December, 2008, Volume 13, Number 2

High Altitude Leadership:  What the World’s Most Forbidding Peaks Teach Us About Success  

By Chris Warner and Don Schmincke 

The following is an excerpt from a new book by Chris Warner and Don Schmincke, High Altitude Leadership: What the World’s Most Forbidding Peaks Teach Us About Success (2008).  Chris is a climber, educator, and entrepreneur; Don is a speaker, management consultant, and executive developer.  They present a new approach to leadership development, field-tested under brutal mountaineering conditions and applied in the training of executives, management teams, and entrepreneurs. 

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How do leaders create and sustain greatness in spite of the selfish human program that pushes every leadership theory off the cliff during implementation? We struggled with this question for a long time. We read all the popular leadership books, listened to the best motivational speakers, and followed the methods of the top consulting firms.   

They were of no help.  

All that changed when we noticed that our Himalayan expeditions seemed to falter at the end of the journey, not the beginning. For example, on one expedition, Don’s team had to cross many 17,000-foot-high passes to get to the villages and monasteries they were exploring. We continuously learn from visiting remote cultures as part of our research, but on this particular trip, Don learned more from the Americans on the team.  It happened at the end of the expedition, on the way back to civilization. After almost a month in the mountains, Don noticed the American team leader looking a little depressed.

He was always pumping the team up but now seemed tired and removed. Concerned, Don asked him how he was feeling.  

“I’m fine. I just hate this part of every expedition I lead,” he said.  

“What do you mean? This part?”   

“Well, most expedition teams fail on the way down, not the way up.”   

“But we’re fine. We had a couple medical emergencies, and they were handled,” Don said, confused.  

“No, I’m not talking about that. I’m talking about the group. Just look around. It’s not a collaborative, supporting team anymore. There’s no more passion. Everybody’s cliquing up into their own little factions, and they’re starting to complain and whine about everything,” he said.

He was right. The group had degraded from a high performance team to one resembling the apathetic conditions we see in companies. What happened to the team? The answer was simple: there was no next pass ahead. Without a challenge before them, everyone started putting personal desires ahead of the group’s goals and reverting to their own selfish behaviors.  

Human selfishness can only be unhooked when a greater passion overwhelms the selfish agenda. 

Can it be that simple? Is purging the selfishness that sabotages performance all about managing a greater shared passion? We validated this in the world’s oldest organization: military operations. When our work was making the rounds at the Pentagon, we were asked to tour military operations with a small group as a guest of the secretary of defense. 

“ We’ll show you what CNN doesn’t get to see, and you have permission to ask anybody, anything, at any time,” they told us.  

We jumped at the chance for this research opportunity. What we found was remarkable: the importance of passion permeated the leadership approach of all the generals and admirals, much more so than the leaders we saw in corporations. Military training remains clear on this point: higher-morale troops win more battles than demoralized troops, and sometimes in spite of a weaponry disadvantage. Why do you think leaders always ask how the moral is before battle? Whether you’re commanding an army, summiting a mountain, or leading a team, passion is the critical factor.  

Passion, we found out later, is also an ancient management insight. Throughout history, great leaders constantly focused on creating passion in their people by inventing stories of gods, kings, and heroes. The ancient Norse called it a saga, and leaders for millennia knew the art of conceiving one. High altitude leaders throughout history knew that compelling sagas effectively inspire passion and give people something worth fighting for. The compelling saga leverages the leader’s power in aligning people toward a higher cause than the agenda of their ego.   

Humans need a compelling saga: a story or drama that inspires passion for a strategic result, a passion that overwhelms the selfi shness common in humans. 

