July, 2001, Volume 5, Number 10

It’s seven AM on a wintry morning, and Pete Haglin, college freshman, is not sleeping in.  He is in the gymnasium boxing room, taking roll call, checking to ensure everyone is in the right uniform, has the prescribed mouthpiece, has drawn gloves and protective headgear, and is standing at attention for the instructor’s entrance at precisely seven ten.  If anything is amiss, the boxing coach will let Haglin know it.  Loud and clear. 

Welcome to Phys Ed class, West Point style. 

My book, Duty First: West Point and the Making of American Leaders, explores how the academy approaches its mission to develop “leaders of character committed to . . . a lifetime of selfless service to the nation.”  Tasks assigned to “plebes” like Pete Haglin tend to be well-defined and hands-on: take charge of twenty peers for boxing class, clean your rifle, manage your time.  For older cadets, the challenges are higher order: how do leaders build a culture that encourages academic achievement and ethical behavior?  Escalating challenges are part of the academy’s distinctive leadership program – a program remarkably applicable for business leaders. 

The basic ingredient is good people.  West Point looks for young men and women ready to learn and take on responsibility: the above-average student who is also the team captain, a leader in her church, a volunteer firefighter. 

Then come the challenges – and West Point excels at this – that drag cadets out of their comfort zone, forcing them to resolve conflicts and take on new roles.  These range from the physical to the purely intellectual; no cadet functions solely in a familiar arena.  To capitalize on these experiences, cadets have tremendous support.  Every faculty member is a coach.  My boss in the English Department was explicit: develop military leaders, and teach them to write clearly.   

Next is assessment.  Nearly every aspect of life at West Point is graded, from how cadets lead peers to how neatly they maintain their athletic lockers.  Cadets gripe about the nit-picking – underwear must be folded just so, socks go here and not there – but they also know that attention to detail is critical when planning, let’s say, what weapons and ammunition to bring to war.  Fourth, the model calls for reflection, time for the lessons to sink in.  Maturity doesn’t come overnight.  The final element is the freedom to fail.  In a “zero defects” environment, people don’t become perfect, just timid, and that’s not a good quality in a leader. Giving people room to fail takes courage; those in charge have to abide the inevitable setbacks.  

When I started writing Duty First, I set out to discover how West Point made Army leaders.  In my work with business audiences, I’ve found that the stories resonate because businesses are looking for similar qualities.  For instance, in its most critical task – combat – the military practices flexible, decentralized leadership.  Even peace-keeping missions call for independent thinking and decision-making, for imaginative, inspirational leaders.  West Point builds leaders according to those specifications.  Fortunately, it isn’t a secret formula. 

Note:  Ed Ruggero, author of Duty First: West Point and the Making of American Leaders, can be reached at edruggero@home.com.  For more information, see www.edruggero.com.
 

Organizations are like automobiles. They don’t run themselves, except downhill. They need people to make them work. And not just any people, but the right people. The effectiveness of an organization’s employees – particularly individuals in leadership positions – determines how the organizational “machine” will perform. 

Some people are so effective at their job that a leader can do very little to make them better; others are so hopeless that almost nothing can be done to improve their effectiveness. The majority of the population, however, falls somewhere in between those two extremes. These people do their job adequately and go with the flow, looking to their leader to set the course, speed, and duration of that flow. They want some guidance, some suggestions about where to go and how to get there. 

Anyone wanting to create or manage an effective organization needs to understand the dynamics of leadership. This is not to minimize such factors as economies of scale or scope, the company’s market position, and its technological capabilities. A company, however, can have all the advantages in the world – strong financial resources, enviable market position, and state-of-the-art technology – but if leadership fails, all these advantages melt away and the organization – like the driverless car – runs downhill. 

But if we’re to understand leadership, we also have to be willing to go beyond the directly observable. We have to pay attention to the presenting internal and social dynamics; to the intricate playing field between leaders and followers; and to unconscious and invisible psychodynamic processes and structures that influence the behavior of individuals, dyads, and groups in organizations. People who dismiss the complex clinical dimension in organizational analysis can’t hope to move beyond an impoverished understanding of what life in organizations is all about. 

