March, 2007, Volume 11, Number 6

CONTENTS 

Leaders’ Profiles:  Upcoming 11th Annual Wharton Leadership Conference

Leading with Counterintuitive Ideas:  Inside the Advertising Industry with Greg Stielstra

Take the Lead…or Don’t Bother:  Leadership Lessons in February’s Headlines

Why Bosses Go Bad:  Handling Dishonest Leadership

Learning Program:  Leadership and Management in Southeast Asia

LEADERS’ PROFILES: Upcoming 11th Annual Wharton Leadership Conference 

Leading up to the June 7 conference, the Wharton Leadership Digest features selected profiles of confirmed speakers.  

Kirbyjon Caldwell is not your average pastor. Yes, he is a bona fide spiritual leader. When Caldwell began his leadership at Windsor Village United Methodist Church in Houston, Texas, the church had 25 members; today it has over 14,000. This month Beliefnet.com, a leading religion website, named Caldwell – who offered the prayer at the 2001 presidential inauguration – one of the country’s ten most influential Black Spiritual Leaders.  

But Caldwell is about more than filling pews. With a finance degree from the Wharton School, Caldwell serves on the board of Continental Airlines and a number of other Texas-based corporations and is part-owner of the Houston Texans, the NFL franchise. But Caldwell is perhaps best known for his innovative ability to leverage religious resources for economic development. As founder of the Pyramid Community Development Corporation, Caldwell developed the massive Power Center complex, which contains retail, educational and financial services for the underserved population of Southwest Houston. Today the same corporation is developing a $180 million planned community, which contains more than 450 affordable housing units. 

In his most recent book, Entrepreneurial Faith: Launching Bold Initiatives to Expand God’s Kingdom, Caldwell and a fellow pastor argue that religious leaders, like business leaders, must master the art of sensing opportunities and taking risks.  

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A glance at Dana Gioia’s resume might suggest the life of a reclusive artist. Gioia (pronounced JOY-uh) has published three full-length collections of his own poetry. He enjoys translating poetry from Latin, Italian, German and – yes – Romanian. But Gioia is anything but a hermit. His love of poetry and culture has driven him to share that passion with others. A commentator on literature and culture for BBC Radio, an author of literary anthologies and a frequent contributor to leading American magazines, Gioia helped revive the study of poetry in the U.S. with his 1991 book, Can Poetry Matter? Six years ago he founded a conference to improve the teaching of poetry in high school. Haven’t read a poem since high school yourself? Start here with Gioia’s website.

In Gioia’s case, artistic and academic skill are twinned with a more unlikely ability: leadership. Since 2003, Gioia has chaired the National Endowment for the Arts, the nation’s largest annual funder of the arts. During his tenure, the 42-year-old agency, which last year had a budget of $125.6 million, has taken on some ambitious projects. In 2004, for example, the NAE sent 44 distinguished American writers like Tom Clancy and Jeff Shaara to military bases overseas, where they helped U.S. soldiers, sailors, airmen and Marines record their wartime experience; the result was the 2006 book, Operation Homecoming.  That same year, an NAE-sponsored research report, “Reading at Risk,” sounded an alarm about the decline of literary reading in America. To read Gioia’s full bio at the NAE website: http://www.nea.gov/chairman/gioia-bio.html

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Kirbyjon Caldwell and Dana Gioia will be speaking at the June 7 Wharton Leadership Conference. Register here for the conference: 


LEADING WITH COUNTERINTUITIVE IDEAS: Inside the Advertising Industry with Greg Stielstra 

By Andrea Useem 

Greg Stielstra was part of the team marketing Rick Warren’s The Purpose Driven Life, the best-selling book world-wide for three years. In his own recent book, PyroMarketing: The Four-Step Strategy to Ignite Customer Evangelists and Keep Them for Life, Stielstra uses this phenomenon to demonstrate how the old-media model of mass marketing no longer works. Advertising success, he argues, depends on getting your product into the hands of those who will appreciate it most – even if that means giving it away.  

