August, 2001, Volume 5, Number 11 

Human Value:  How Much is New Leadership Worth? 

When a publicly traded company announces a new chief executive, many analysts and investors consider the event significant and signal their assessment by buying or selling the stock.  Stock prices rise if on balance they view the new CEO as bringing the right leadership qualities; they decline if it looks like the wrong person was appointed.  

These share price movements can be viewed as a market valuation of leadership capacities, and they are often significant, especially if the firm is viewed as under-performing.  When Kodak in 1993 appointed a new chief financial officer – Christopher Steffen – an abrupt price rise in the aftermath added $3 billion to the market value of Kodak.  When AT&T in 1996 announced a new chief operating officer – John Walter – a sharp price drop in the days that followed subtracted $6 billion from the market value of AT&T.  

A review of a number of academic studies of poorly performing companies finds that the largest average share prices movement is 2.48 percent.  By implication, stock buyers and sellers estimate on average that the new chief executive arrives with a leadership capacity that is likely to swiftly add several points to the market value of the company.   

But that is the average, and academic researchers Gregory W. Brown and Jay C. Hartzell report a far greater impact in the case of turnover at one publicly traded companies, the Boston Celtics of of the National Basketball Association.  The Celtics’ six million shares have been traded on the New York Stock Exchange since 1986, and these researchers studied price movement after the team announced on May 5, 1997, that it had hired Rick Pitino as its new head coach.  Pitino came with a highly regarded collegiate coaching record, and on the following day, the Celtics’ stock price rose by  7.4 percent.  

Source:  Gregory W. Brown and Jay C. Hartzell, “Market Reaction to Public Information: The Atypical Case of the Boston Celtics,” Journal of Financial Economics, Vol. 60, 2001, pp. 333-370.
 

Leading in all directions:  Sixth Annual Wharton Leadership Conference on June 5, 2002

The Sixth Annual Wharton Leadership Conference, focusing this year on “Leading in All Directions,” will be held on June 5, 2002 at the Inn at Penn, Philadelphia. The call for the conference states:

“As companies carry out more outsourcing and joint ventures, they require new methods of execution. The skill of delegating work downward to subordinates is being supplemented by a talent for arranging work outward with partners. Lateral leadership — leveraging your partners' strengths instead of directing subordinates' actions — is required for achieving results when managers have no authority to guarantee them. 

“As companies have delegated responsibility downward, they've also been increasingly demanding that managers be able to lead their own bosses. If their superior lacks data, they need to ensure that the boss receives what's needed; if the boss is missing the boat, they need to help get him or her aboard before it's too late.

“Outward and upward leadership is about taking charge when managers are not formally in charge. It assures that advice arrives from and information flows to all points on the corporate compass, not just from the top down.  But for these distinct forms of leadership to work well, they'll require inward self-assurance and personal self-confidence.    

“Leadership, then, should be viewed as a four-pronged capacity -- downward, outward, upward, and inward.  But building that capacity is a challenge, and the sixth annual Wharton Leadership Conference is devoted to exchanging ideas on how leadership for all directions and a supporting culture can best be developed.”  

Among the keynote presenters will be Warren Bennis, author of numerous books on leadership including Leaders, On Becoming a Leader, and Organizing Genius: The Secrets of Creative Collaboration.

For information on conference speakers and the conference agenda, see http://leadership.wharton.upenn.edu/l_change/conferences/conf_060502.shtml

To register online for the conference, go to
http://www-management.wharton.upenn.edu/chr/registration.htm
 

Outdoor learning for both children and executives: Chile’s Vertical S.A. and Fundación Maitenes 

In 1992, a team of Chilean climbers attempted one of the most difficult routes up Mount Everest: the Neverest Ridge on the Kangshung Face. The route had only been climbed once before: an expedition of climbers from Canada, the U.K., and U.S. had reached the summit this way in 1988. I had the privilege or organizing and leading the 1992 Chilean expedition.  

