The Characteristics of a Leader

In his article entitled “Leadership, Controllership, and Wimpership,” Paul E. Hadinger has identified three basic management styles of those holding positions of authority and power over others in a company setting.  In the article, the author is able to easily identify the characteristics of both controllers and wimps, but understandably struggles with identifying a similar list for the characteristics of a leader. 

Since reading the article, I have been considering this issue – why is it so difficult to spell out more precisely the characteristics of a leader?  Before coming to this, perhaps a review of the author’s comments regarding controllers and wimps is in order.

The one phrase from the article that struck me as the most accurate description of a controller is “…controllers seem to want to know about as many things as possible in case anything could become a threat or a challenge to their power and control (and their personal security).”

The author identifies many possible character deficiencies in controllers, some of which are certain to be found in such a manager.  I will not reproduce the list here, but it is worth a review.  In my experience the key is that controllers like to control.  Controllers desire to dictate, to make every decision, to be sure to be involved and knowledgeable about every activity of those over which he has authority.  The controller desires that all good results are seen by his superiors as having come from him

As to wimps, the fundamental characteristic is that these types of managers have difficulty with conflict.  They want to go along and get along, avoiding difficult decisions.

Coming to leaders, the author does not have an exhaustive list as he does for the other two types.  However, he captures some of the critical characteristics of a leader:

A true leader commands respect by not only how he or she functions as a leader, but by being a person of integrity and good character whose words and actions can be trusted, and one who can be counted upon to be fair on a consistent basis.

Anyone who is successful as a leader usually has very good communication skills, and is able to achieve shared understanding with those with whom he speaks. Good communication skills are also required to mentor and teach others to become better leaders and better employees. A leader talks WITH people, not AT them.

When one considers the characteristics of a good leader, one must look at it from the point of view of those being led – those to whom the leader reports are not seeing (and cannot see) the most important leadership skills in action.  What is it that employees are looking for from their day-to-day leader?  In my experience, some of the keys include consistency in objectives, focus, regular and honest communication, leeway about getting a job done and deciding priorities, and a true establishment of the principle that we are all in this together.  It goes without saying that above-average general business skills are a mandatory requirement for anyone rising to such a position.

What strikes me is that while the positive aspects of the controller’s skills are visible to (and valued by) those to whom the controller reports, the positive aspects of the leader’s skills are primarily visible to (and valued by) those who report to the leader.  Conversely, the controller is at best tolerated (at worst despised) by many of those reporting to him, while the leader is willingly followed and genuinely respected by his employees. 

The difference in employee attitude and behavior toward these two types is usually invisible to those to whom the leader or controller reports (board / shareholders).  Even if a board member has the opportunity to observe the interaction between a manager and his employees, it is only possible to discern the manager’s style if one is attuned to subtle cues in the interaction.  And likely these would only be visible to the board member if he also has the characteristics of a leader.

Consider the controller – on top of every detail, making every decision, disallowing conflicting discussion – what a horrendously discouraging environment in which to work!  However, such a manager is able to answer every question posed to him by bankers, shareholders, and board members.  He really looks on top of things – decisive, action oriented, aggressive, and knowledgeable.  Unfortunately for the company, this is possible only because there are no answers other than his answers; there is no activity other than activity directed by him.  All information and decisions flow through the controller.

A controller might be able to function effectively in a small and less complex setting – a department, a single manufacturing plant, an organization with only a few variables.  A controller can even function in a subset of a larger organization (as the manager of one division or group of a multi-division company, for example), as there are support systems and other functions inherently outside of his control – in other words, the controller’s scope is limited and held in check by other competing or controlling factions.

Alternatively, consider the leader – once he has established proper objectives, guidelines, and incentives, once he ensures that proper training (via his constant and effective communication) has resulted in proper business decision-making skills, he allows decisions and authority to be executed at the lowest points possible within the organization.  This is valuable in any organization, but it is imperative in more complex situations. 

The leader understands that once he has established processes and ground-rules, the organization will operate best if authority is driven to the lowest point possible – without every action needing blessing or approval from above.  He will gain the respect of the organization because he has shown respect in the capabilities of those reporting to him.  His actions result in a more effective organization – not because he has better individual employees (in any large organization the bell curve applies), but because he has created a team.

A leader cannot answer every question because there are too many actions being implemented every day for him to properly manage – and the leader is self-confident enough to not be concerned by this and to not be concerned that others see this.  He realizes that his organization will be far more effective – with satisfying career opportunities for his employees – than it ever could be had he implemented his role as a gatekeeper.  Most importantly, he knows that the results achieved will be far greater than if he tried to direct and remain on top of every project, action, and decision.

