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| Home - Industry Article - Dec 05 Issue |
Why 'SMART" Companies Never Fail
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Skill-set #2: "We Work for the Shareholders/Investors" Mentality
None of the "Smart Organization" officers and directors we studied breathed a whiff of entitlement - even when they founded the company. They didn't believe the company owed them anything. They saw it as a privilege to work for the organization and felt a deep responsibility to the shareholders (or investors in the case of pre-IPO firms). They were very circumspect in spending company resources. To see an example of this type of attitude in action, read the Founders" letter to shareholders contained within Google's IPO filing with the SEC (ridiculed at the time for sounding too idealistic with its founders stating the ethos of the company was "don't be evil").ii Even after a successful secondary offering raising hundreds of millions of dollars, Google's founders purchased a used Qantas Boeing plane for their corporate travels (and did so personally), rather than a fleet of smaller more expensive planes.iii
By contrast, executives at "Not-so-Smart Organizations" often blurred the lines between their personal interests and the corporate interests. Robert J. O'Connell, CEO of MassMutual Financial Group, was recently dismissed after the board learned that the top female executive with whom he had had an office affair had overseen a $30M padding of his supplemental retirement account and bought a Florida condominium from the company at a discounted price.iv
Skill-set #3: The Executive Team and Board have the Answers, not just the CEO
Instead of providing all the answers, CEOs at "Smart Organizations" consult frequently with members of their team and board. This is not to say that the CEOs still do not play a lead role in charting strategy. However, each officer and director is comfortable speaking up and challenging the CEO's opinion. And, as important, the CEO knows that he/she doesn't have all the answers.
Michael Dell puts it this way: "to assume that a CEO knows every single thing about every aspect of a company… I mean you take a guy like Jeff Immelt, Jeff's a great guy, a really smart guy. Can he know every single thing about all aspects of GE's business? Sorry. It ain't gonna happen. So, I think you got to have a system of processes and controls, and it's his responsibility, just as it is mine, to sit down with the teams on a regular basis and understand. 'Well, let's talk about your business, what are you doing, what's the control environment?" We rely on our teams to give us assurances."v Together, the brainstorming and debate leads to better decisions. In "Not-so-Smart Organizations," you are much more likely to find the prototypical "Imperial CEO" providing the answers and believing they are absolutely right.
Skill-set #4: Preventing Groupthink
"Smart Organizations" are never cults, where people are too afraid to speak up. You never hear the phrase, "you're either with us or against us." And, you certainly do not find key dissenters forced out of the organization. "Smart Organizations" prevent "groupthink" from setting in at the Top Team or Board levels. Michael Dell is famous for asking at meetings, "What could go wrong? What are we not thinking of?" In "Not-so-Smart Organizations," CEOs "take out" those who are not being supportive. In the case of Philip Purcell at Morgan Stanley, he simply eliminated the jobs of two key Morgan executives (Vikram Pandit and John Havens) who he didn't see as onside with him when outsiders started to complain about Purcell's performance.vi
Skill-set #5: Projecting Authentic Leadership
We found that leaders at "Smart Organizations" weren't particularly fussed about how they or their organizations came across to others. It was much more important that they were clear on their own set of values and what their organizations stood for. Whether others "got that" or not was inconsequential to them. As a result, they came across as authentic. Examples include Mark Hurd at HP, Sam Walton at Wal-Mart, and Brian Roberts at Comcast. "Not-so-Smart Organizations'" leaders were very conscious of their and their organizations" image in the media. Great time, energy, and resources were spent crafting just the right media image. In some cases (think Carly Fiorina), the effort probably ended up doing more harm than good.
Skill-set #6: Facing Reality
The officers and directors from "Smart Organizations" had no trouble seeing themselves and their organizations for what they were at that moment. Even if they were already #1 in their market, they knew their weaknesses, as well as their competitors" key strengths.
An example of wanting to stay ahead of the curve is Robert Polet, new Chief Executive at Gucci Group. He recently took the unprecedented step of applying standard business practices (such as focus groups, hiring outside consultants, and using industry benchmarks to increase the rate of inventory turnover in their stores) to the formerly highly cloistered organization that structured itself around the single vision of its former creative head, Tom Ford. And, although some longtime employees reacted to Polet's 'facing reality" tools "as if he'd used foul language," Gucci Group's sales are up 13% in the last quarter.vii By contrast, leaders at "Not-so-Smart Organizations" saw themselves as dominating their environments. One emerging leader who feared his organization had an over-inflated sense of how dominant they were in their market expressed his concerns this way, "we are a kitten, who looks in the mirror and sees a lion."
Skill-set #7: Desire to Learn from Mistakes
Most organizations (and people) typically have a hard time admitting they have made mistakes. In fact, psychologists have demonstrated how cognitive biases often push people to persist in supporting bad decisions - even when we know logically that they do not make sense (throwing good money after bad). That's why most organizations" executives and directors don't want to hear about organizational mistakes. They want to hear success stories and see the financial indicators heading in the right direction.viii
Sometimes, admitting a mistake is tantamount to an executive wearing the Scarlet Letter in front of the group. Yet, "Smart Organizations" don't run from mistakes; they embrace them. They understand that their future competitive advantage lies in their accurately understanding why a current venture or division or product has failed. And then taking corrective actions. In the case of Wal-Mart, although they were highly successful in the United States, some of their initial international forays were not as successful. Their mistake? Applying the US store model, exactly as is, to these new markets. Their push into Argentina was especially painful. Yet, they learned from this experience in time to prepare for entering China, where Wal-Mart offers such local delicacies as barbecued pigeons, live frogs, and snakes of purported higher quality than that available outside the store at the local street market.