In light-weight expedition style, our small team of six moutaineers and limited budget climbed a technically demanding and dangerous route requiring some 40 days. Two fellow climbers – Cristián García-Huidobro and Juan Sebastián Montes – and myself reached the summit on May 15.  As we stood on the top, ecstasy mixed with sorry as my thoughts went back to two prior expeditions that had failed and a friend who had been lost on one. 

What had we done differently this time from the previous attempts? I concluded that the key was that we had focused on the way we were going to work together. We had concerned ourselves this time with team and individual responsibility, effective communication, conflict resolution, decision making, team work, and above all building trust among ourselves.  In reflecting on these factors as we trekked across the inspiring Tibetan landscape, I decided that I would like to bring to others what had made such a difference for us.  

I established Vertical S.A. in 1993, a company that provides outdoor education and training for school students and for multinational and large domestic companies in Chile and other Latin countries.  I also created Fundación Maitenes, a foundation for doing the same with poor children. We defined both first and foremost as “teaching organizations.”  

Vertical offers adventure-based experiential learning programs on leadership, communication, entrepeneurship, and high-performance teamwork. It focuses on the fundamental values of solidarity, honesty, consideration, humbleness, care, and partnership. Our programs range from three days to two weeks, and all are premised on the idea that people can learn much from outdoor experience that is transferable to their workplace.  We have worked with Coca-Cola, Citibank, Shell, Clorox, Exxon, and many Chilean companies.  

Vertical is also committed to reaching as many young people as possible. In the year 2000, some 4,000 students participated in our programs, providing half of our annual revenue. Only a fifth of the families can afford the full cost of $100 per student for our programs, however, and we raise company and private sponsorship for them through Fundación Maitenes.  

Since the Chilean government recently mandated that all seventh and eighth graders complete three days of outdoor education annually, we anticipate strong growth during the years ahead, and our goal is to provide outdoor learning experiences for 25,000 school children annually.  But we still remain a small firm, with just twelve people working full time at Vertical and six at the foundation.  

For 2000-03, we are planning an Antarctic expedition that will include an extensive follow-up program on the environment and entrepreneurship for children served by the foundation.  Among the program’s elements will be a contest for students to develop environmental management ideas for the Antarctic, and the winners will receive a free trip to spend the 2002 New Year in Antarctica. 

Note: Rodrigo Jordan can be reached at jordan@vertical.cl, and information on Vertical S.A. can be found at http://www.vertical.cl.  Rodrigo Jordan led a Chilean team in 1996 on a successful ascent of K2.  He is the author of Everest: The Challenge of a Dream and K2: The Ultimate Challenge, and he teaches courses on innovation management in the MBA program of the Universidad Católica de Chile.  
 

There was no fire to fight and we didn’t drop in from the sky as the smokejumpers had done on the afternoon of August 5, 1949. But the anticipation was palpable in the group of Marine Corps officers, federal wildfire officials, and Wharton associates who approached Mann Gulch on July 19, 2001. 

In 1805, members of the Lewis and Clark expedition named this section of the Missouri River in Montana “The Gates of the Mountain.” Thirteen members of a fire crew who died in this remote canyon fleeing an explosive wildfire on August 5, 1949, would likely have named it “The Gates of Hell.” 

To us, Mann Gulch was an historic setting for a day of exploration in the dynamics of leadership. The walk in Mann Gulch was one of several Wharton Leadership Ventures that have been developed to bring participants into settings where they can learn from the experience of others whose leadership was on the line.  

In his book Young Men and Fire, Norman Maclean chronicled the tragic events in Mann Gulch. The disaster’s main ingredients:  A young and inexperienced crew, a leader with strong fire fighting experience but poor communication skills, a fragmented chain of command, an explosive fire that demanded instant decisions, and an unforgiving terrain.  Together, these factors ultimately led to the fatal trapping of 13 members of the 16-person fire crew.  

