WHARTON LEADERSHIP DIGEST 

April, 2002, Volume 6, Number 7

CONTENTS 

Leading in All Directions:  Wharton’s Annual Leadership Conference on June 5
Pharmaceutical Companies:  The Leadership Ahead
Good Governance:  How Much It Matters
Leading in Turbulent Times:  Using the Apollo 13 Case at Motorola
Leadership Quote:  Learning Leadership from the Arts


Leading in All Directions:  Wharton’s Annual Leadership Conference on June 5 

Wharton’s sixth annual leadership conference will be held on June 5, 2002, and it will focus on “Leading in All Directions.” 

Leadership can be viewed as a four-pronged capacity – downward, outward, upward, and inward – but building that capacity is a challenge, and the conference is devoted to exchanging ideas on how best to develop leadership for all directions. 

The program includes Warren Bennis, author of On Becoming a Leader, Organizing Genius, and other books on leadership; Marcus Buckingham, co-author of First, Break All the Rules and Now, Discover Your Strengths; Deborah M. Fretz, CEO of Sunoco Logistics Partners; Rodrigo Jordan and Chris Warner, mountaineers who have summitted Mt. Everest; Douglas K. Smith, co-author of The Wisdom of Teams; Scott Snook, director of West Point’s Center for Leadership and Organizations Research; Sally W. Stetson, President of the Forum of Executive Women; Arthur Sulzberger, Jr., publisher of the New York Times and chairman of The New York Times Company, and Nancy Straus Sundheim, Senior Vice President for Unisys Corporation.  

Online registration is available by clicking here, and updated information on the conference can be found here.  

A drawing will be held at the conference for multiple copies of the latest books by its speakers, including:

Warren Bennis, The Future of Leadership: Today's Top Leadership Thinkers Speak to Tomorrow's Leaders (2001)

Marcus Buckingham, Now, Discover Your Strengths (2001)

Rodrigo Jordan, K2: The Ultimate Challenge (1998)

Douglas Smith, Make Success Measurable (1999)

Scott Snook, Friendly Fire: The Accidental Shootdown of U.S. Black Hawks over Northern Iraq (2000).

 

A grand prize drawing will held at the conclusion of the conference for free attendance at a multi-day learning program offered by Wharton Executive Education.  Program options include The Leadership Journey, The CFO: Becoming a Strategic Partner, Critical Thinking: Real-World, Real-Time Decisions, Global Corporate Finance,  Leading Organizational Change, and Wharton Leadership Ventures.   Wharton Executive Education programs can be viewed by clicking here.    

Pharmaceutical companies:  The Leadership Ahead 

By John Joseph, Wharton Center for Leadership and Change 

With support from Heidrick & Struggles International, the Wharton Center for Leadership and Change recently evaluated the emergent leadership requirements in the pharmaceutical industry and how major firms can best develop that talent.  We conducted interviews with senior and mid-level managers at ten pharmaceutical firms and with a range of industry consultants and analysts.  

Major drug makers, say those interviewed, are confronting new ways of doing business that are requiring the fresh skills sets.  First, pharmaceutical companies are no longer housing all of their scientists, technology, and patents entirely within the firm, relying more often upon outside sources.  Second, they are finding that patients are exercising stronger voice in the choice of prescriptions and that physicians are less predictably targeted.  Third, with a shortening of patent duration and less product control, they are facing greater competition from biotech firms and generic manufacturers.  And finally, pharmaceuticals are experiencing enhanced government influence on how they access markets and generate returns.    

In the past, company leadership required an understanding of product innovation and selling methods.  Now a greater premium is placed on managing relationships with other firms, appreciating patient empowerment, staying ahead of competitors, working with regulators, and recognizing new technologies.  

For overseeing outsourcing contracts and joint ventures, many of our study’s participants said that managers require a capacity to distinguish the aspects of the value chain that should remain in-house from those that can best be contractually obtained.  Investments in such partnerships may run a billion dollars or more, and effective leadership of them is thus increasingly critical for rising managers. 