A compelling saga possesses some or all of these dimensions:  

·   Has a dramatic theme to beat an enemy target, achieve an ideal, or fulfill a purpose 

·   Sets a goal that’s difficult to achieve, a challenging summit that needs to be conquered  

·   Is captured in language that drives performance, values, and strategic focus even in the face of risk, sacrifice, or pain   

·   Sets the context of how success (or failure) will be defined   

·   Focuses people on strategic results, not selfish, territorial, gossipy, soap operas

·   Although a brief statement, spawns stories and legends that permeate an organization’s culture  

Note:  Reprinted by permission of the publisher, John Wiley & Sons, Inc., from High Altitude Leadership, by Christopher Warner and Donald Schmincke.  Copyright (c) 2008 by John Wiley & Sons, Inc.  All rights reserved.  For more information, click on High Altitude Leadership.
 

Homeland Security Secretary Michael Chertoff:  The Government’s Role in Managing Risk – Both Natural and Man-Made  

By Knowledge@Wharton 

What do the global financial crisis, Hurricane Katrina and the 9/11 terrorist attacks have in common? All are examples of how not to manage risk, according to America’s top risk-management official, Homeland security secretary Michael Chertoff. 

Risk management “lies at the core” of his department’s mission, Chertoff said at a recent Wharton Leadership Lecture in which he addressed areas where regulation – in moderation – can reduce risk in the marketplace. Managing risk was the first objective he saw before him when he was sworn in almost four years ago, Chertoff said, and it remains “maybe the fundamental social problem that we face in the 21st century.” 

“Our mission is very broad – it covers everything from preventing and reducing our vulnerability to terrorist attacks; to protecting and reducing the vulnerabilities of our infrastructure, including our cyber-infrastructure, and then mitigating the consequences of disasters by strengthening our preparedness and response.” 

Looking back at the 9/11 attacks and various natural disasters during his soon-to-conclude tenure, “or even the current financial crisis, it becomes very clear that we have not always handled risk properly,” Chertoff acknowledged. 

The 9/11 attacks were not, he said, “a total surprise.” U.S. law enforcement and intelligence agencies had known for years about Osama bin Laden’s intentions because he had been linked to the 1993 World Trade Center bombing and the suicide attack on the USS Cole. “We had report after report that talked about the need to strengthen our homeland security. And with all of that, we did not devote even a fraction of the investment we currently put into homeland security ... before September 11,” Chertoff said. “So, you’d have to say we misjudged the risk.” 

Similarly, U.S. officials have long known that storms the magnitude of Hurricane Katrina could seriously harm a city, especially a large city below sea level. “It’s clear that government at all levels simply failed to invest in maintaining critical infrastructure such as the levies,” he said, “wreaking untold havoc” upon New Orleans. 

The same can be said of the global credit seizure, he argued. The nation now faces financial woes that were to some degree or another “predicted over a period of years, going back into the 1990s.... We have not managed to address the risk in a way that prevented what was ... a [financial] disaster of the magnitude of a natural disaster and a terrorism disaster.” 

The official response to each of those was after-the-fact, he noted, and was costlier than would have been necessary had prevention or mitigation efforts been underway beforehand. “Managing risk is not about looking backward at something that’s already happened, although that can be useful in terms of what we do going forward,” he explained. “Managing risk is fundamentally looking ahead” to possible disasters and making cost-benefit analyses designed to prevent or reduce our vulnerability to them. 

“That’s not a particularly startling definition of risk management. And yet if you look at all of the events I’ve described ... you will see that our society has simply failed on a looking-forward basis to manage risk properly.” Worse yet, he said, is that institutions of all kinds fail to learn from such mistakes. “We begin to decide that we are spending too much money trying to avert the risk, and we begin to degrade our preparation once again.” 

That pattern applies even to the U.S. reaction to the 9/11 attacks and Hurricane Katrina, he suggested. Because there have been no terror attacks on U.S. soil since 9/11, many officials at various levels of government say the need to be prepared for attacks, or to spend so much money to prevent them, has diminished. So, he urged a “disciplined, risk-managed approach” to learning the lessons of the last three major American catastrophes. 