We came to Mann Gulch to study the decisions that the crew had taken. As preparation, our group read not only Young Men and Fire but also reports of the 1994 South Canyon Fire in Colorado (a similar tragedy that claimed the lives of 14 fire fighters), and the 2000 Cerro Grande Fire in New Mexico (a prescribed burn that spun out of control and nearly reached the Los Alamos nuclear laboratory). 

Our group consisted of ten officials of the National Interagency Fire Center (NIFC) and other U.S. agencies responsible for wildfire management, two officers of the U.S. Marine Corps, and three associated with the Wharton School.  A video crew accompanied our party to create a film on the leadership principles from disaster. 

As the Mann Gulch fire had rapidly expanded in the late afternoon hours of August 5, the crew commander recognized that his firefighters would not be able to outrun the flames because of the steep terrain. He had the brilliant insight to set an escape fire in the tall grass ahead of the oncoming flames, burning out a safe area into which the firefighters could congregate. But his crew members had never seen this technique used, and in their eyes the commander had already made a series of seemingly contradictory and unexplained moves. In the end, the team leader was able to save himself but not most of the others as they raced desperately – but ultimately unsuccessfully –up the steep slopes of the gulch.  

Jim Cook, Training Projects Coordinator for the U.S. Forrest Service at NIFC, described the value of walking the site to appreciate the crew commander’s decisions.  From afar, it might have appeared that the commander had missed a life-saving opportunity to climb straight up over a ridge into a neighboring valley. “Only after seeing the terrain,” Cook said, could we understand “why the smokejumpers took a longer route at an angle to the ridge instead of going strait up. Seeing how the fire traveled, and trying to run up the scree on that steep slope” convinced him that the decision to race up the gulch rather than over the ridge made sense and that the crew commander could not be faulted for it. 

First Lieutenant Andy Walker of the First Marine Corps Expeditionary Force observed after walking the gulch that a team that trains together under realistic conditions is better prepared to act decisively and effectively when success hinges on critical decisions and coordinated action.  “Expect the unexpected and train like you fight, whether it’s a war, a business, or a fire,” he observed.  “In the Marine Corps we often say, ‘Expect the worse, hope for the best, and settle for anything in between!’”  Yet that was precisely what the crew commander could not have brought into the gulch since his team had been thrown together at that last minute to fight the fire and had never had a chance to prepare for it.  

Tom Boatner, Montana State Fire Management Officer with the Bureau of Land Management, saw the importance of establishing credibility and communicating effectively:  “In a high risk environment, teamwork and team cohesion are critical. The leader must establish his or her legitimacy or ‘moral imperative’ to lead. Lots of experience and a good plan are not sufficient.  The leader must communicate clearly and work to build the team.  He or she must explain clearly what we are going to do, and why we are going to do it.”  The crew commander, he continued, “jumped with a group of strangers and didn’t have the communication skills to establish his leadership, their sense of being part of a team, and what their plan of attack was going to be.  When the fire blew up, the team crumbled and he lost his role as leader.”  In many endeavors, Boatner concluded, it is the quality of leadership that makes the difference,” and that was certainly evident in the terrible events of August 5, 1949 in Mann Gulch. 

Note:  Mark Davidson can be reached at mrd47@yahoo.com, and further information on and photos from the Mann Gulch walk can be found at http://leadership.wharton.upenn.edu/l_change/Fire.shtml.


Fast Decision Making:  Plan Carefully but Move Quickly  

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

In rapidly changing environments, leaders face a paradox: they must plan carefully but move quickly. They must rely on incomplete data on technology, demand, and competitors – but still  reach informed decisions. F. Mark Gumz, President and COO of Olympus America Inc., a consumer electronics and medical equipment maker, faces just such a dilemma. 