How is this to be made visible to board members and shareholders tasked with finding someone to lead their organization?  Most focus solely on results – and it is certainly possible that a controller can beat the numbers in one situation and for a leader to miss the numbers in another.  It isn’t a question solely of numbers – it takes no effort or wisdom to measure performance to budget.  However, it does take effort to understand the reasons behind performance – both good and bad.

Results are important.  Resume is important.  However, the differentiator – the added insurance – is to find a leader.  In all cases, the organization will perform better under a leader than it will under a controller.  It will do this not because of characteristics easily seen by the board or shareholders, but for characteristics easily seen and most important to the employees.

Certainly, focus on results and focus on resume.  But to identify a leader, you must find out the “how” and the “why”?  This takes some real effort.  Unfortunately, it often takes being a leader oneself or at least having seen and appreciated a leader in action – usually from the position of having been led.

Find out how the manager communicates with employees, including how he expects supervisors to interact with employees.  Does he look for answers from the bottom up?  Is he only talking to a few, trusted confidants, or is he open to dialogue with all?  Do the hourly workers know that they have power to get management to move?  If so, ask him to demonstrate how he specifically puts this in action – not words, but structure and accountability.

Understand his views on incentive systems.  Is his personal incentive based on the same system and formula that his team has?  Is it all for one and one for all – in other words, all get paid or none get paid?  Or does he set up a plan where some get paid (him) while others do not (them)?

What of objectives and focus?  Does the manager keep the list small and consistent?  What is the list?  Is it understandable and understood by the entire organization?  How does the manager translate this into meaning for all of the complexities found in any large enterprise? 

Find out how the leader trains his subordinates and employees.  Does he view this as one of his primary responsibilities?  Can he even describe this without referring to Human Resources or outside consultants?

Understand these and you will understand if you have a leader.  Focus only on results or resume, and odds are you will likely end up with a controller – there are far more of them, and they sound very impressive

Getting Superior Performance from Ordinary People

In response to a posting at LinkedIn:

The author of the subject article covers several of the key factors that are necessary in getting superior performance from ordinary people.  He begins, however, with what I believe to be a faulty premise:

As leaders, we all want a team of superstars.

Is this really true?  Don’t we want a few pluggers – the hard working types that make every organization function?  More so, do leaders spend any energy wanting something that cannot be?  Outside of the theoretical sciences, I am not sure where a team of superstars is desirable – let alone achievable.

Fortunately, he recognizes the low probability of this “want” quickly enough.  Getting superior performance from ordinary people is an inherent job of any leader in almost every organization of size.

But by definition, there are more ordinary performers in the world than there are extraordinary, and Murphy’s Law ensures that they always wind up on your team. The result: You’ve got a group of average, normal people that must take on formidable challenges.

This is quite true, but it isn’t because of Murphy’s Law – it is because, on average, any group of some size will be made up of the average: some higher, some lower. 

The author now gets to his recommendations:

Educate.

This is quite right.  However this takes significant time and commitment on the part of the leader.  It will also require the leader to stand up to pressure from those who feel that getting decisions made quicker are more important than educating the team.

I found the most effective method to educate the team was through meetings involving a broad group – a group much larger than those strictly impacted or knowledgeable about the immediate decision at hand.  For those not immediately impacted by the decision, they often found this a waste of time.  The meetings were not only about coming to a decision, but subtly about training management on methods they could use within their own decision-making process.   The meetings offered lessons about how to come to a right decision (I say “a right decision,” not “the right decision” because there is often not just one right decision).  What questions were asked?  How were other members brought into the discussion? How did others see that this decision might impact their customers, or how could they use this thinking to work differently within their department?  Over time, the value of this type of training was apparent even to some of the more hardened skeptics.

When I initially received complaints about the wasted time in these meetings, I would suggest that “you used to complain that the prior management wouldn’t listen to you, now you complain that I am soliciting your input – and that I want your input heard by the entire management team.  Which is it, because you can’t have it both ways?”

Set expectations.

For me, this is about being consistent with the objectives.  Keep the objectives simple and understandable.  This ensures the greatest number of people will be able to actively work toward achieving the objectives.

The best objectives I found were simple financial objectives.  Cash flow, debt reduction, sales or order growth.  Initially this would be met with an attitude of “you only care about the customer; you don’t care about quality, or customer relationships, or employee relationships.” 

I spent time educating management on how every action they take effects these concerns:  is profitability better or worse when quality is better?  Is cash flow improved when customer relationships are good?  Again, this takes time to meet with and discuss with enough employees such that this understanding permeates an organization.  But it will.

Empower. As you begin to see that the team is on the right path, empower the folks who have leadership potential to continually improve upon the plan and keep it on the right course.

In this case, I cannot say it better than the author has done.  His words suffice.

Stay the course.

Again, consistency.  Don’t be swayed by the latest fad, or “sky-is-falling” calamity.

I believe the author has left out what, to me, is the most important requirement – the one that is the glue that brings all the rest together: establishing an effective set of incentive plans that binds the entire team together.