Those interviewed also deemed the preemptive building of good contact with cutting-edge outsiders to be essential.  “The biggest thing that keeps the head of R&D awake a night,” offered one executive, “is to think that there is a person who has just come up with a cure for cancer, and we don’t have a relationship with that person.”  

The ascendance of international markets and cross-border mergers is also adding a need for pharmaceutical managers to bring a more global perspective.  “It is no longer enough to be an American who has been to Europe a few times,” said one consultant, “nor is possible to run a European organization with limited U.S. exposure.”  Managers require a capacity to coordinate worldwide teams that may, for instance, consist of a research scientist in a domestic laboratory, a marketing director at company headquarters, and a senior product manager in a foreign operation.  

The rise of customer relationship management, the increasing complexity of drug discovery, and a restructuring around profit-and-loss centers are also pushing managers toward greater mastery of the full repertoire of the traditional functional skills, ranging from marketing and technology to operations and finance.  

Political skills are increasingly vital as well.  With intensifying public criticism of drug makers, managers are more often called upon to communicate not only the company’s vision but also the industry’s agenda.  Offered one executive:  “The era of the quiet bureaucrat running a pharmaceutical company is over.” 

For developing such skills, many of the study’s participants pointed to the essential role of mentoring.  Today’s senior managers, they urged, must take an active role in building the distinctive leadership skills required by the next generation.   

Note:  This is the first in a two part series by John Joseph, who can be reached at John.Joseph.wg01@wharton.upenn.edu.


GOOD GOVERNANCE:  How Much It Matters 

We know that weak oversight by Enron's board of directors hastened the firm's descent into bankruptcy, and flawed governance may have also been a contributing factor in Global Crossing's collapse.  But aside from averting catastrophic failure, do good governance practices really help yield better firm performance than bad governance policies? 

With an eye on this question, Harvard professor Paul A. Gompers, Harvard doctoral student Joy L. Ishii, and Wharton professor Andrew Metrick, examined the governance and performance of more than 1,300 publicly-traded U.S. companies during the 1990s.  They defined good governance to be the absence of 24 practices that help entrench managers and disenfranchise investors, ranging from staggered boards and secret ballots to poison pills and golden parachutes. 

Both at the start of the decade (1990) and near its end (1998), the companies averaged 9 such protective devices, but a number of firms sharply diverged from the average.  In 1990, for instance, 158 companies maintained 5 or fewer provisions, while 85 included 14 or more, and they changed little during the decade. 

The researchers designated the companies with 5 or fewer management protections their "democracy portfolio," and those with 14 or more such devices their "dictatorship portfolio."  Among the better known firms in the first group were Berkshire Hathaway, Hewlett Packard, and Wal-Mart, and in the second K Mart, The Limited, and Waste Management. 

The investigators found that an investor who placed $1 in the management dictatorship portfolio in 1990 would have seen the holding grow to $3.39 by December 31, 1999.  The investor who put $1 in the shareholder democracy portfolio would have by contrast seen the holding reach $7.07.  These gains are the equivalent of annualized returns of 14.0 percent and 23.3 percent respectively, a 9-point difference per year over a full decade. 

The investigators are cautious about attributing causal credit to the good governance practices.  They note, for instance, that underlying factors such as distinctive management cultures may be responsible for both the good governance and good performance.  The observed correlation between them could therefore be largely coincidental. 

Still, the adoption of good governance policies at a minimum may be seen by investors as a convenient proxy for management practices that are likely to generate superior results in the future.  For managers, the adoption of good governance may be seen as way of sending a favorable signal to the investment community about future performance. 

Beyond this minimalist interpretation, the investigators have offered an analysis from which a plausible case can be made for presuming that where there is smoke, there is also fire.  Good governance may really help make companies run better. 

Note:  Paul Gompers can be reached at pgompers@hbs.edu, Joy Ishii at jishii@fas.harvard.edu, and Andrew Metrick at metrick@wharton.upenn.edu.  An earlier version of this paper was summarized in the July, 2001, issue of the Wharton Leadership Digest.  A copy of the current version is posted here, and it will be published in the Quarterly Journal of Economics (February, 2003). 


