Are You a forward-thinking Leader?

“Every few hundred years in Western history there occurs a sharp transformation. We cross what I call a “divide.” Within a few short decades, society rearranges itself-its worldview; its basic values; its social and political structure; its art; its key institutions. Fifty years later, there is a new world. And the people born then cannot even imagine the world in which their grandparents lived and into which their own parents were born. We are currently living through just such a transformation.”
Peter Drucker – “Post-Capitalist Society” 1993

Every current and aspiring leader today would do well to read Jeremy Rifkin’s The Zero Marginal Cost Society – The Internet of Things, The Collaborative Commons, and the Eclipse of Capitalism.  (If you cannot find time to read the book, this presentation nicely suffices:

Rifkin posits that we are in the midst of a third industrial revolution; one that will completely disrupt the capitalist system. He reviews the first industrial revolution, that began in Britain in the late 18th century, where radical changes in the textile industry resulted in the ‘modern’ factory. According to the author, it was enabled by a convergence of paradigm shifts in three critical economic components: energy (coal/steam), communication technology (steam powered printing presses) and transportation (steam locomotive and railways).

The second industrial revolution came in the early 20th century, where we again witnessed seismic changes in those same three areas: energy (oil), communication (telephone, and later radio and television), and transportation, (the combustion engine and subsequent automobile).

Both of these revolutions embodied the drastic transformations Drucker refers to in the quote above. Literally everything changed.

The third industrial revolution, already upon us, is driven by a similar shift in technology in those three crucial fields, but is considerably more powerful and far-reaching because it is creating Internets: a communication network, an energy network, and a transportation and logistics network, all of which will be further connected to each other through the Internet of Things. These Internets accelerate the rate and depth of change far beyond those of earlier experiences.

Three concepts in particular strike the reader:

  1. Rifkin explains in detail how this revolution is reducing the marginal cost of many goods to near zero (how much does it cost to send an email? to download a song?) and this will eventually render the fundamental concepts of capitalism (productivity, profit maximization, market supply and demand) irrelevant. What happens to a profit motivated system when goods are essentially free? (Think: why buy fossil fuels when the sun powers my home and car for free, and cleanly?)
  2. This is not solely futurist musings about what might happen; Rifkin’s consulting firm is already working under contract with the German government to help prepare their infrastructure for the third revolution, and after reading the book, Chinese Premier Li Keqiang adopted it as the blueprint for the country’s 13th Five Year Plan. (1)
  3. If Rifkin’s claims are true (as evidence tends to indicate), why are we not reading of collaborative efforts among global governments to anticipate and prepare for the massive retraining and adjustment that will be required to transition the global population through the shift?

In other words, where is the forward-thinking leadership that these times demand?

It may be absent on the political front, but if you are leading or aspire to lead any organization, being aware of and understanding the forces behind this third industrial revolution is a must. If you are not forward-thinking on behalf of your organization, you leave it vulnerable to the severe buffeting forces that the third revolution brings.

Forward thinking requires, among other things, incessant and creative questioning: How will 3D printing affect our industry? What are the implications of radical weather on our strategic plan? Is our current pace and quality of innovation sufficient to ensure our organization will survive let alone thrive? Are we crystal clear about what our organization will look like ten years from now? Can we at least be a bit clearer?

For all leaders, it is so easy (and sometimes necessary) to get stuck in Covey’s ‘Important and Urgent’ quadrant 1, putting out the proverbial fires, but to be most effective, to be forward-thinking leaders, we must jump to Quadrant 3: Important and not Urgent. Scan horizons, seek new trends, anticipate opportunities and sidestep threats. That is what forward-thinking leaders do. Today, things move so quickly that we must straddle both quadrants, which yet again emphasizes the need for effective teams, engaged employees and trust. Here are a few simple actions you might find helpful in preparing for the Third Industrial Revolution:

  • Read the book! (or at least watch the video)
  • Systematically look outside the organization: convene a group of your best employees and decide what ‘Outside Our Organization’ trends, concepts, and innovations from this revolution might affect you, and set up news feeds and processes to monitor and stay abreast of key information
  • Structure a process for learning from all employees what they see as the organizations future. Get everyone involved in forward-thinking
  • Share and invite employee feedback on the current strategic plan. Their insights might well surprise you
  • Ask employees to ‘own’ their area of interest on behalf of the organization, and report new outside findings. Example: if someone loves to follow 3D printing, ask them to update monthly and share interesting developments.