The Executive Chairman

In response to a question at LinkedIn:

How can an Executive Chairman effectively navigate contact with company executives and his CEO?                    

http://tinyurl.com/cqnb2ee 

I have sat in both roles - as an Executive Chairman, actively engaged with management, and as a non-executive Chairman with a more traditional relationship.

In the Executive Chairman role, the situation was a turnaround of an overseas-headquartered company, with the company acquired out of bankruptcy.  Most of the management team was new to the company, or coming in after serving in a contract relationship with the company.  The CEO we brought in had not had a previous executive position.  The sponsor looked to me to ensure the success of the company.

I will suggest that the only way I can see such a relationship work is if a) both the Executive Chairman and the CEO understand and accept the boundaries between the positions, and b) as the CEO demonstrates success, the boundaries are visibly shifted, with the possibility and likelihood that the roles will one day convert to traditional roles – frankly, as the CEO demonstrates success, the roles must convert to traditional roles.  I do not see such a relationship as being permanent.  If it is successful, it must evolve as I describe here.  If it is unsuccessful, one of the two must depart as one of the two is not properly growing into and evolving the role.

The possibility and method to achieve this transition should be openly discussed at the board and with executive management, such that there is accountability and buy-in from all directly affected by this non-standard relationship.  This, then, places accountability on both the CEO and Chairman – for the CEO, he now has a roadmap he must meet to achieve further autonomy; and for the Chairman, he now has made clear his obligation to eliminate the “Executive” portion of his role as the CEO grows into the full position.

Information Technology Implementation

The original discussion is here:

http://tinyurl.com/48hp7dq


I can agree with the reasons cited in the attached article. I will add a couple of my own:

1) Senior leadership: Regular (more than once a week) oversight and interaction by senior management is required to ensure both direction and buy-in from the top. The most succesful projects I have seen had almost daily involvement from management within two-levels of the CEO.

2) Put the best people on the project. You will live with this system for many years. If it is well done, it will be the source of actionable data and efficient proceessing. If it is poorly structuerd and implemented, the costs over several years cannot be calculated. Make the investment now.

3) In a system-wide project, do not let accounting lead. Yes, the accounting must work. But good accounting is meaningless absent a well run business supported by a good systems infrastructure. Accounting is a support function in any business.

4) Don't let perfect get in the way of going live. Even in legacy systems, changes and improvements are made regularly. The new system will be no different. Get it online, and this way have your whole team working in one environment instead of two. They will clean up the small problems much faster if they are focussed on the new system only.

Role of Government in Innovation

These comments are in response to a thread at Linked In:

http://tinyurl.com/48jbqkg


You cannot force it, and respectfully I would submit that government efforts only stifle it. To avoid further politicization of this thread, I will limit my comments to two:

1) Approval through committees stifles innovation. The most bureaucratic committees are those formed by government. These must deliver politically desired / acceptable results, and are not disciplined by the market. Innovation not demanded / accepted by the market is useless to humanity.

2) Anecdotally, consider that the technology boom in California and elsewhere coincided with the significant reductions in aerospace and defense in the same geographic regions. Those laid-off engineers and scientists, now working outside of government dictated paths, delivered one of the greatest periods of innovation in the service of man known in recent history.

Leave it to individual human action, formed voluntarily in groups as they feel necessary, and innovation will flourish.

James Grant at the TMA Conference

Last week I attended the Turnaround Management Association Conference in Las Vegas. On Thursday, Jim Grant gave an overview of the monetary and fiscal situation facing the United States and the rest of the world. Following is my summary from his presentation. Any errors regarding his views can only be attributed to my poor note taking!

He described the US Dollar as the greatest monetary achievement in the history of the world, as it is an uncollateralized obligation, dependant on Congress and the Federal Reserve (both with their many failures), yet is accepted worldwide. Based on this exalted status of the dollar, Americans have had the luxury of living life on the sweat of someone else’s brow.

US Dollars go from the US to exporters in Asia. Those exporters turn the dollars in to local banks in exchange for local currency. The local banks send the dollars to the central bank, which in turn buys US Treasuries, basically sending the money back to the US to be spent again. He describes that this limitless credit card of American debt is coming to an end.

In his view, QE2 has focused the world’s attention on the true nature of the dollar. I believe he sees this with QE2 and not QE1, as most might see QE1 as necessary to stabilize a crisis. It seems QE2 (and the risk of further QE actions) has made clear to much of the world that the Fed and Congress will use the dollar in ways other than those necessary to provide a stable medium of exchange and store of value.

The most levered financial institution in New York is the Federal Reserve Bank of New York (FRBNY). He described it as having leverage of 80:1, with $15.5 billion of capital. At less than 1.5% default on its assets (or reduction in value), the equity is wiped out. Then what? He asked to consider the impact of a rising interest rate environment on the value of this portfolio.