Chertoff was sworn in as the second Homeland Security secretary in February 2005, less than seven months before Katrina swept over the Gulf Coast. After that disaster, Chertoff acknowledged that he was slow to focus on the storm as it developed. Congressional investigations into the federal response to the deadly storm faulted Chertoff specifically for delays in activating the federal emergency plan that could have rushed aid more quickly. Previously, he was a partner in the law firm of Latham & Watkins, and he served as Special Counsel for the U.S. Senate Whitewater Committee from 1994 to 1996. He was also a federal prosecutor for more than 10 years, including service as U.S. Attorney for the District of New Jersey. 

When to Regulate 

Because of the current financial mess and the federal response to it, “people are beginning to wonder if changes [are needed in] the ... role of government in dealing with risk in the financial sector and perhaps across the board,” Chertoff said. “Although it’s getting less publicity, these very same questions are being asked with respect to natural disasters. For instance, what is the role of government in letting people rebuild” in places like Galveston and East Texas, flooded by the most recent hurricanes? 

“I still believe, with all that we’ve experienced, that in a free society like our own, the default position, the starting point for risk management, is with the individual and with the private sector,” he stated. “People routinely balance risk and reward. It is the essence of what freedom is.... The private economy is ... the fundamental engine of risk management, and by and large it works very well. We have a system that has figured out the right level of risk.” But he added that “there really is no such thing as a truly free market. The market is always bounded by rules and regulations that are put in place by government. Even the most ardent capitalist, the most ardent free marketer, accepts as a fundamental premise that government does have a role to play in laying down certain rules of the road that make it possible for a free market to function.” 

He recommended that lawmakers, when considering the regulatory response to the financial crisis, should ask themselves what “the government could do and should do to allow risk management, at a social level and an individual level, to proceed in a much more informed, balanced and sensible way.” He suggested that any regulations should address three factors: short-tem thinking, self-centered assessments of the value of risk, and conditions under which the value of risk is obscured. 

“The free market and people who operate in it tend to favor and focus on [the] short-term,” Chertoff said. They prefer benefits that are “immediately realized and immediately capitalized, at the expense of potentially higher long-term costs, especially when those long-term costs are uncertain.” For example, he noted, when federal officials make flood maps to help hurricane-prone coastal regions try to direct development efforts to higher ground, “we start to see community pushback” from property owners who do not want to spend tens of thousands of dollars to elevate structures in threatened areas. 

He said that if those property owners had to eventually pay the price for ignoring the maps – instead of being bailed out with federal aid programs that are routinely provided to cover such losses – they’d be less likely to ignore the flood maps’ warnings. Because they encourage risky behavior, such aid programs establish a “moral hazard,” a term that Chertoff noted has come up a lot in the debates over whether the U.S. government should invest in or provide loans to financial firms whose devaluation of risk helped create today’s credit crisis. The post-hurricane federal aid provides “a clear message to people that they can continue to ignore the warning because even if they don’t get the insurance – for which they have now been disqualified because they didn’t elevate the house – they’re going to get rescued anyway.” This is an area where government action before the event can help reduce everyone’s costs, he said, by making sure people have properly internalized their own risk management. 

Another problem that can be addressed by the government “occurs when we may properly internalize our own costs, but we simply don’t internalize the costs that we’re putting on others.” This is an old economic problem, classically illustrated by the upstream landowner who fouls the water used by downstream neighbors. “Increasingly, the failure of a business to internalize its own costs has collateral and cascading consequences for people in unrelated businesses.” In the immediate aftermath of hurricanes, it’s a “critical cornerstone of recovery [that] you’ve got to get the power up and running.” Government must step in, he asserted, because the people who run the power plant can’t get there because filling stations lack electricity to pump gasoline. Chertoff said he is working with federal energy authorities to devise a federal rule similar to one in Florida requiring gas stations to have emergency generators. 