Wharton Leadership Digest spoke with him by phone last month about changing the way people think in the advertising industry. 

Wharton Leadership Digest:  Why did you decide to make your entire book, PyroMarketing, available for free audio download?  

Greg Stielstra:  It ultimately increases sales. I routinely get emails from people who say, “I downloaded your audio book and was on chapter three when I went to the store to buy a copy for myself and another for a friend.” 

People wrongly assume that consumers have only purchase potential. Every consumer also has promotional potential. Sometimes it is worth exchanging their purchase potential to gain their promotional potential.  

When we surveyed people who had read The Purpose Driven Life, we discovered that 46 percent had purchased additional copies to give away. Sometimes a tiny but enthusiastic percentage of existing customers will buy a disproportionately large quantity, or at least influence their sale.  

WLD:  Can this strategy work with other products?  

Stielstra: Yes, and here’s why. Decades ago purchase decisions were much easier to make because there were few choices. But the number of brands on store shelves has tripled since 1993. We have limited mental capacity, while the amount of information we’re being asked to process is increasing every day. To cope, we stop wasting our brain power on products that only generally interest us and concentrate instead on those that match our passions and interests. We specialize.  

As a result, we divide products into two categories: those we can choose independently and those we can’t. If we’re interested in something, we understand our options and choose by ourselves: we are initiators. But when we’re only generally interested, then we don’t understand our options well enough to choose. We stop trying to solve the problem ourselves and copy our neighbor instead. We become imitators.  

Any given product will only be generally interesting to the wider population. You want to help those people who are specifically interested to choose your product and make their choice visible, so the imitators can follow their lead. This can be incredibly simple to do. 

WLD: Can you give us an example? 

Stielstra: My favorite is iPod earphones. If I showed you a picture of someone wearing black earbuds with a black cord and asked, “Which MP3 player are they listening to?” you’d have no idea. But if the cord and earbuds are white, you would know instantly. By changing the color of the earbuds, Apple made people’s choice for an iPod visible to everyone around them and thus easier to imitate.  

It is wrong to say, “Giving your product away is the most effective way to promote it, period.” You have to give your product away to those people who are most passionate about it. This is counterintuitive because historically marketers have said, “We’ll introduce our product at full price, knowing the most passionate will buy it and lower the price later to attract the generally interested.”  That actually prevents you from achieving the critical mass you need early on to tip the trend.  

The Purpose Driven Life had already sold 18 million copies before it had any national advertising. When the book was initially released, 400,000 copies priced at $7 went to church-goers – the people most likely to enjoy it – through the “40 Days of Purpose” campaign. That created an army of enthusiastic customer evangelists who dramatically influenced later sales. For every copy we sold to people in churches at $7, we sold five more through retail at $20.00. 

WLD: Was there a single moment during the Purpose Driven Life campaign that you realized the ground beneath the advertising world had shifted, or was it a more gradual process?  

Stielstra:  It was a slow process, in which The Purpose Driven Life was a major proof point. During the 1990s, I saw advertising grow less and less effective. Research confirmed that word of mouth is the most effective form of book promotion, far outstripping the power of author readings, PR, the book cover and endorsements to increase sales. I began to ask, “How does word of mouth happen?” People who become customer evangelists are the ones whose needs have been met most deeply through the product. As a marketer, your job is not to reach as many people as you can, but to reach the ones who will appreciate your product the most.  

Here’s another surprising discovery: mass marketing can actually inhibit word of mouth.  I tell you about some new gizmo because I think you don’t know about it. But if I’ve seen it advertised everywhere, then it relieves me of my obligation to tell you. This explains the sophomore slump so many authors and musicians experience. Norah Jones’ first record sold 20 million copies in a world that had almost no Norah Jones awareness. Her second record, which had a huge advertising and marketing campaign, sold half as many.  

WLD:  As you talk, I hear echoes of Malcolm Gladwell’s book Tipping Point and Barry Schwartz’s The Paradox of Choice. What else has influenced your thinking?  