In my new book, The Leadership Mystique, I focus on three issues: 

First I turn to the issue of “irrational” behavior in organizational life. Like it or not, executives aren’t always paragons of rationality. (They are, after all, people!) However, I demonstrate that behind their irrationality lies a rationale. And this rationale needs to be acknowledged and dealt with. Well-intentioned and well-thought-out plans derail daily in offices around the world because of out-of-awareness forces that influence behavior. 

“Emotional intelligence” is the label we give to an understanding of the motivational forces of self and others. Given the importance of each individual’s internal theater on cognition, affect, and behavior, emotional intelligence plays a vital role in the leadership equation. It comes down to this: people who are emotionally intelligent are more likely to be effective as leaders. Unfortunately, emotional intelligence isn’t something that can be gleaned from a self-help book. On the contrary, becoming more emotionally intelligent is an experiential process. 

Most of the literature on leadership depicts the leader as a paragon of virtue and speaks in glowing terms of the attributes that constitute leadership. I remind readers that there’s another side to the coin. We can all name at least a handful of political leaders tainted by the darker side of leadership. Adolph Hitler, Idi Amin, Joseph Stalin, Pol Pot, Saddam Hussein, and Slobodan Milosevic all come readily to mind. We’re far less likely to recognize leadership’s shadow when it falls on the workplace, even though that shadow can darken the lives of many. 

The second part of my agenda, then, provides insights into the darker side of leadership. Although it could be argued that ineffective leadership is a contradiction in terms – that the only true leadership is effective leadership – many organizational leaders derail. The question I address is, What makes them do so? What can be said about the failure factor in leadership? Can we identify specific warning signs? What effect is failed leadership likely to have on corporate culture, organizational structure, and patterns of decision-making? I offer some explanations for leadership derailment; address the psychological pressures that often lead to dysfunctional behavior; and discuss the interrelationship between personality, leadership style, corporate culture, and organizational decision-making. 

The third theme of the book concerns what’s needed to become an effective leader. In this context, I address a number of related questions: What are charisma and transformational leadership all about? What characterizes charismatic leaders? What competencies, practices, and roles distinguish effective from ineffective leaders? And what can be done to develop effective leadership qualities? I also comment on the psychodynamics of personal and organizational change, dealing with such issues as, What are some of the levers that make for successful change? What are the characteristics of high-performance organizations? 

Empowering Down and Leading Up:  Human Service Administrator Feather Houstoun 

By John Joseph, Research Associate, Wharton Center for Leadership and Change 

In the political maelstrom and bureaucracy of state government, Feather Houstoun stands out as a change agent.  As secretary of the State of Pennsylvania’s Department of Public Welfare (DPW), she has brought her $13-billion agency to focus on innovative programs that make a difference.  

Upon her appointment, Secretary Houstoun asked her executive team to map out a four-year program.  She asked the directors of each of the line agencies to define where they wanted to be in four years, what they needed to do each year to get there, how they were going to impact other parts of the organization, and what support they would need.  Houstoun explained:  “You absolutely have to have a very concrete vision of where you want the organization to be at a certain point.”  Knowing the end point was critical:  “What having that game plan did for us was to help us align all the resources around it.”  Consequently, “there was not a whole lot of wasted energy on things that were not mission driven.” 

Houstoun observed that for developing and executing her plan, she had to acquire a deep understanding of  the complexity of the organization. “This isn’t to say that you must know it in detail – because you can’t do that and lead,” but “you have to understand how the place breathes, how it makes its money, how it spends it money, and what the culture of the place is.”  In learning what mattered, she was aided by a diverse administrative background that included her service as finance director for a regional transportation authority and treasurer for the state of New Jersey.  

To move her workforce of 23,000 in the right directions, Houstoun said it was a matter of  “breaking through to the simple” and then communicating a focused message so that everybody understands – even if they don’t always agree – what needed to be accomplished, what failure looked like, and what success would achieve.    