He noted a new footnote on the Fed’s balance sheet, dated January 5, 2011. The Fed will not transfer earnings to the Treasury if the $15.5 billion equity is impaired. In Mr. Grant’s view this will eliminate the possibility of the Fed ever facing a solvency issue. I believe the Fed transfers all profits to the Treasury annually, resulting in $50 billion or more per year each of the last two years. Such amounts would certainly help offset the Fed’s balance sheet woes, but will only exaggerate further the poor state of US fiscal balance.

The FRBNY is owned by member banks. These banks acquire their interest with 50% cash and 50% pledged as a capital call, on line for solvency issues. He did not say anything more on this, but left unanswered if he felt this would be called before the Fed withheld payments to the Treasury.

In a brief overview of 20th century monetary history and default, he outlined:

1931: Britain renounced their gold standard. The pound went from 1/4 ounce of gold to 1/850 ounce of gold today.

1971: Nixon renounced the gold standard for international redemption. The dollar went from 1/35 ounce of gold to 1/1350 ounce of gold today.

From 1946 – 1981, we saw a bond bear market, with rates rising from about 2% - 3% to well over 15%. But the period from 1946-1956 was relatively benign, only about a 1% change in that time. The acceleration occurred thereafter. Since 1981, we have seen the reverse – a bond bull market, with ever-lower interest rates fueling many asset classes higher.

Are we now in the time of this to reverse? Will we see a similarly benign period of low interest rates followed by another prolonged bond bear market? As to a prolonged period of benign rates, Mr. Grant doesn’t think so. He describes that today, unlike the periods before 1971, the US now has a “weightless dollar,” un-backed by anything. He believes this makes the entire system much less stable. The world’s “faith” will not last that long. He however, does believe that we will see ever-higher interest rates.

He described the economics of the trade in currencies, and the overwhelming size of this market. If I captured it correctly, he states that world trade in currency is approximately $4 trillion per day, while world trade in goods is about $40 billion per day. This trade can change for many and any reasons, and overwhelm the ability of governments and central banks to manage a significant change in perception and reality.

In his view, QE2 changed the game. The manipulation of the dollar is fully exposed for what it is – not to stabilize world financial systems, but solely to benefit the US and, seemingly fund its debt and protect its banks. The Fed is creating ever-growing excess to address the problems caused by previous periods of excess.

Will the dollar system persist? The clear and present danger is complacency on the part of US policy makers. What will cause a change from the dollar being the reserve currency? He does not say, but notes that this change in status is quite possible with significant ramifications for the US.

We may be embarking on a new cycle of rising interest rates and potentially an entirely new monetary system. He did not discuss the ramifications of this, but in the case of rising interest rates, these are significant and reasonably predictable. In the case of a new monetary system, I believe large dislocations arise. For the US and those who have lived from the luxury the world’s reserve currency offers, I believe this will be most dramatic. The luxury of living from the sweat of someone else’s brow will be greatly reduced, if not eliminated.

At Linked In: "The Tribal Knowledge Paradox".

This conversation is at Linked IN, within the TMA Group. The original conversation can be found here:

http://tinyurl.com/34c4oxg

My response is posted within the thread, and here below:

With certain exceptions (which I will discuss later), I have not found a need for or benefit from bringing in outside consultants into a turnaround situation.

I have found it most effective to engage the employees of the company directly in the turnaround. They know the most about the company already. Many of them already know what is wrong and how to fix it. The hindrance has been the executive management. This leads me to conclude that often consultants are brought in when in fact it is the executive leadership that must be changed - yet this is the same group that the consultants usually set out to answer to. What else could it be? They either answer to the same executives that led the company down the road to ruin, or they answer to the new executives. But why not just bring in new executives that already know how to get the employees working in the right direction and on the right things?

Root out the naysayers within the organization, those who find fault with every new idea or every consideration for a change in direction. The employees in the organization are adults. Without the naysayers, and with proper information, they will understand that hard decisions must be made, and will appreciate that you think enough of them to shoulder this burden.

Listen to the people. Set objectives for them. Identify the key, high-leverage actions and assign responsibility with regular, even daily, accountability meetings. Implement incentive systems that push the leadership (and in fact all employees) to work as a team. The energy in the organization will amaze. The people are ready to run, after a (usually) prolonged period of shouldering the daily burden of living on the financial precipice, an emotional death march.

The exceptions I have found regarding a value to bringing in outside consultants was in foreign assignments. With a lack of language skills, outside resources can be helpful. However even in these cases, the idea was to set up structures and work through the existing management to train and implement mid- and lower-level employees on new processes and procedures. More of the medium- to long-term fix; not the quick hitting turnaround. This was a great success within one organization, and a reasonably good success in another.