Leadership in crisis

There was something horribly prescient about the tumble taken by the BMW CEO Harald Krüger at this year’s Frankfurt motor show. The Bavarian boss had no sooner mounted the platform to unveil his new 7 Series model and outline his vision for the future than he fainted and fell over. Social media ensured the images of the toppling Teuton were immediately bounced around the globe. Was he ill? Exhausted? Buckling under the strain? And mention was quickly made that BMW’s shares had fallen 19 per cent since Krüger took over the driving seat in May.

It is undoubtedly tougher than ever at the top

But this incident was nothing compared to the whirlwind that enveloped the leaders of Krüger’s arch rival Volkswagen less than a week later. Dieselgate is more than an unfortunate stage tumble – it’s a full-blown conspiracy, the like of which is meat and drink to US law enforcers. With lawyers gathering, the fallout could last for years and even bring down the German giant.

It hasn’t been the best of years for business leaders, or the leadership business for that matter. It is interesting that the twin most egregious examples of what is now known as #leadershipfail are both Germano-Swiss in origin. The other high profile miscreant is, of course, Sepp Blatter of FIFA, who appears to operate without any governance rules whatsoever. He did what he pleased. Some shameful behaviour has clearly been occurring at VW and FIFA but a certain degree of denial appears still to exist. For many months, Blatter refused to budge until finally there were demands from his paymasters, the sponsors, that he should go. The value added by both ‘Made in Switzerland’ and ‘Made in Germany’ has diminished during 2015.

The world is unimpressed and doubtless next month the mercury levels in Edelman’s annual Davos-announced Trust Barometer will be tumbling, as when a deep depression moves in from the Atlantic. In the old days, the wages of grave sin were death (stipendium peccati mors est). These days, quite rightly, we tend to be slightly more forgiving of business leadership failure. However, few have been impressed by the fact that at Volkswagen there appears to be an exit package for Martin Winterkorn that “could top” $67m, according to the Washington Post. Where is the moral hazard in that?

At the level of the business school, where the leaders of tomorrow are prepared for the top jobs, the leadership industry is under assault. Much attention was paid this autumn to Jeffrey Pfeffer’s book, Leadership BS, and its deeply cynical outlook. Pfeffer maintains that for all the fine theories about noble and enlightened behaviour leading to success in business, the truth is that good guys and girls are soft-hearted dupes who often come last. Successful bosses, he maintains, are rarely modest, truth-seeking or telling. Indeed they tend to be mendacious, narcissistic and selfish. And their companies benefit from these character traits. Professor Pfeffer is 2015’s Nicolo Machiavelli – although he believes the evidence for his claims is thoroughly modern. “I’m not cynical,” he protests when challenged. “I just look at the data.”

As if advocating The Prince as the must-read business book wasn’t a problem, just to add to the confusion the Financial Times has now hailed the legendary bad boy of FTSE bosses Ryanair’s Michael O’Leary as an exponent of the ‘new dullness’ in leadership. Wit and sparkle are out: greyness is in.

Click to expand the timeline

So what is to be done?

Both Julian Birkinshaw and Kathleen O’Connor of LBS give the subject a good deal of thought not least because they are at the sharp end – teaching day in day out about what doing the right (and effective) thing means when it comes to leading 21st-century businesses.

What does Birkinshaw make of the Swiss FIFA head, an individual who plays it straight out of the Pfeffer playbook (except he gets caught) and of whom it’s hard ever to conceive anyone saying: “Sepp Blatter! What a lovely man!”?

“Well, it’s hard to know where to start with FIFA and Blatter,” says Birkinshaw. “So much is very wrong. Its governance model – the simple business of checks and balances – just wasn’t there. There was a lack of any mechanisms to keep him in order caused by the very fact that he had been in charge for so long.

“I think their problems were partially rooted in nobody really knowing who FIFA’s ultimate customer is, who they answer to. Is it the global federations or the sponsors, or is it you and me who watch games? If it’s the latter, then few global spectators stopped watching the World Cup because of the palpable corruption. (By contrast, VW won’t be selling so many cars in the short term.) FIFA’s attitude to what was going on in Africa was: well we cut a few corners but it was simply an unusual way of doing good. That was fine before the FBI started to take an interest.”

The problems with an absence of public trust, according to Birkinshaw, go far deeper and broader than FIFA which is an extreme behavioural and reputational outlier. “The data is clear about the low esteem in which business people are currently held. This is pretty dangerous for the legitimacy of business,” he says. “Banking [another outlier] was fundamentally wrong – you had incentive systems that were clearly encouraging wrongful behaviour. But it’s gone broader than that. It’s a shame we need such monumental crises like VW to try to sort it out.”

So what must leaders do to put things right?

“Many problems can be attributed to performance-based cultures that have gone too far,” says Birkinshaw. “What happened to GSK in China looks like a case of this.”

So how can this be rectified without upsetting performance and the financial success of companies? “You can do a lot worse than implement a reward system similar to the one Amex uses. You will only achieve a bonus if: a) you perform well financially, b) you achieve good levels of satisfaction among your customers and c) you achieve high levels of engagement from those who work around and for you. This is a start. But the devil is always in the detail.”

