Former New York City mayor Rudy Giuliani had a mixed record with New Yorkers until September 11, when he metamorphosed into a leader of heroic proportions. What lessons can we learn from each?
James O’Toole, research professor at the Center for Effective Organization’s at the University of Southern California’s Marshall School of Business and author of more than a dozen books on leadership, has been tracking corporate leadership at some of the country’s largest companies for the past eight months through a joint research project with the consulting firm Booz Allen Hamilton. He will discuss some of his findings at the World Economic Forum’s annual meeting this week, during a session on “CEO Brainstorming: Leadership in Fragile Times.” He offered NEWSWEEK’s Jennifer Barrett a preview, sharing his thoughts on how the recession, the September 11, and the Enron debacle have made us rethink what makes a good business leader.
NEWSWEEK: Enron employees and shareholders say they feel betrayed that CEO Kenneth Lay did not disclose how bad the company’s financial situation was, but continued to talk up the company’s stock instead. In an essay for the World Economic Forum, you wrote about the importance of trust in a leader and about how difficult it is to regain once it is lost. Could Lay have regained that trust had he kept his job?
James O’Toole: I don’t know, but what I suspect is that Ken Lay is not very good at analysis. I suspect he is probably a “good ole boy” who is a good cheerleader, who brought in people and gave them opportunities and tremendous rewards. But was he watching the numbers? Was he really aware of what everyone was doing? My guess is no. The danger of this is that leaders have to be managers, too. My guess is that managerial skills were not Ken Lay’s strong point.
Once trust is lost, it is nearly impossible to regain. I think Ken Lay was trusted before and I think that he was respected by his people because he created what they thought was an environment and a business structure in which they could be really successful. So when they saw it was a house of cards, that trust was completely destroyed. I can’t imagine that could ever be rebuilt. And it was further hurt by the revelations that he told people to buy stock while he was selling it.
What will Enron’s recently named interim CEO Stephen F. Cooper have to do to rebuild the trust between Enron and employees, clients and shareholders?
It takes a couple years of countless small acts from the new person who comes in before people start to buy in again. The level of suspicion is so high that even if you do the right things, people on the inside, and investors, are going to be wary. It will take a lot of small, positive acts before people will begin to forgive, but they will never forget. To rebuild the trust takes years. We cannot overestimate the amount of time it will take for Enron–if it survives–to be treated like a normal company again, without people bringing up this mess.
In your essay, you wrote that CEOs have a tendency to try and keep up a “tough guy” image. How does a CEO or a political leader balance being both tough and caring?
Here’s the problem, particularly among men in this country. There is a desire to step in and take charge, making quick decisions and taking control of the situation. It’s this image of the all-powerful hero who will come in and turn things around by virtue of his own will and abilities. The cowboy has to be reined in. Some look for a crisis and start doing all kinds of stuff because they like to be able to take control and tell people what to do, even if it’s not called for. That’s the problem with crisis-mongering. This was a problem with several companies we studied in the Booz Allen Hamilton survey. I can’t name them, but I’ll tell you there was this tremendous overreaction to the recession, compounded by September 11. We’ve found that about one third of the companies we asked say they hire too many people in good times and fire too many in bad times. It’s overexuberance and then overreaction. When leaders say it’s worse than it is, or not as bad as it is, then followers become wary, start to lose trust and tend to stop believing what their leaders tell them.
You said you received “disconcerting e-mails” from two CEOs shortly after the World Trade Center attacks asking for advice about “how leaders should act in a time of crisis.” How should they act?
There was a story I saw about [New York’s former mayor Rudolph] Giuliani and the point was: what the world needs now is leaders, not managers, that business leaders ought to look at Giuliani for the kind of forceful leadership we need. I think that’s wrong on many scores. Most American businesses are not in a time of crisis. There were just a handful of companies affected directly by the World Trade Center attacks. To portray the general business culture as being in a crisis similar to what New York City is going through both underestimates the true kind of trauma and tragedy that happened in New York and grossly overstates the problems in corporations.
And yet General Electric paid Giuliani a reported $100,000 to talk to its executives about leadership?
If they take his advice, you ought to sell your stock short. The worst thing you could have at GE is a leader like Giuliani. He is a personal, hands-on, press-the-flesh, all-emotion cheerleader who follows whatever his feelings are that day. In a big city like New York, on some issues, that works. We’re doing a study with Booz Allen Hamilton, and what we’ve found is that the most effective leaders are not ones like Giuliani, the charismatic type, but a far more analytical type who thinks strategically and analytically. It’s someone who looks at the numbers, decides where to make investments, makes tough decisions about which businesses to get into and out of and how to position themselves so that they are where they want to be when the economic recovery occurs.
Can you give an example of that type of leader?
IBM chairman and CEO Louis Gerstner Jr., president and CEO of Nissan Motors Carlos Ghosn and Intel CEO Craig Barrett. They are the anti-Giuliani: strategically oriented people who think long-term, in terms of tweaking strategy, building structures and incentives. With Giuliani, it is all about him. That can be appropriate and effective, particularly when it is a life-or-death situation and people are looking for a Winston Churchill, as the English did when they were being bombed. But no one is bombing General Electric or IBM. In fact, very few companies are ever in that type of situation, where they suffer the kind of tragedy that the city of New York did.
Have the priorities for business leaders changed since September 11? How?
I don’t think they have. I think that the leadership model that people like me were pushing in the 1990s overstressed the value of the charismatic leader who has the vision and talks about the grand view and changing the world with a new idea or technology. This is someone who spends his or her time inspiring people with values or purpose. I think we overstated that by a lot, but the current recession has brought home to us that this is not the kind of leader who is effective over the long term. We have a much more realistic view of what we want from a leader now: managerial competence, someone who is good at blocking and tackling. You need to be able to really manage the business and deliver the results. I think the recession much more than September 11 was a wake-up call to American industry to focus back on the performance of an organization and away from the visionary, cheerleading hero–the kind of leadership that so many of us were saying was great in the ’90s. We were wrong then, but good times obscured the fact that it was the wrong type of leadership for anytime. When the bad times hit, it revealed the weaknesses.