Skill-set #8: Personal Accountability
Beyond the skill-sets listed above, there was one more, which was found in spades among officers and directors in the "Smart Organizations" we examined: Personal Accountability. These men and women took their roles and responsibilities very seriously. They did not accept simple answers to complex questions. They would push to further understand an organizational breakdown, or question an already successful process or division.
Isadore Sharp, Chairman & CEO of Four Seasons Hotels and Resorts, has been responsible for driving this aspect of the firm's culture within its executives and employees for the last 35 years. One concept that epitomizes personal accountability has been etched into the culture as "The Golden Rule." Interviewed for this article, he explained the importance of this skill-set, and how it filters up to the Four Seasons" officers and directors: "The Golden Rule" is at the heart of our operating principles, and is part of every aspect of our business. Hotel staff is empowered to serve guests by making instant decisions, guided by the idea that one should treat others as one would be treated. Executives are similarly empowered, and with empowerment comes responsibility. In that way, we are all personally accountable for our role in the company's success."
| "Not-so-Smart Organization"
Officer/Director Skill-sets: |
"SMART Organization"
Officer/Director Skill-sets: |
| Narcissistic self-image |
Breeding "Proactive Paranoia" |
| Blurring between leader & organizational Interests |
Instilling "We Work for the Shareholders" mentality throughout organization |
| Leader has "All the Answers" |
Executive Team & Board have the answers |
| Demanding 100% support |
Ensuring there isn't Top Team "Groupthink" |
| Obsessed with image |
Projecting authentic leadership |
| Disregarding major obstacles |
Facing reality - no matter if good or bad |
| Unwillingness to learn |
Desire to learn from mistakes |
| Deferring to others for dec. -making |
Personal accountability bias |
Conclusion
To have Smart Leadership in your software organization - and take the first steps towards building a "Smart Organization" - you must first understand its components, which we have outlined in this article. The 8 key skill-sets must be assessed on a regular basis to make sure that leadership retains its vitality and open-mindedness that characterizes smart organizations and is so often the downfall of the not-so-smart organizations. It is only through careful attention to an early warning system that smart leaders and smart organizations can remain smart. And it is precisely this early warning system that is at the heart of early prevention for companies that wish to avoid mistakes and breakdowns.
Appendix A: Morgan Stanley vs. the 8 Skill-sets of "Not-so-Smart" Leadersix:
| 8 Skill-sets of "Not-so-Smart" Leaders: |
How Morgan Stanley Fared: |
| Narcissistic self-image |
Overdone executive offices on 39th floor |
| Blurring between leader & organizational interests |
Purcell's pay had to match or exceed those at Morgan competitors - apart from Morgan's performance |
| Leader has "All the Answers" |
Purcell didn't consult with employees or clients |
| Demanding 100% support |
Those not onside with Purcell were forced out |
| Obsessed with image |
Purcell swept internal gripes under rug |
| Unwillingness to learn |
Two cultures of Morgan and Discover never were integrated even after 8 years |
| Disregarding major obstacles |
Purcell's response to criticism: "We just need to get out of the press" |
| Deferring to others for dec.-making |
Board calls internal complaints against Purcell "personal," based on "soft issues," and avoids discussion |
i Davis, Ann, & Smith, Randall. 2005. "Delayed Reaction: At Morgan Stanley, Board Slowly Faced Its Purcell Problem." Wall Street Journal: August 5, A1.
ii To review the Founders" letter contained within Google's IPO filing, go to: http://www.sec.gov/Archives/edgar/data/1288776/000119312504073639/ds1.htm#toc16167_1
iii Delaney, Kevin J., Lunnsford, J. Lynn, & Maremount, Mark. 2005. "Wide-flying moguls: Google Duo's new jet is a Boeing 767-200." Wall Street Journal: November 4, A1.
iv Bandler, James, & Lublin, Joann S. 2005. "Executive Privilege: Inside MassMutual Scandal, An Angry Wife Sparked Probes." Wall Street Journal: August 19, A1.
v From interview at: http://www.mccombs.utexas.edu/news/pressreleases/corp_gov_dell.asp
vi Ward, Vicky. 2005. "Betting the Bank." Vanity Fair: September, 348 - 390.
vii Galloni, Alessandra. 2005. "Inside Out: At Gucci, Mr. Polet's New Design upends rules for High Fashion." Wall Street Journal: August 9: A1.
viii For more information on how Wal-Mart learned to expand internationally, see: http://www.stern.nyu.edu/Sternbusiness/spring_summer_2003/bigstore.html
ix From Davis & Smith, op. cit., and Ward, op. cit.
Sydney Finkelstein is the Steven Roth Professor of Management at Dartmouth College's Tuck School of Business. In 2003, he authored "Why Smart Executives Fail". He is also a Special Consultant with Jackson Leadership Systems. He can be reached at sydney.finkelstein@dartmouth.edu
Eric M. Jackson is a Vice President at Jackson Leadership Systems in Toronto. He heads the firm's "Building a SMART Organization" practice area. He holds a Ph.D. in Strategy & Management from Columbia University's Graduate School of Business. He can be reached at ejackson@jacksonleadership.com
 
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