Stielstra:  I would add Duncan Watts and his 2003 book Six Degrees to that list. His work on network theory has been really important. I also stopped listening to what advertising salespeople were telling me and started observing people. I don’t think there’s enough psychology or sociology in university-level marketing programs. If you don’t understand how people behave individually and in groups, you cannot hope to influence their behavior through marketing.  

WLD:  The internet is changing so much of the advertising landscape. In your view is the industry keeping up or lagging behind? 

Stielstra:  The industry, like others, suffers from strategic inertia. We’ve built an entire infrastructure around the way we used to do things, and we’re reluctant to abandon that investment.  People ask me, “Why do you see underdogs trying PyroMarketing, but you don’t see larger businesses embracing it?” The answer is larger businesses have designed a structure around mass marketing. It’s a truism that “it is better to fail conventionally than succeed unconventionally.” Some marketers are content doing what they do because even if it doesn’t work, they can go in to their boss, and say, “I did everything I was supposed to do. It’s not my fault.” 

WLD: What keeps people from embracing these new ideas? 

Stielstra:  The idea of disproportionate outcomes is hard for us to grasp. The idea that a book could start with 1,200 pastors and finish with 26 million copies sold doesn’t add up for most people. The idea that you have to advertise to 100 million people in order to sell 2 million books makes more sense, and people are reluctant to give that idea up. Some things are so counterintuitive that we’re afraid to try them. I suggest to marketers that they keep doing what they’re doing, but allocate some resources toward the new approach. Once marketers experience it for themselves, then their eyes are opened, and they’re much more willing to believe it could happen.
 

TAKE THE LEAD…OR DON’T BOTHER: Leadership Lessons in February’s Headlines 

By John Baldoni 

Meltdown. That was a word to describe JetBlue Airways’ operations in mid‑February, when a winter storm resulted in the cancellation of half the airline’s flights and the stranding of a JetBlue airliner on the JFK tarmac for eight hours. Founder and CEO, Jeff Neeleman, told the New York Times’ Jeff Bailey he was “humiliated and mortified” at his airline’s seeming inability to serve its customers.  

Later in February, a meltdown of another sort occurred in a Florida courtroom. Judge Larry Seidlin, presiding over the case determining custody of former star Anna Nicole Smith’s body, opined, joked, and even wept his way through the proceedings, demonstrating the tyranny a judge has over a captive courtroom – and television – audience. (Watch Seidlin’s courtroom performance.)

As soon as JetBlue was operating close to normally, Neeleman took the public stage and apologized for his airline’s shortcomings. He took personal responsibility for what had occurred and offered compensation for passengers who had been inconvenienced. JetBlue formulated a passenger’s bill of rights to guarantee compensation for such future occurrences. (Watch Neeleman’s YouTube apology to customers.)  

Seidlin, too, was all over the airwaves, but he used his time in the spotlight to ratchet up the already maudlin drama of the Smith case. Regaling his courtroom with stories of his life and assuring them of his commitment to fairness, Seidlin made himself the focus of the trial. He stretched the proceedings out unnecessarily and, in the end, delivered a verdict that satisfied no one. 

One man seized the moment and turned a fiasco into an example of personal responsibility. The other man choked on the moment and turned a legal proceeding into what many called a circus. Neeleman demonstrated leadership; Seidlin faked it. What can we learn from these two seemingly disparate stories? Three lessons. 

Leadership demands accountability. Neeleman accepted responsibility for the failures of his airline. Seidlin faked responsibility, involving himself personally in a case over which he was meant to preside impartially. Demonstrating accountability when things go bad takes guts; it is not pleasant to stand up and accept the blame, as Neeleman did. In Seidlin’s case, accountability was thrust upon him: he abused that public trust by using the moment to bask in the limelight. 

Leadership calls for action. Neeleman and his team worked to get the planes back into the air. When the crisis eased, he used the media to get his message out: he challenged JetBlue and, by the extension, other airlines to deliver better service to their customers. Seidlin, in spite of all his claims of concern for Smith and her child, delivered an unsatisfactory verdict that simply prolongs an unpleasant chapter of celebrity history.  

