WHARTON LEADERSHIP DIGEST

March, 2000, Volume 4, Number 6

CONTENTS

Leadership Interview: John Ross, CEO of Deutsche Bank Americas Leadership Program: BUILDing Leaders at Armstrong World Industries Leadership Portrait: The Conservative Leadership Style of Switzerland's  
   Christoph Blocher 
Leadership Quote: Darin Gilson, President and Chief Operating Officer of
   Campus Pipeline

LEADERSHIP INTERVIEW: John Ross, Chief Executive of Deutsche Bank Americas

It is Absolutely Critical in a Merger to Quickly Establish Lines of Responsibility

Deutsche Bank is merging its way to growth. Headquartered in Frankfurt, its has 90,000 employees and nearly 7 million customers in more than 60 nations. On March 9 the bank announced a $30-billion merger agreement with Dresdner Bank; the two companies are scheduled to merge before the end of the year. This deal follows its acquisition last year of Bankers Trust for $10.1 billion. This makes Deutsche Bank one of the world's largest financial institutions.

What challenges do organizations face as they try to make such mega-mergers work? What is involved in managing organizations across cultural boundaries? Michael Useem, director of the Wharton School's Center for Leadership and Change Management, discussed these questions with John Ross, president and CEO of Deutsche Bank's American operations.

Useem: Before becoming president and chief executive officer of Deutsche Bank Americas in mid-1999 you served as CEO of Deutsche Bank Group Asia Pacific. What were the one or two biggest challenges in running a German bank in the Asian region?

Ross: The challenges in that part of the world had nothing to do with our being a German bank. At that time the challenge was that Asia was in a crisis. Secondly, we were trying to go from being an old-line commercial bank to a modern investment bank. As a result, not only were our clients wondering whether we were going to do what other banks were doing - which was to withdraw capital from the region - but we also had internal staff members wondering whether they would keep their jobs. This was, first, because of the Asian crisis; and second, because we were looking for a different business model. Eventually things worked out quite successfully for us, primarily because change is easier to implement in a crisis than when things are going spectacularly well.

We made a policy decision that we were going to grow in Asia rather than contract. Our clients, both government and corporate, responded very well to this decision. We were able to do things that in the normal course of events would have taken much longer. With Asians it typically takes a longer time to establish relationships than in the West, but in a crisis you can make things happen faster.

Our strategy of expanding in Asia and building an investment bank was very well received by our staff and by clients. The staff members came to realize that they did have the requisite job skills. We simplified the management structure and made our business objectives and organizational structure known clearly. I went to Asia at the start of March, 1998 and we were completely reorganized by June. We stuck to a clear, simple strategy and conveyed it to our clients, reinforced it with the staff, and this turned out to be a very effective approach. Being a German bank made no difference.

Useem: Since Deutsche Bank's acquisition of Bankers Trust in June 1999, you have been at the forefront of integrating two very different banking cultures. Could you describe the most important cultural differences between the two banks and what you have done to overcome them?

Ross: One of the great challenges we had in the merger was convincing people that the cultures were not all that different. Yes, it is true that Deutsche Bank is headquartered in Germany. It is also true that Deutsche Bank was for years seen as a commercial bank and Bankers Trust as a wholesale bank. And obviously, Bankers Trust is headquartered in New York City, so there must be cultural differences between the two. That was the simple assumption.

The fact, however, is that before the change of control, two of Deutsche Bank's five main divisions were run by non-Germans, and approximately 35% to 40% of the staff of Deutsche Bank were non-German. The investment bank - inside Deutsche Bank we call the investment bank Global Corporates and Institutions (GCI) - is one of the five main business divisions. That division, as it turned out, is predominantly run by Americans. The bulk of the staff inside GCI are either American or British. The bulk of the income that was made at Bankers Trust was made by their wholesale banking business lines, and so it was basically Americans talking to Americans. There was really very little culture clash.

