WHARTON LEADERSHIP DIGEST 

March, 2001, Volume 5, Number 6

Contents 

Learning Leadership in Challenging Environments:  Wharton Leadership
    Ventures
Developing Leaders: Wharton Leadership Conference on June 7
Leadership Article:  When Leadership Matters Most
Governance Article:  When Investor Activism Influences Research and 
    Development
Leadership Journey:  A World of Crumbling Walls and Widening Webs
Leadership of E-Commerce:  Executive Succession at Yahoo!
Leadership Quote:  On Coca-Cola CEO Douglas N. Daft and His Directors 
 

Learning Leadership in challenging environments: 
Wharton Leadership Ventures 

The Wharton Center for Leadership and Change is building learning experiences beyond the classroom for continuing leadership development.  Designated Wharton Leadership Ventures, the new programs are designed to bring participants into settings where they can learn from the experience of others whose leadership was on the line, and also from their own experience in confronting challenges and solving problems.  The programs are intended to assist participants in improving their capacities to think strategically, communicate effectively, and act decisively. 

Ecuador Expedition:  This weeklong expedition offers a mountaineering experience in Ecuador in January and March.  It seeks to ascend Pinchincha, (15,700 ft.) and Cayambe (18,997 ft.) or Cotopaxi (19,304 ft.).  The expedition is designed to build the technical skills for safely climbing a high altitude peak, and the communication, leadership, and teamwork skills for working effectively within a group in a challenging setting.  The program is open to Wharton MBA students and graduates.

Mount Everest Trek:  This hiking program devotes sixteen days to a high-altitude trek to Mount Everest in May.  It draws on the successful and sometimes disastrous experiences of expeditions that have sought to summit Mt. Everest, and also the group’s own experience on the trail – reaching an altitude of more than 18,000 feet – to consider what is required for leading teams in demanding environments.  The program is open to Wharton MBA graduates, participants in Wharton Executive Education programs, and managers with company sponsors of the Leadership Center.

U.S. Marine Corps Program:  This hands-on decision-making program entails a two-day visit to the leadership development base of the U.S. Marine Corps at Quantico, Virginia in April.  Drawing on its Leadership Reaction Course, the program provides an intense learning experience that emphasizes team-based problem solving and effective strategic thinking.  The program is open to Wharton undergraduates students, MBA students, and executive MBA students.

Note:  Additional information on the Wharton Leadership Ventures can be found at <http://leadership.wharton.upenn.edu/l_change/trips/index.shtml>.


Developing Leaders:  Wharton Leadership Conference  

The fifth Annual Wharton Leadership Conference focusing on “Developing Leaders” will be held on June 7, 2001.  Speakers include Steve Kerr, vice president for leadership development at GE, Jim Collins, co-author of Built to Last, Dupont CEO Charles Holliday, and Xerox president Anne Mulcahy (photo). 

For information on conference speakers and the conference agenda, click here. 

To register online for the conference, click here.  


leadership Article:  What Kind of Leadership Matters Most When?   

Certain forms of leadership are likely to be more important when companies are facing unpredictable worlds than when the road ahead is clear, and an appropriate leadership style is thus contingent on the market you face.  

To identify what qualities of leadership do most count under variant conditions, a team of academic researchers asked two top managers of 48 large U.S. companies to assess the qualities of their chief executive and their operating environment during the early 1990s.  

The top managers assessed the extent to which their CEO displayed the qualities of “transactional” and “charismatic” leadership.  The first describes an executive who works within the existing system and rewards employee contributions to it; the latter describes an executive who visualizes an altered future and stimulates employee passion for it.  The top managers also evaluated the degree to which their firms faced markets that were dynamic, risky, and stressful.  

The researchers found that charismatic leadership by the CEO tended to have adverse impact on company financial performance when the market was predictable – but favorable impact when the environment was uncertain.  In other words, if your firm is facing a fast-changing world whose future is unsure, building a workforce passion for the future is critical.  

Source:  David A. Waldman, Gabriel G. Ramírez, Robert J. House, and Phanish Puranam, “Does Leadership Matter?  CEO Leadership Attributes and Profitability Under Conditions of Perceived Environmental Uncertainty,” Academy of Management Journal, February, 2001, pp. 134-143.


governance Article:  When Investor Activism Influences Research and Development 

By virtue of their large assets, institutional investors have acquired the potential to influence company decisions, and some institutions have learned to apply that influence through proxy challenge, public criticism, and direct negotiation.  