Leadership requires humility. Neeleman sought forgiveness; Seidlin sought fame. Neeleman accepted the consequences and came up with a plan for moving forward. Seidlin demonstrated showmanship and ended up making a fool of himself. Those who reflect glory on themselves may seem grand for a moment, but as the ancient Romans warned us, fame is fleeting. Humility, however, endures.  

What are the outcomes for both men? A week later after the initial crisis, JetBlue cancelled more than sixty flights when another storm hit. This time only one plane was stranded on the tarmac, and its passengers were compensated. Neeleman seems to be making good on his promises to customers.  

No such positive feelings arise for Judge Seidlin. He diminished the legal system that he swore to uphold. The only good outcome seems to be that his proposal for a TV show starring himself is doomed.  

Leaders are entrusted with power over others. Some wield that power with a judicious nature that seeks to right wrongs. Others use such power to generate attention for themselves. Ironically the judicious one in these situations was a CEO; the intemperate one was a judge who should know better.

Author’s Note:  John Baldoni is a leadership and communications consultant, whose most recent book is How Great Leaders Get Great Results (McGraw-Hill 2006). He can be reached at john@johnbaldoni.com. 

WHY BOSSES GO BAD: Handling Dishonest Leadership 

By Mark Hanna 

You might call them virtuosos of dishonesty.  A CPA from a top-rated accounting firm knowingly signs off on deceptive accounting statements to retain a lucrative Fortune 100 account. A CFO boasts to Wall Street analysts that his company is doing exceedingly well, even though it is hemorrhaging cash through a complex maze of offshore, off-balance-sheet partnerships, and the CFO has begun to dump his company shares. A CEO vows to the firm’s General Counsel that she always maintains the highest standards of integrity, yet internal e-mails show she fraudulently backdated stock options and did not make appropriate accounting and tax adjustments. These leaders are adept at appearing sincere and convincing even while executing alarming deceptions.   

MIT’s Research on Dishonesty 

In the Spring 2006 issue of the Journal of Public Policy and Marketing, MIT researchers Nina Mazar and Dan Ariely analyzed dishonesty as a human phenomenon. What do their findings tell us about leadership? 

In the first part of the article, “Dishonesty in Everyday life and its Policy Implications,” Mazar and Ariely distinguish between economic and psychological theories of dishonesty. In the standard economic explanation, the degree of dishonesty increases as the change in external rewards (i.e. net benefits) increases. There is no reference to internal rewards. One could graph this situation with “Degree of Dishonesty” on the Y-axis, “Change in External Reward” on the X-axis, and a simple 45 degree line going upwards and to the right.  

In contrast to the economic model, the psychological model asserts that internal reward mechanisms come into play. People feel good about complying with internalized social norms, which one might compare to Freud’s concept of the superego. At some point, activation of these internal rewards lessens sensitivity to external incentives. In terms of the previous graph, one could imagine a line that goes up and then plateaus when the internal reward mechanism kicks in. Then, if the continually increasing amount of external net benefits overwhelms the internalized norms (the “every person has his price” phenomenon), the line starts to go up again.

Mazar and Ariely’s review of the literature suggests there are four general drivers of dishonesty: 

• Lower external costs and relatively higher benefits of deception;

• Lack of social norms, which result in a weak internal reward mechanism;

• Lack of self-awareness, which primes the activation of the internal reward mechanism;

• Self-deception.

With these four drivers in mind, Mazar and Ariely suggest ways of curbing dishonesty.

When Dishonest Behavior is Caused by External Rewards

When external rewards lead to dishonesty, the solution is obvious. The scholars write: “The costs for dishonest actions must be greater than their expected benefits. This can be achieved by increasing either the probability of being caught or the severity of the punishment.”

This insight can be applied to the current stock option timing scandals. The constant barrage of news in the business media on option backdating and spring-loading has heightened everyone’s awareness of the problem and thus has improved the chances that offenders will be caught. 