Deutsche Bank also recognized that it is absolutely critical in a merger to quickly establish unambiguous lines of responsibility and make senior executive decisions as rapidly as possible. Such decisions should also be implemented as soon as possible. We did that with Bankers Trust, so that there was no confusion about who was running what, who was responsible for what, and what was the game-plan and strategy going forward.

We had a period of almost six months from the date of the merger agreement to the change of control date. Therefore, on the actual day when the change of control occurred, June 4, 1999, it wasn't a sudden change. It was the continuation of a strategy and chain of command that had had already been well communicated during the prior four months.

Useem: You referred to the importance of making prompt executive decisions. When you hire or promote a senior manager at the bank, what do you look for in the person's record and style to know if the individual will be effective in working, managing, and leading across cultural and national boundaries?

Ross: Ideally we look for market leadership in the particular product line the individual is working in. Secondly, we want to know if the person is a good communicator and is innovative. Deutsche Bank espouses five values: Client focus, performance, innovation, teamwork and trust. We look for all these values in our staff, whether they are in junior or senior management. We look to see whether prospective candidates fit those values. Where the candidates come from - i.e., their nationality - is irrelevant.

One fact that pleasantly surprised executives from Bankers Trust after the acquisition was that we are probably the most multi-national of any financial services firms in the world. When you look at the bank's executive committee, you will see that close to 40% of the members are non-German. I don't think any of our competitors can state that that large a percentage of their executive committee is made up of people whose citizenship is not that of the firm's country of incorporation. This is not particularly well understood by people globally before they consider joining Deutsche Bank, but it is a very strong argument for us when we do speak to them and demonstrate that it is the case. Newspapers have now started picking up on this as well.

Useem: The announcement on March 9 that Deutsche Bank and Dresdner bank will join to form one of the world's largest banks presents a new set of challenges for managing cultural differences. From your experience in overseeing Deutsche Bank's integration of Bankers Trust, what advice would you have for consolidating your merger with Dresdner?

Ross: We are doing the same thing that we did in the case of Bankers Trust, which is to early on make decisions about who is doing what, who is responsible for what, and make sure that those people are able to communicate with their own management teams. This ensures that on the change of control date there is no ambiguity or loss of momentum. Otherwise, you lose revenues; clients tend to take their business to the competition until you've sorted out your management problems; you get bad press; and staff are agitated and tend to focus on their own personal concerns.

One of the biggest problems in mergers arise out of lack of decision making early on. If there is lack of clarity with regard to reporting lines, responsibilities, strategy, and so on, a merger that looks great on paper can turn out to be problematic. Another mistake that I have seen some companies make is that they try to be 100% correct in every decision they make before change of control. You can be 85% or better correct - and often that is good enough. You may make mistakes, but if you are flexible you can correct them later.

Useem: Drawing on your service with Deutsche Bank's operations in both Asia and the Americas, what are the most important qualities required for leading the growth of global banking?

Ross: You have to believe in the premise that we live in a global environment. Therefore, working globally, you need to be flexible enough to understand and be considerate of other cultures because you are trying to do business with those cultures. If you work for an American firm, you may find that outside the U.S. American managers may not always be the best choice. What should clearly count is product knowledge and the five values I mentioned before. Managers should espouse those values and demonstrate them. If you are an American firm, leaving the impression in the market that only Americans can get ahead will limit you in terms of the talent pool you can draw from. This is also true of German firms. We have made it clear globally that you don't have to be German to get ahead inside Deutsche Bank.

Note: John Ross is a keynote speaker at the fourth annual Wharton Leadership Conference on May 18, 2000. The focus of the conference in Philadelphia is "Leading with Speed: Developing Leaders for Fast-Moving Organizations." Information on conference speakers and agenda can be found at:

http://leadership.wharton.upenn.edu/l_change/conferences/conf_051800.shtml

Online registration is available at:

http://www-management.wharton.upenn.edu/chr/registration.htm

This interview will also appear in a forthcoming issue of Knowledge@Wharton at <http://knowledge.wharton.upenn.edu/>

LEADERSHIP PROGRAM: BUILDing Leaders at Armstrong World Industries

Armstrong World Industries is a $3.4 billion manufacturer and marketer of interior furnishings with 18,000 employees worldwide. With learning and change as high priorities on the senior management "agenda," Armstrong has implemented an integrated performance management system and a comprehensive learning strategy.