Another team of academic researchers evaluated the impact of investor activism on a critical management decision – company investment in research and development.  They forecast that companies facing activist holders would increase their R&D budget since owners tend to favor long-term investments while managers prefer short-term payoffs.  

Examining the impact of investor activism on R&D as a percentage of company sales among 73 large U.S. industrial companies from 1987 to 1993, the researchers find that: 

1) Companies targeted by investors increase their R&D spending over several years. 

2) The impact of investor activism is greatest on firms that face growth opportunities and in high-technology industries that have under-invested in R&D. 

3) Shareholder proposals and proxy contests foster greater R&D increases that other forms of investor pressure.  

These findings are a reminder that even chief executives have superiors, and leadership at the top requires not only an ability to mobilize those below but also a capacity to heed what those above see as essential for the long-term viability of the firm.  If you are not listening well to what your owners are saying, they are likely to send you a message through other means. 

Source:  Parthiban David, Michael A. Hitt, and Javier Dimeno, “The Influence of Activism by Institutional Investors on R&D,” Academy of Management Journal, February, 2001, pp. 144-157.

Leadership journey:  A World of Crumbling Walls and Widening Webs 

By Mark Gerzon 

San Gimignano, Italy.  Fall, 2000. 

As I stand here in front of the stone walls which surround this medieval town, I am stunned by their massive size. Even though the thick walls around the perimeter of this ancient Italian town, built before the Renaissance, are crumbling, their former power is still apparent. The gates allowing people and goods to enter this town were heavily fortified and under constant guard.  

The leaders of this town knew exactly where their domain began and ended. If they climbed the tower at the  corner of the piazza where the  cathedral still stands, they could see the neighboring towns on distant hillsides. Each of them were surrounded by thick, stone walls – and each of them had their own leaders. The leaders of San Gimignano knew their power depended on control of who and what entered – and left – through  these awesome granite gates.  If they could defend the world within these walls, they remained leaders. If they could not, their leadership was in jeopardy. 

As I turn away from the wall, I find a narrow cobblestone street called Via XX Settembre – or, in English, “September 20 Street.” The street is named after the day when the town was liberated from Mussolini’s rule. The street name commemorates a moment when not only the borders of this town but of this entire country were opened, irrevocably, to the world. Although it would take almost another half century for the Berlin Wall to fall, the defeat of fascism marked the beginning of the end of leadership based on walls. Although the nation called Italy, now a member of the European Union, still has borders, people, goods and information pass freely across them. 

As I stroll down Via XX Settembre, a bright red sign shaped like an arrow catches my eye. INTERNET ACCESS is scrawled across it, and it points into a small shop which I enter. Within minutes, despite the fortifications which kept out invading armies for centuries, I find myself communicating with colleagues around the world. 

“The walls today mean nothing,” says Beppe Barchi, the 25-year-old proprietor of this town’s first Internet Shop. (It is not an Internet Café, he explains, because the nearby trattoria considers this part of town to be their turf.) Surveying his three computers, all in use ($6/hour), Beppe is bursting with pride. “Business is so good,” he boasts, “I plan to add another computer every year!” 

After paying him, I head toward the door. As I  pass by the racks of postcards and picturesque calendars, with beautiful photographs of the historic walls and towers that make this town such a tourist attraction, I notice a bundle of phone lines plugged into the wall. They just connected me, and everyone else in this shop, to the world beyond the walls. They connected me to a portal which is virtually invisible, but which, in fact, is far wider than the ones which allow traffic through the huge stone walls.  They connected me to an ever-widening web which is gradually but inexorably rendering all walls throughout the world obsolete. 

Beppe Barchi is connecting this town to the world. He has opened a new gate, indeed a floodgate – of information, images and possibilities to which virtually anyone in this town has access. Unlike the gilded libraries funded by the Medicis in nearby Florence, to which only an intellectual elite were granted access, Beppe’s electronic library is open to anyone with a few lira – and it contains far, far more information than the Medici’s dusty, well-guarded volumes. The proprietor of this Internet Shop is not interested in running for the town council, much less mayor. But he is a leader nonetheless – a leader in a world of crumbling walls and widening webs. 

Today, in this town,  a leader’s power no longer depends primarily on what happens within these ancient – and irrelevant – walls. It depends on what happens in this region, and in the world. 

• The mayor, police chief, and other civic officials must deal with forces and factors from throughout the world. 

• The business owners, whether hoteliers or wine and olive oil producers, must deal with customers and clients from virtually the entire world. 

• The school principals, teachers and parents must prepare children to deal with the world. 