The digital camera market is a good example of an industry experiencing disruptive change and faster decision cycles as a result. For 150 years, the photography industry was based on the manufacture of sensitized silver halide materials.  Cameras would stay on the market for years. Olympus introduced one of its cameras, the Stylus, in 1991, and kept it in the market for a full  decade.  

But digital technology has shortened product cycles dramatically. Olympus introduced cameras two years ago with 2.5 million pixels, last year with 4 million pixels, and this year with more than 5 million pixels.  “I equate the digital business to almost a perishable products business,” Gumz said.  “You’ve got to turn that inventory quickly, you’ve got to have an exit strategy, you have to understand how you are going to support the product after the fact.”  As a result he said, “we have to make decisions very quickly.” 

In leading Olympus America, Gumz, must balance the problem of making decisions rapidly with demand from customers to keep innovating and pressure from competition to keep improving.  Analysis and number crunching are good up to a certain point, but company managers can’t afford to delay key decisions beyond that point.  One of Gumz’s VP’s is fond of saying, “pencils down, let’s move on.” 

But the solution to managing rapid decisions isn’t to depend more upon intuition or “gut.” In a study of strategic decision-making in high velocity environments, two academic researchers found that the most effective performance came from leaders who used analytical techniques in gathering information and who measured a wide variety of outcomes.  

Mark Gumz appreciated the need for good numbers. He noted, for instance, that he was constantly battling the issue of price vs. time in the maintenance of medical equipment.  Because his equipment is being used in hospitals on a daily basis, turnaround time and quality of repair were critical.  So was the ability to deliver the service costs at an affordable level.  “These are issues that I just can’t go on the basis of hearsay or people shooting from the hip,” he said. “I need to quantify this,” and for that purpose he created swat teams with a clear mandate:  “I give them the absolutes in terms of a sample number that I want to have evaluated before I take it forward and make a decision.” 

Gumz also collected data through his own trips into the field. “I do not believe that important things only happen at headquarters.” He said, “I think the fact that I get out and hit the road encourages all of my other people to do the same.  By the same token when I come back into a meeting I can speak first hand to what I’ve heard and what I’ve seen in the field.” 

Gumz keeps the dialogue open internally as well.  His mornings are often spent in the company cafeteria conversing with employees, and when he walks through a building, he’ll stop to get a pulse of what people are feeling.  The “story gets out that I am responsive,” he said, “that I am interested in hearing things.” Combined with an insistence on technical and analytical backup, Gumz acquires what he requires for fast and good decision making.  

A “company’s share price is nothing more than a collective vote of confidence in its future, and what do investors have to go by but management’s record and reputation?  Especially since so much of a company’s value these days depends on the intangible qualities of its decision making and alertness to opportunity.” 

Source:  Holman W. Jenkins, Jr., “Outrageous CEO Pay: A Primer,” Wall Street Journal, August 8, 2001, p. A13.


Leadership Quote:  How You Win Counts Too 

Author John Feinstein writes of Lance Armstrong’s third consecutive win of the Tour de France on July 29, 2001: 

“None of those in the lead would be able to stay with [Lance Armstrong] in the mountains.  Only Jan Ullrich, the 1997 champion, was given a chance. 

“As so it was, in the middle of the Alps, that Mr. Armstrong and Mr. Ullrich broke away from the pack.  As they came around a difficult turn, Mr. Ullrich lost control of his bicycle, missed the turn and ended up in a shallow pond.  Seeing what happened, Mr. Armstrong slowed down to allow his opponent to recover and catch up.  ‘It was the right thing to do,’ he said later.  

“Imagine an athlete, in the heat of what is perhaps the most difficult competition on earth, pausing to allow the only man who might deny him a victory a fair chance.  In an era when the mantra of sports is to win at all costs, where cheating is often considered the right thing to do, Mr. Armstrong’s act was, well, heroic.” 

Source:  John Feinstein, “Lance Armstrong: A Real Hero,” Wall Street Journal, July 31, 2001, p. A18.