One component of this learning strategy is a renewed focus on management development, with action learning as a focal point. Three programs address different stages of a manager's experience: First Time Manager (FTM); REACH (Risk, Engagement, Action and CHange), for middle managers; and BUILD (BUsiness Intelligence for Leadership and Development) for senior-level managers. They all invite leaders to work on issues impacting Armstrong growth as a way of learning by discovery.

All three programs involve participation over several phases, including an offsite event to establish teams and a period in which participants work in consulting teams on a real business issue. A critical success factor is the involvement of the CEO, George Lorch, and his management team. The top 50 managers in the organization are the source for the projects that serve as each program's centerpiece. They also act as sponsors for the cross-functional, cross-business unit teams, which present recommendations to senior management at the end of the program. The work of the teams has on occasion been the spark for major strategic initiatives, such as the launch and significant investment in an e-business strategy.

"We make certain, in individual conversations prior to the start of the program, that both the participants and their managers understand the nature and intent of the program and the action learning process," said Bob Sawicki, Manager, Learning Strategy. "Then we put them in a position of struggling with issues from a perspective that is outside their comfort zone. We see them consistently overcome their sense that they will be unable to understand the problem or add value. The confidence and networking that comes out of the program is significant."

Including world class guest speakers and trainers in the development program is key to broadening the participant's thinking. Speakers and topics are chosen for their relevance to the projects, resulting in programs that are dynamic, changing with the needs of the business as reflected in the projects. Speakers are asked to be provocative and to expand the universe of alternatives beyond what has been previously considered.

When Armstrong first started running the programs, some participants expressed concern about doing the action learning projects on top of their "real jobs," and whether the projects would be taken seriously by senior management. As a result, the company works actively to ensure a good combination of strategic importance and "doability."

Since project teams have had an impact on the business, the programs are taken very seriously. The constancy of visible top management support and the opportunity for participants to work closely with senior managers has also energized the program. Jo Tyler, Armstrong's Director of Organization and Management Development, concludes: "We have people leaving these programs telling their colleagues that they've just had one of the best development experiences of their careers. These testimonials not only tell us we're on the right track, but they provide a lot of motivation to keep refining and improving how we tie development to the business."

Note: For more information about Armstrong's management development programs, contact Bob Sawicki at <rjsawicki@armstrong.com>. Information on Armstrong World Industries can be found at <www.armstrong.com>.

LEADERSHIP PORTRAIT: The Conservative Leadership Style of Switzerland's Christoph Blocher

By Roger Koeppel, Editor-in-chief, Das Magazin of Tages Anzeiger, Zurich, Switzerland

The controversial self-made billionaire Christoph Blocher is one of Switzerland's most successful political leaders and entrepreneurs. His hardline section of the conservative and anti-European Swiss People's Party had had great influence in a country traditionally known for its well-tempered compromise, reaching an impressive peak at the last national elections due to Blocher's unrelenting efforts.

Blocker's multinational chemical company, Ems Chemie, has just had its most successful year ever since Blocher took over 17 years ago. He saved the firm with borrowed money and transformed it into a powerhouse.

The 60-year-old Blocher is one of Switzerland's prime movers and shakers. He is a provocative figure, demonized as a torchbearer of right wing extremism - which he is not - and smiled at because of his rather peculiar country-style appearance. Blocher, the son of a Protestant preacher, worked as a farmer before he studied law and made a career as a businessman. The New York Times compared him to such figures as France's racist and populist politician, Jean-Marie Le Pen. The Economist described him as an "ardent defender of the status quo."

Blocher's leadership philosophy is inspired by military history and practical experience. He doesn't believe in business schools and academic ideas of management, which he considers abstract and therefore irrelevant.