Two rulings by Chancellor William Chandler III of the Delaware Court of Chancery in February of 2007 make clear that U.S. corporations will not escape liability if they have improperly and deceptively backdated or spring-loaded stock options.  The rulings, which involve Maxim Integrated Products of Sunnyvale, California, and Tyson Foods of Springdale, Arkansas, lead governance experts to predict the legal consequences of deceptive stock option treatment are about to get more serious.

When Dishonest Behavior is Caused by the Internal Reward Mechanism

Two drivers fall under this category, one involving lack of internalized social norms and the other involving a lack of self-awareness. In the case of norms, Mazar and Ariely recommend that firms invest in education and socialization to increase the strength of internal reward mechanisms.  In the case of boards of directors, such efforts might take the form of an annual governance training and certification program in which directors study “bright line” cases that clearly illustrate proper and improper governance behavior. Participants could also be encouraged to bring up their own examples of more ambiguous, real-life circumstances.

In situations involving a lack of self-awareness, Mazar and Ariely recommend that contextual clues be given to increase awareness that deception is about to happen.  This could take the simple form of having the leadership sign an honor code or positive affirmation of principles.

When Dishonest Behavior is Caused by Self-Deception

Self-deception due to a self-serving bias is more difficult to unravel, but Mazar and Ariely suggest eliminating incentives that give rise to the deception. For example, directors could eliminate the problem of improper stock option dating for non-executive board members by switching to a straight fee arrangement, possibly with shares, but with no granted stock options. IBM’s board recently announced it will adopt this arrangement, following disclosures in December of 2006 that more than a few directors had been caught in stock option timing problems. This “no options over shares” approach falls in line with recommendations made by the U.K.’s 2003 Higgs Report on corporate governance.

In the case of the accounting professionals who offer deceptive statements due to self-serving biases, Mazar and Ariely suggest it might be best to “pass laws or enforce standards among the accounting profession that bar auditors from offering both consulting and tax services to clients, prohibit hiring accountants through clients, and allow only limited-time contracts.” 

And What About the Employee? 

There may be times when an employee is aware of pervasive deception, when a leader’s every word and action seems like something out of Alice in Wonderland. Think here of Sharon Watkins, the former Enron vice president and whistleblower, when she warned Chairman Kenneth Lay that the company would soon “implode in a wave of accounting scandal.” In these situations, one must be like Sharon and head in the direction of truth. Some advice? Make a conscious decision to trust reason. Question all premises. Follow logic and evidence. Most of all, have the courage and independence of judgment to follow one’s own path.  As the American poet Robinson Jeffers once wrote, “The cold passion for truth hunts in no pack.” 

Author’s note:  Mark Hanna is a freelance business writer based in Cedar Rapids, Iowa. He can be reached at markhanna@mchsi.com.  The article:  Nina Mazar and Dan Ariely, “Dishonesty in Everyday Life and Its Policy Implications,” Journal of Public Policy & Marketing, volume 25(1), Spring 2006, pp. 117-126. 

Learning Program:  Leadership and Management in Southeast Asia 

A three-week Senior Executive Program is offered from August 12 to September 1, 2007, by the Sasin Graduate Institute of Business Administration of Thailand's Chulalongkorn University in collaboration with the Wharton School and Kellogg School.  The program is intended for senior managers moving into cross-functional or general management responsibilities with strong potential for top leadership. 

The program is offered in English at a resort hotel southwest of Bangkok, and it draws participants from the Asian region, including Australia, Indonesia, Malaysia, Myanmar, New Zealand, Singapore, Thailand, and Vietnam.  Wharton and Kellogg faculty provide instruction in economics, finance, leadership, marketing, organizational behavior, information technology & innovation, and strategic management.   

For information on the Senior Executive Program, contact Sasin's Manager of Executive Education, Patcharaphorn Phantarathorn at patcharaphorn.phantarathorn@sasin.edu, or see the program website with online registration.