• And before long – through the wires, waves and webs penetrating the city’s fortified walls – every citizen will have access to information from throughout the world. 

In this world, a leader who acts as if his domain begins and ends at the wall will not be a leader at all, but an anachronism.  

Even if the leaders of San Gimignano, or of other communities throughout the world,  do not want to “think globally,” the world will impact their communities anyway. All of the great issues of our time – such as economic growth and recession, deforestation and soil erosion, immigration and epidemics, ozone depletion and pollution, toxic pollution and nuclear war – will affect local communities everywhere! Whether a city is surrounded by heavily fortified barriers, or a nation’s borders are defended by an army, will make little difference. In a world of walls, not webs, these global issues are local too. 

Just as railroads, automobiles and then airplanes helped humanity master distance, e-commerce is virtually eliminating it. Although management guru Peter Drucker is resorting to hyperbole when he says that “there is only one economy and only one market,” his point is nevertheless true. Despite the tourist photographs of San Gimignano, the walls around the city are not just crumbling. They are gone.

Note:  Mark Gerzon is a leadership trainer and organizational consultant who specializes in dialogue between divergent, conflicting, and polarizing groups. The above is an excerpt from his forthcoming book, Look In! Look Out!: Leadership as a Spiritual Path.  He can be reached at <MarkGerzon@aol.com>.


Leadership of E-Commerce:  Executive Succession at Yahoo! 

By John Joseph, Wharton MBA Student, WG’01  

Yahoo! needs a CEO.  And fast.  With Tim Koogle stepping down as the chief executive, a big void has been created in the leadership ranks of the Internet pureplays.  As one of the new economy’s bellwethers, it’s a high profile slot with big shoes to fill. 

Koogle, 49, joined Yahoo! in 1995 as president and CEO and was named chairman in 1999.  Under his direction, Yahoo! has become a profitable, global Web network.  Yahoo! is one of the few truly successful B2C ventures with 185 million users, real profits, and $1.7 billion in cash.  But problems are ahead. 

Koogle’s resignation on March 7 occurred a day after the company warned investors that first quarter sales would be significantly short of projections.  About 40 percent of Yahoo!’s advertising revenues come from the ailing dot-coms, and even bricks-and-mortar companies have scaled back their spending.  In a bad economy, advertising is the first to go, and the new CEO is going to have to consider alternate strategies for bolstering revenue. 

According to the Wall Street Journal, analysts said the unexpectedly steep drop-off in sales has undermined Yahoo!’s credibility – a second problem that the incoming CEO will have to face.    

Leadership expert John Kotter says that credibility demands: 1) a strong track record and a good reputation; 2) solid, cooperative working relationships with relevant industry players; and 3) the interpersonal capacity and integrity needed to develop trustworthy relationships with a broad set of people quickly and easily.   

Media companies may be one place for Yahoo! to find its next CEO with the experience and credibility required.  Yahoo!, which invented the Internet portal, is by most definitions a media company though it generates almost no content of its own, and a seasoned media executive would bring the kind of reputation and contact that Yahoo! will need.  Compensation may present a challenge, however.  Gannett Co., an international news and information company, pays its CEO $2.7 million annually plus stock options.  Koogle, by contrast, received just under $300,000 in cash, though his stock options had been worth far more.  With the value of Yahoo! stock cratering like much of the high-tech sector, Yahoo may be forced to compensate more in cash, less in stock.  

Internet companies have recently been looking to the bricks-and-mortar world for executives with management experience and industry expertise.  Walmart.com, for example, brought on board Jeanne Jackson, whose experience included stints at the Gap and Saks Fifth Avenue.  Bizrate.com recruited a former Disney executive when it filled its top slot. 

Spencer Stuart, a leading executive recruiting firm, has been retained to help find its new chief executive – the person destined to take the post-boom Yahoo! into the next phase of the Internet Age.

Note:  John Joseph can be contacted at <John.Joseph.wg01@wharton.upenn.edu>. 


Leadership Quote:  On Coca-Cola CEO Douglas N. Daft and His Directors  

Commenting on Coke CEO Douglas N. Daft, Business Week wrote:  “Whereas M. Douglas Ivester, his predecessor paid little heed to the board – resisting their entreaties to name a president or cut Coke’s bloated bureaucracy – Daft has been more willing to delegate, tackle dirty tasks like the restructuring, and consult regularly with directors such as [investment banker Herbert A.] Allen and Warren Buffett.” 

Source: Dean Foust, “Repairing the Coke Machine,” Business Week, March 19, 2001, p. 86-88.

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