In speeches, discussions, and newspaper articles, Blocher argues that leadership comes down to total determination and a focus on employees. By determination, he means the willingness to submit oneself completely to the company and its goals. And "every leader," he says, "has to respect or even love the people he works with. Only then he can understand human nature in its practical consequences. Those who ignore the people they lead will fail."

A deeply rooted pragmatism characterizes Blocker's approach. He believes in the Protestant virtues of hard work, modesty and understatement. "Leaders," he says, "should be role models not because they buy fancy cars and cultivate extravagance, but because they work harder and sacrifice themselves for the sake of the company."

Blocker's success is a byproduct of his unwillingness to follow general management or business trends. He acts counter-cyclically, anchored by his conservative convictions whatever the circumstances. During the 1980s for example, when major Swiss companies were seduced by the perspective of diversification and size, Blocher preached the virtues of core competence and focus: "Always concentrate your forces, don't do too much, but do it right. You cannot win the war with your army spread out all over the battle field." Blocher, a fervent admirer of Churchill, is also fascinated by German field marshal Erwin Rommel's sense of risk, momentum and surprise. "Rommel," Blocher points out, "led his troops instinctively, and was admired by his men who knew that he would sacrifice his life for them."

Blocher has avoided strong hierarchies in his company. He believes in the power of individual initiative on all levels, and he personally helps instill it through management development seminars. "A good worker," Blocher says, "needs to have two features. First, he must be able to fulfill an assignment perfectly. Second and more important, he must be able to lead his superiors. He should not ask questions, but take on the initiative. If a task lies beyond his responsibilities, he must tell the person in charge what he thinks should be done." It is by such measures that Blocher seeks to prevent conformity. "A company dies when the workers and managers only do what they are told."

The idea of individual initiative, dedication and focus lie at the core of Blocher's down-to-earth leadership style. In one of his essays, he described the successful entrepreneur as a horse, a tough and stubborn animal that drags the cart against all odds and uncertainty, a lonely individual "willing to invest everything for the success of his mission - his money, his power, his creativity, his name and even his health."

Blocher lives the ethos he promotes. In 1983, when he bought the declining and highly indebted Ems Chemie as a rookie entrepreneur with almost no capital of his own, he had to pledge his house and his wife's inheritance. The banks even took away his life insurance. "At that time," he says, "it was either me or the company." Leadership, in Blocher's view, is a matter of life and death, and that is why he derives his principles from western military tradition. And "the longer I reflect on it," he says, "the more I am sure that true leadership is deeply irrational and cannot be taught or learned."

Note: Roger Koeppel can be reached at <roger.koeppel@tages-anzeiger.ch>.

LEADERSHIP QUOTE: Darin Gilson, President and Chief Operating Officer of Campus Pipeline

Question from Wharton MBA student John Joseph: What are the "ways that leadership in e-businesses differs from leadership in traditional bricks and mortar businesses?"

Answer from Darin Gilson, President and Chief Operating Officer of Campus Pipeline Inc.:

"The talent you attract is tremendous because it's such a great opportunity that represents an enormous economic revolution that's occurring, so I think you attract the sort of people that are pioneers, those with pioneering spirits, entrepreneurial spirit. You also attract very motivated, intelligent people. What that means from a leadership perspective is that you can't manage, you have to lead. Talented people can't be managed. They don't want to be told what to do. They don't want to feel like there's a whip to be cracked and they have a boss. They want to be led. They want to have examples shown to them and they want to be motivated and inspired, and they want to feel a spirit of teamwork and collegiality rather than a dictatorship."

You "really need to focus on leading, not managing, especially in this talent rich environment. If you can do that well and give people the creative challenges that they seek and desire, you can create a very intoxicating, fantastic culture because you have a lot of people that surround the company that have the same sort of value and ethics. It's exciting and fun to come to work. Nonetheless, it's a very significant challenge. I often think that it would be much easier to manage a factory floor where you're able to encourage people to punch time clocks and live by a code of conduct that you can mandate. Leading in a talent rich organization, that's an adaptation you have to make."

Note: The full interview with Darin Gilson can be viewed here. Information on Campus Pipeline is available at < http://www.campuspipeline.com/>.