sucking my thumb when new facts came in that should have caused me to
reexamine my thinking and promptly take action," Buffett wrote in a letter
released this morning.’  From ABC
News. February, 2009.

These are hellish
times, but they are also interesting times in that they reveal a leaders’
character.  Wagoner finally apologized
because he eventually realized that the American public would accept no other
account.  Buffett apologized because he seems
to believe that, economic conditions aside, that he personally screwed-up and
he believes – but cannot assure his shareholders – that he has learned from
it.  Note only does this show class, it
turns out that research on CEO and management apologies shows that the firms
with the best performance over the long haul are led by people who get credit
when things go well and take blame when things go badly. Taking blame indicates
that the CEO has learned something from the troubles and is going to take steps
to correct course; denying blame is seen as a sign of self-delusion, a lack of
control over the company, and an inability to learn. As Jeff Pfeffer and I wrote
in Hard
Facts:

Leaders who claim that
“it isn’t my fault” and “I couldn’t have done anything about it” aren’t doing
themselves or their organizations any favors over the long haul. 
Deflecting blame might help them keep their jobs for a time, enjoy better
mental health, and persist in the face of failure.  But ducking the heat
shatters the illusion of control.  Investors, customer, employees, and the
press conclude that leaders who don’t take responsibility for mistakes and
setbacks lack the power to make things better.  Controlled experiments by
Fiona Lee and her colleagues show that hypothetical managers who took
responsibility for bad events like pay freezes and failed projects were seen as
more powerful, competent, and likeable than managers who denied responsibility. 

The wisdom of
acknowledging blame is confirmed by two studies that tracked Fortune 500 firms
over long periods.  Both were careful studies designed to rule out
alternative explanations.  Gerald Salancik and James Meindl examined 18
Fortune 500 firms over 18 years.  They found that, especially in firms
with wild swings in performance from year to year, performance was superior
down the road when executives attributed both good and bad
performance to internal actions.   Similarly,
Fiona Lee and her colleagues examined yearly stock price changes in 14
companies over a 21-year stretch.  They found that taking blame for setbacks
wasn’t just effective in companies with wild performance swings. In years when
senior management blamed their firm’s troubles on internal and controllable
factors, stock prices were consistently higher the next year, compared to when
executives denied responsibility for setbacks.

Of course, taking
blame isn’t enough, a leader actually needs to change the organization’s
course, but I do admire for Buffett refreshing bluntness.  And if anyone can turn things around, he can.

P.S. Also see this related post on "mea culpa"