Leading in Turbulent Times:  Using the Apollo 13 Case at Motorola  

By Marguerite Foxon, Principal Performance Technologist, Motorola, Inc. 

Motorola launched an intensive leadership development program for high potential senior managers in 2001 – The Business Development Institute – and a key component is a module entitled “Leadership in Turbulent Times.” 

The module is shaped around a case account of Apollo 13 (provided in The Leadership Moment by Michael Useem).  As the instructional designer for the institute, I chose this case because it focuses on the leadership characteristics needed in an unpredictable and dynamic environment.  Since senior Motorola managers are facing economic turbulence and unpredictable markets, I believed that they could relate well to and learn from the challenges that faced Apollo 13 flight director Eugene Kranz and his team after an explosion disabled the spacecraft during its mission to moon in April, 1970. 

The Business Development Institute blends self-directed and e-learning with intensive classroom experience.  Prior to coming together as a group, participants in the leadership module read the Apollo 13 account up to the point where Eugene Kranz and his team realize they have a never-before-faced emergency.  A set of questions is provided to the managers in advance to help them see and appreciate the parallels between what Kranz’s team faced in 1970 and the challenges confronting Motorola today.  The questions include: 

o  Reflect upon the current Motorola and business environment.  What connections can you make between the case scenario and our situation?  

o  What specific challenges facing you as a leader parallel those facing Kranz? 

o  If you could have one of Kranz’s leadership qualities to enhance your own leadership style, which would it be and why? 

o  In what way or what situations that you face, would this quality make a difference to your leadership outcomes?             

The participants share their observations on the case and then relate their insights to leadership at Motorola.  A facilitator presses them to identify several circumstances in their own organization or group where the leadership principles directly apply.  They are asked to identify a situation where “a principle has been or is being demonstrated in a clear and powerful way,” and another setting where “a principle would significantly impact business performance.”  

Finally, the participants are invited to apply the case insights to their own personal leadership style.  They are asked to describe “how effectively you demonstrate a leadership principle you have identified,” adding, “if it is difficult to exercise this characteristic of leadership, why is that?”  Using Eugene Kranz’s leadership actions as a yardstick, participants are encouraged to move from general observations about leadership in Motorola to an examination of their own strengths and weaknesses as senior leaders at the company.   

The facilitator encourages the managers to re-examine their assessments of themselves as leaders, evaluate their own capabilities for leading in a turbulent business environment, and identify key actions from the case that they can individually incorporate into their own leadership practices.   

The goal is to connect the Apollo 13 case to Motorola and the participants’ personal leadership practices, and for this the facilitator’s role is critical.  The facilitator constantly challenges participants who speak in generalities to reframe what they are saying to link their ideas, observations, and suggestions to specific Motorola situations.   

The facilitator closes the leadership module by asking the participants to prepare their own action plans in which they outline specific situations for application of the leadership principles and insights they have gained from reflecting on how Eugene Kranz handled his turbulent environment.  

Though the leadership module is only 2.5 hours in length, virtually all participants afterwards affirm that they have been challenged to think about leadership in a different way, and, most importantly, to apply the fresh insights to strengthening their own leadership at Motorola.   

Note: Marguerite Foxon can be reached at Marguerite.Foxon@motorola.com. 


Leadership Quote: Learning Leadership from the Arts 

“In the new world of corporate America, everybody is worried about how to achieve excellence in smaller and flatter organizations,” offered Bruce Payne, a faculty member at Duke University who teaches leadership through the arts.

“That means finding styles of leadership that work well with smart, self-respecting professionals. Since everybody knows that hierarchy never worked well – and these days, it works less well than ever – what styles of leadership really make the most sense?  The people who succeed in the arts these days are people who have solved that problem.  They know how to coach, they know how to encourage, they know how to praise, they know how to love.  And they know how to express a vision that excites rather than intimidates.”

Copyright © 1996-2002, Wharton Center for Leadership and Change Management, 
University of Pennsylvania.