Smartest guys in the room … what could go wrong?

What could go wrong?  Plenty it seems.

Commonwealth Bank (‘Which bank?’) is just the most recent example of overconfidence in the ‘intellectual capacity’ of a leadership team to steer the organisation through the ‘white water’ of modern corporate life.  In its recent report on failures at CBA APRA reportedly found:

• The board relied too heavily on senior management’s ‘high IQ’ and their ability to take care of all things
• That their risk management processes relied too heavily on ‘raw intellect over comprehensive analysis’

This is a pattern that we see repeated too often and yet we still fall for it.  We’re a bit like Charlie Brown and Lucy (in the old Peanuts cartoon).  Despite Lucy repeatedly pulling the ball as Charlie goes to kick it, each time Charlie imagines 'this time it is different'. 

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There’s been a host of studies on team performance and team dynamics over the years that show that teams full of ‘really smart people’ don’t perform as well as teams which might have 1-2 really smart’ players (and not necessarily the CEO).  But somehow, we too often assuming that the answer to complex problems is ‘smart people’.    

This has proven to be a very expensive assumption. 

Perhaps the doozy of them all was Long Term Capital Management.  LTCM was a hedge fund that boasted two Nobel laureates (Merton & Scholes, famous for options valuation theory), multiple PhD’s, and fund management veterans.  LTCM grew to over US100B in funds within 4 years, showing 40% annual returns.  But for all that, the Asian financial crisis triggered a collapse that saw LTCM facing US1Trillion in default risks.  Ultimately the US Treasury had to step in to stablise the global financial system.   So much for genius. 

A close second: Enron.  From a pipeline company in the 1980’s, Enron grew into the world’s largest energy trader.  The collapse of Enron is told in a documentary ‘The Smartest Guys in the Room’.  It traces the rise and fall of Enron, which grew to be the darling of Wall St, until it collapsed.  The Chairman and Chief Executive of Enron at the time were Kenneth Lay and Jeff Skilling.  They have been described[1] as ‘two supremely arrogant and belligerent men who believed they were the smartest guys in the room: that through sheer cleverness and creativity they had brought into being the most innovative corporation in the US’.  Indeed, Enron was named ‘America’s most innovative company’ by Fortune for six consecutive years.   The collapse was triggered, at least in part, by investigative reporter Bethany McLean who was undistracted by the glossy brochures and glitzy premises.  It seems she didn't drink the Kool Aid.  

As the dominoes began to fall a pattern of appalling behaviour emerged.  For example, when the power markets were deregulated in California, Enron shut down energy generation to create power shortages and drive up energy prices.  According to The New York Times, the top brass at Enron realised what was happening ‘but like a mad and dysfunctional cult, everyone carried on’.  This description has parallels to the revelations of the current banking royal commission.

My final example is closer to home.  The CEO of one of Australia’s leading companies had a reputation for his prodigious intellect.  The company prided itself on capturing the best talent available in the sector.  Despite this, with his powerful intellect, he developed a reputation for intellectual bullying.  But in the years prior to his retirement he was persuaded to introduce a values-based leadership development program.  In a post-retirement interview he observed, with a sense of profound insight, that he had recently come to the realisation that ‘it was all about the people’.  One got the impression the interviewer was nodding approvingly at such wisdom. 

I was bemused.   How is it possible that the CEO of a major company, with a reputation for a prodigious intellect, took until his late 50’s to realise ‘people matter’?  This is Management 101 on any MBA.  Tom Peters, management guru, author and former McKinsey partner, has been telling us this for as long as I can remember. 

The simple reality is that intellect can only get you so far.  Perhaps intellect is a bit like money: more is better up until you reach a point at which the upside plateaus.  At this point, other factors – wisdom, emotional intelligence, and the collective intelligence – begin to play a much bigger role.

[1] Oppel, R. A. and A. R. Sorkin (2001). Enron's collapse: The overview.  Enron collapses as suitor cancels plan for merger. The New York Times.

The profound responsibility of leadership

The most creative conversations of our professional lives engage both our emotional and analytic selves.  These conversations are the source of inspiration and sense-making that leave you buzzing hours later; that wake you in the middle of the night; that create new insights through connecting previously disconnected ideas. 

I had such a conversation a few months ago with a colleague.  Exploring the role of purpose in organisations, he challenged me to articulate my purpose: why do I do what I do? 

One of the outcomes of that conversation was a paragraph I wrote about the profound responsibility of leadership.  I didn’t post it at the time, at least in part because I suspect for many business leaders – prospective clients – it might seem ‘too soft’.  But after some interesting conversations yesterday I decided I would share my world view.  So here’s what I wrote those months ago: 

I believe in the capacity of leadership to create great organisations … organisations that can develop and execute strategies that match the demands of a complex and changing environment; that can build connections with customers that transcend the simple transactions that characterise too many market places; that create customer experiences that build longevity into the relationships.  And this comes about through leaderships’ capacity and commitment to engage with the people who are the body and soul of any organisation and want to make a contribution that goes beyond just earning a wage. 

This is the primal responsibility of leadership.  If not this, then what is our job as leaders?

I also believe in the self-evident truth: it is the leadership teams which need to design, develop and energise the change in organisations.  Our job as consultants and advisors is to help them in that pursuit. 

This is my ‘bias.’  It shapes the conversations, approach, and expectations in my work as a strategist, facilitator and teacher.  And I think this is largely reflective of my clients.  The people I have worked with over the years who I connect most deeply with do feel a profound responsibility. 

But over time many leaders slowly, often unconsciously, withdraw from this profound sense of responsibility, reflecting a felt lack of a shared sense of responsibility among their peers and their leaders.    Or sometimes in the face of challenges that seem overwhelming.  But this model of leadership demands institutional leadership: it is beyond the capacity of individual leaders.

Do you feel this profound responsibility?  How often do you experience deep, creative conversations within your organisation which engage both your emotional and rational-analytic self as you explore your collective role as leaders?  Do the conversations leave you buzzed?  Or just frustrated?  If the latter, I suspect the ‘emotional’ self has been ‘shut out’.  Caution: the failure to engage the emotional self can ultimately lead to ‘burn out’.  

Leadership Lessons from Dockers' coach Ross Lyons

In the early 90’s Paul Keating remarked that every parrot in the pet shop was squawking micro-economic reform.  Today those same parrots would be squawking productivity.  While this is a multi-dimensional challenge, leadership plays a fundamental role. 

And so I thought I’d highlight a leadership lesson from Fremantle Dockers coach Ross Lyon.  He recently observed his team needed a vast improvement if they were to maintain their position on top of the ladder.  He questioned their decision making following a ‘grinding’ 7 point win over Collingwood, highlighting some specific areas: some shocking turnovers; repeatedly slipping. 

What did he say next?  “At the end of the day that starts and finishes with me, so clearly our football program needs to improve because they should be able to do it instinctively under pressure”. Wow.  How many of our leaders today adopt this perspective?  We often lose sight of the fundamental truth: we are accountable for the performance of our teams.  So if their productivity is low, you are underperforming. 

Ouch.  That puts a different slant on it.  Try looking through this prism next time your team disappoint.