For trust levels to rise it is frequently said that organisations and their leaders must endeavour to be more ‘transparent’. They must open themselves to stakeholders – shareholders, staff and the wider world. Show their inner workings and how they make decisions.

“This is true,” says Birkinshaw. “But again there are limits. These days when you communicate internally you have to start with the assumption that anything you say will find its way outside your organisation. Town Halls get tweeted. So, for example if you are Dave Lewis running Tesco you can be the most honest and authentic person, grappling with challenges but you simply cannot broadcast the whole truth the whole time. That would get you into terrible hot water. A degree of caution is vital. The legal issues surrounding leading a limited liability company often give you little room. You have a moral obligation to your employees. A valid criticism of Jeremy Corbyn would be that he is too honest and thoughtful to be a successful leader.”

So people, like leopards cannot change their spots? Is character fate? “Personality is definitely a shaper from a young age,” continues Birkinshaw. “You can adapt who you are when you become a business leader – there are definitely skills, including softer skills, that can be learned – but you cannot reform who you are. But, of course, there are fifty different leadership types.

So people, like leopards cannot change their spots? Is character fate? “Personality is definitely a shaper from a young age,” continues Birkinshaw. “You can adapt who you are when you become a business leader – there are definitely skills, including softer skills that can be learned – but you cannot reform who you are. But, of course, there are fifty different leadership types.

“Good leaders understand their own weaknesses and limit the downside. Good leaders surround themselves with foils or those who will complement their skills.

“You know what is a great litmus test? The way leaders are spoken of by those around them. If you engage your people – get them to go the extra mile – then you may well be succeeding.” As long as, one presumes, that “the extra mile” is not programming diesel engine software to evade emissions tests.

Another word that has been bandied about a lot in recent years in connection with leadership is ‘authenticity.’ This has become a sine qua non of the good leader – as Polonius says in Hamlet, “To thine own self be true”.

While understanding the merits of authenticity, Kathleen O’Connor sees the shortcomings of the purist approach. “Yes you have to be yourself at work if possible. Therefore it’s a good idea to find a place to work where you feel you fit in and can thrive. You certainly don’t want to be somewhere where you are fighting every day. However, we have several selves and they can all be authentic. We have multiple identities. But what you are at home is frequently not what you are at work as a leader and neither should it be.

“So little lies as a leader may, on occasion, be appropriate. If I have to leave work to pick up a sick child I might, for whatever reason, not wish to advertise the fact. By the same token, if you mouth off uncontrollably to your boss, you may get fired. Your kids, however, cannot fire you.” This is surely true and one of its interesting results may be that we behave better at work by being slightly more inauthentic as that involves higher standards of behaviour politeness. “At home we’re freer to be jerky,” as O’Connor puts it.

So what makes a good, effective leader?

“When I think what I want from a leader who might be my boss, I suppose, like others, I wish to believe in a just world where good things will happen to good people. At work people wish to be treated with fairness. I want a boss to be candid and gentle. And to teach me things,” says O’Connor.

On the subject of politeness and authenticity, there’s the extraordinary appeal of Donald Trump. Both as business leader and now would-be president of the US, Trump is the epitome of the straight-talking, authentic leader, the man who will not use weasel politician’s words, the guy who will not equivocate.

“Well, he’s his own man,” says O’Connor, “in the great US tradition of the cowboy. A guy who will not bend with the wind. However, real leaders have to negotiate. They have to make compromises. Perhaps renounce 100 per cent authenticity. That is what leadership means.”

Difficult decisions

The modern business world can seem a tough and unforgiving place for a leader to operate. #Leadershipfail is highlighted far more often than #leadershipwin. There are few easy wins, only hard-gained yards. Nowhere less so, perhaps, than at ailing Air France in Paris where in
October two senior managers were attacked by a mob of their staff during a meeting to discuss cutbacks at the airline, which lost €200m last year. The pair, the head of human resources and the COO at Orly, were so violently manhandled that their clothes were torn from their bodies and they only escaped by scrambling over a wire fence with their ragged threads dragging behind them.

Julian Birkinshaw watched these events with dismay: “Leaders working in crisis situations have to take tough decisions, and they often have to work crazy hours. This can put enormous strain on their health and personal lives – a few years ago Antonio Horta Osorio of Lloyds Bank had to take a few months off simply to get his health back on track. That violence in Paris... is a reminder of how emotional these types of business issues can become. And it makes the leader’s job even tougher. White-collar executive jobs shouldn’t need danger money.”

O’Connor agrees that enough is enough. “The job of senior executives is to make decisions. And leaders are accountable for these decisions – whether to their boards or to the market or, perhaps in the cases of FIFA and Volkswagen, to the courts. While the anger and frustration that Air France employees felt at the prospect of job loss is completely understandable, someone made a decision to assault senior executives. They, too, must be held to account for that terrible decision.” .

Authentic or inauthentic, transparent or murky, dull or Machiavellian, one thing is for sure – modern business leadership is not for wimps.