Houstoun’s executive team includes her senior staff members in policy, budget, press, and legislative affairs, and they each report both to Houstoun and the governor, Tom Ridge.  Daily communication with the staff’s counterparts in the governor’s office has been critical for her change agenda. “We make judgments virtually everyday,” she said, and we “give the appropriate governor’s office a call to check home and make sure their comfortable with the way we’re approaching things.  We just routinely create this dual reporting relationship which gives us an opportunity to know if we’re close to a hot button that we’re not aware of. It keeps them pre-informed so that they always know what’s going on before anything ever hits any public venue.” 

Houstoun looks up as well as down.  “We manage up so people understand what we’re doing, have an opportunity to talk about it, and give us direction if they want to give us direction,” Houstoun said.  As a result, “there has been such a steadfast level of support, we have been able to stay on course,” whatever the circumstance.  “The thing that makes Tom Ridge so extraordinary,” Houstoun said, “is that if he’s got faith in you and your organization, he gives you time to fix your mess.  He never undercuts your self-confidence at a point of crisis.” 

Feather Houstoun gives her managers the same kind of latitude that the governor extends her.  She believes that once employees have the vision and the values that underpin that vision in mind, they can make the right decisions and act consistently without having to rely on a great deal of hierarchical control.  She said that her “people are largely empowered to move forward as long as they’ve got those two things lined up.”   

Note:  John Joseph, who graduated from the Wharton School’s MBA program in 2001, can be reached at John.Joseph.wg01@wharton.upenn.edu.
 

In reaction to the takeover wave of the 1980s, many U.S. firms adopted takeover defenses and other governance provisions designed to reduce shareholder influence.  The relative stability of these structures since 1990 allows for a long-term study of the relationship of corporate governance with stock returns, firm value, and corporate performance.  I recently conducted such a study with Paul Gompers and Joy Ishii of Harvard University.  

We coded the presence of 24 takeover defenses and other restrictions of shareholder rights for a sample of about 1,500 large firms during the 1990s.  Most of these provisions were directly related to management’s power to resist a hostile takeover.  Certainly, some managerial power is necessary for the efficient operation of a firm, but how much is too much?  To answer this question, we built a “governance index” by adding one point for each takeover defense and each restriction of shareholder rights.  We then examined the relationship of this index – a higher value meant that management had greater power relative to shareholders – with several forms of company performance.  Our main findings are: 

·        Firms with the least managerial power relative to stockholders – those ranked in the lowest decile of the governance index – earned stock returns of 23.3 percent during the 1990s.  Firms with the most managerial power relative to shareholders – those ranked in the highest decile of the governance index – earned stock returns of 14.0 percent.  After adjustments for risk, the performance difference between these two groups of companies was still 8.5 percent per year. 

·        Firms with the most managerial power relative to stockholders sold at a discount compared with other firms.  Other things equal, each additional governance provision in 1990 was associated with 2.4 percentage points less in firm value.  By 1999, the difference had increased to 8.9 points. 

One possible policy implication of our results is that a decrease in managerial power relative to shareholders will significantly increase shareholder wealth.  This interpretation has implications for takeover laws at the state level, and for the ongoing debate about takeover regulation in Europe.  

Before this claim can be accepted, however, we still need to address two counter-arguments about the  presumed causal chain.  First, it could be that a company’s high rating on the governance index was merely a signal and not the source of managerial power relative to shareholders. Protective governance provisions might have been like a “beware of dog” sign: if such signs were banned, dog owners would simply find another way to signal their resistance to burglars. 

Second, it could be that prescient managers in the 1980s foresaw the problems their firms would face in the 1990s, and they put governance provisions in place to protect their own jobs.  If so, companies may have performed just as well without the governance provisions – the only real difference being that it became harder for shareholders to force out top management.   

In either case, removing all of the takeover defenses and shareholder restrictions would not necessarily improve firm performance or value.  The potential alternative explanations stand as a challenge for future research, but the evidence from our study points to the stakes involved in resolving the questions of causality.  If an 8.9 percentage point drop in firm value were even partially the result of each additional anti-takeover or restriction provision, the benefits to stockholders of eliminating such provisions would be enormous.