Chertoff also offered an example from the shipping industry. He said shippers do not want to incur the expense of gathering and providing to federal inspectors point-of-departure information about shipping containers. Such data, he asserted, speeds the inspection process, reducing the shippers’ and the nation’s exposure to the risk of a catastrophic terrorist attack. “Again and again we come up against this short-sighted mentality that does not look beyond people’s own costs and balance sheets.” 

The third area for regulation, he argued, “is what I call ‘validation.’“ It eliminates “the ... costs that are imposed by risk when we don’t really have confidence in what we are dealing with, or what we are seeing.” The government, he suggests, can require producers to clearly state the risks associated with their product or service so that customers can know “what we are dealing with, and who.” Toxic ingredients – within toys from China or intricately constructed investment vehicles – harm everyone and [undercut] the entirety of the food chain,” he argued. “All of these systems of the marketplace depend on this trust,” Chertoff said. “When this trust fails, we see very serious consequences.”  

Even where regulation is required, he said, moderation is important. “The case in these instances is for intelligent, strong and not overly coercive regulation. We don’t want to go to the extreme of smothering initiative, but we also want to make sure that initiative is rewarded” when properly used to allocate and manage risk, Chertoff said. “Over-regulation ... is just as big a problem as under-regulation.” 

Note:  The article in Knowledge@Wharton can be found here.
 

America’s Best Leaders:  A 2008 Roster from the Harvard Center for Public Leadership and U.S. News & World Report   

U.S. News & World Report published its fourth-annual roster of “America’s Best Leaders” in collaboration with Harvard University’s Kennedy School Center for Public Leadership.  David Gergen, director of the center and senior political analyst for CNN, introduced the list by noting that its members are “role models for guiding us out of our current doldrums,” and they share the quality of “cultivating and nourishing” groups of new leaders around them.  Gergen also warned that although we may be inspired with a great sense of hope for Barack Obama’s election to the U.S. presidency, it would be a mistake to believe that one person can single-handedly lead our country through its difficult challenges ahead.   

Among the leaders named to the 2008 roster of America’s best are filmmaker Steven Spielberg, Secretary of Defense Robert Gates, and PepsiCo CEO Indra Nooyi.  

The full list with articles about each is available here.
 

Leadership Online:  Washington Post Launches Website Dedicated to Leadership 

Earlier this week, the Washington Post launched a new discussion forum called “On Leadership” that offers readers advice on leadership from executives, politicians and scholars, as well as leaders from the military, sports, the arts, philanthropy, science and religion.  Commentary by some 70 thought leaders will appear regularly on its website, along with panels, articles, videos, and reading lists.  The site’s thought leaders include: 

·        Brad Anderson, Best Buy CEO

·        Warren Bennis, author and University of Southern California Professor Emeritus

·        Denis Cortese, Mayo Clinic CEO

·        Ken Duberstein, Reagan White House Chief of Staff

·        Andy Grove, Intel founder and former CEO

·        Lee Hamilton, former Congressman, Woodrow Wilson Center President, 9/11 Commission Co-
      Chairman

·        Doris Kearns Goodwin, Pulitzer Prize-winning author, presidential historian

·        Wendy Kopp, Teach for America founder and CEO

·        Sherry Lansing, Paramount Pictures former CEO, philanthropist

·        Paul O’Neill, Bush Administration Treasury Secretary, former Alcoa Inc. CEO 

The site is moderated by Pulitzer Prize-winning Washington Post Columnist Steven Pearlstein, and Benjamin C. Bradlee, who as executive editor brought the Washington Post to national prominence through its coverage of Watergate.  Andrea Useem, former Leadership Digest deputy editor, serves as a producer and editor for the new site. 

“With a new administration taking office in Washington and the global economy in crisis, leadership today is at a premium,” said Pearlstein. “On Leadership will be the place for readers to join an intimate conversation with the most successful and thoughtful leaders in the world today.” 

The video series for “On Leadership” launched with the founder and CEO of Federal Express, Fred Smith, discussing leadership failure behind the current economic crisis, among other topics.  In coming weeks, labor leader Andy Stern, presidential historian Richard Norton Smith, and Miami Mayor Manuel “Manny” Diaz will appear in the leadership video series to discuss their careers and perspectives on how their organizations might overcome today’s challenges.   

On Leadership can be found here. 
 

New Deputy Editor of the Leadership Digest:  Introducing Tracy Simon   

We welcome Tracy Simon to the position of deputy editor of the Leadership Digest.  She most recently served as senior associate director of Communications for the Wharton School.  She worked with national and international print, wire, television, radio and online news outlets; she assisted conferences, alumni events, and faculty books; and she served on the editorial boards of various Wharton publications.  Tracy is a graduate of the S.I. Newhouse School of Public Communications at Syracuse University where she studied broadcast journalism.  She lives in Merion Station, Pennsylvania, with her husband, Eric, and daughter, Hope.


A CALL FOR COURAGE: Governing the Board in Troubled Times

By Tracy Simon and Wharton Executive Education

The collapse of some of the oldest and most respected U.S. financial companies has given directors around the world pause for thought. “Systemic risk in the case of financial services is far more powerful or significant than we had appreciated,” says Wharton’s Michael Useem, who is on the faculty of Corporate Governance: Fresh Insights and Best Practices for Directors, a three-day Executive Education course running from February 24-26, 2009. "In protecting the interests of shareholders, boards have their work cut out for them. Governance and leadership have never been more important. Assets are larger, so the consequences of failure are much greater. There are risks from globalization and intensifying competition. All these factors are putting a premium on good governance."

In looking at recent corporate failures, many board members are considering how they may need to change their own behavior. "This makes a lot of board members nervous," says Julie Daum, practice leader for the North American Board Services Practice for Spencer Stuart, who worked with Wharton to develop the program. "They’ve all abided by Sarbanes-Oxley. The board members of these companies were very smart; they deserved to be there. Directors are now concerned about trying to be as good as they can be, to learn from other directors and leading governance experts, to keep themselves current and improving."

Useem says that in reviewing the actions of the Enron board before the company’s collapse, the directors could have made a difference. "The record is unequivocal; the board had ample opportunity to force management to do what management should have done," he says. In contrast, the board of Boeing played a very effective and critical role in the development of its 787 aircraft and in its change of two CEOs. "Directors need to be preemptive without micromanaging. They need to be proactive and take steps to intervene when things are not going the right way."

This proactive stance requires courage. "The major thing that has become obvious is that directors need courage and they need to ask tough questions,” says Daum. “The best directors have good judgment. They can get right to the salient points and are strategic."

The changing economic environment has imposed multiple new demands on directors. Among the areas that have become more important are compensation and risk management. "The work of the compensation committee is much more carefully scrutinized," says Thomas P. Gerrity, Wharton School professor of management and academic director of the program. "Committees are digging deeper and working hard to pay for effective performance without inordinate risk, in order to serve the interests of the company and the shareholders, and still attract and hold the best people for the firm."

Enterprise risk management has also taken more center stage for the board. "A few years ago, the focus was more upon financial risk, but now more attention is being given to all sorts of risks, including reputation and operations – from extreme weather to terrorist acts," Gerrity says. "The current financial and economic crisis further underlines the need to assess external and broadly systemic financial risks," he adds. Directors also need to understand the implications of the move to new global accounting standards and anticipate new regulations that will be passed as a result of Washington's response to the world financial crisis.

"You can't anticipate every '1,000-year storm,' but ensuring that management is thinking through broad options helps position you to do the right thing," Gerrity says. "One thing this financial crisis taught us is to examine multiple scenarios going forward and to shock test our response plans and strategies with true crisis events."

Note:  Information on the program can be obtained from program director Deb Giffen at 215-898-2599 and giffend@wharton.upenn.edu.