The key is to be forward-thinking, not just with your own faculties, but with those of everyone in your organization. Leverage organizational prescience. Finding ways to do so will not only ensure more comprehensive and better decision-making information, and mitigate risk, but will also include, challenge and motivate all of your employees in the process.

In the US, as the Trump administration reverts to the tired and unproven deregulation and tax cut strategy to stimulate the so-called ‘free-market’, the contrast between that and Rifkin’s proposed strategies becomes truly startling. The risk of betting on the wrong strategy could well prove disastrous for America and the rest of us. At perhaps the most crucial moment in human history, where forward-thinking leadership is desperately needed, the most powerful nation on the planet has handed the reins to a backward-thinking administration. At least if we, as forward-thinking leaders, can ensure we stay constantly informed and proactive, we can then intelligently assess and push back against any public policies that threaten our organizations and indeed, even our world.


Michael Darmody, Principal at Darmody & Company, is a seasoned leadership consultant, executive coach and public speaker who helps clients bridge their performance gaps by improving Purpose, People and Process. He lives in Mississauga, Ontario.





Leadership Lessons from Bernie Sanders

The current U.S. Democratic and Republican nominee races are, if nothing else, entertaining and unexpected. Yet independent of political platforms, leadership fundamentals can explain much of the phenomena we are witnessing; in particular, the (what the media calls ‘surprising’) success of Bernie Sanders campaign. When examined under the lens of leadership, it was almost predictable.
In a research survey conducted globally and multiple times since 1987, respondents were asked to select seven qualities they “most look for and admire in a leader, someone whose direction they would willingly follow.” The top four, (which never changed throughout repeated surveys) were: Honesty (always scored highest), and in this order, forward-looking, competent, and inspiring. (1) As long as people believed a leader possessed those traits, they would willingly follow that person.
A quick look at Sanders history shows not only strength in each category, but unusual consistency of policy, ideology, and voting record over his 40-year career. Agree with him or not, he cannot be accused of flip-flop tactics, or of acting contrary to his stated beliefs, which lends great credibility to his messaging, and has inspired formerly disconnected and cynical voters back into the fray. With Congress’s favorability rating in the low single digits, it is not surprising that disenfranchised voters would fall in behind a Beltway outsider; so far over 2 million of them, making 6 million small donations averaging $27.00.
Similarly, Stanford lecturer Jim Collins wrote about what he called Level 5 leaders, the most notable characteristics of which are, paradoxically, intense professional will, and deep personal humility. (2) Sanders campaign from the outset announced that there would be no attack ads; that they would take the high road of setting the agenda around really important national issues, and focusing only on them. His approach with all people, including the media, has been respectful and courteous, displaying a humility unusual at that political level. In fact, he has even cautioned Americans that neither he, nor anyone else elected President, will alone be capable of resolving the monumental challenges currently facing the country. He advises that only a collaborative effort, including a revitalized Congress, can deliver solutions. Yet as we see in the debates (which he had to force on the DNC), his humility does not mean he is a pushover. His fierce will to table the crucial issues, stay on message, and engage in vigorous debate to educate the voters, is anything but passive. Intense professional will; deep personal humility.
Result: he has gone from a ‘fringe candidate’ whom the media joked about, to winning seven of the last eight states’ caucuses and primaries. National polls indicate he defeats Trump by far higher margins than would Clinton.
Whether Sanders can win the Presidency or not remains to be seen. What is certain, is that without demonstrating those proven leadership characteristics, his campaign would never have gotten this far.
What might be the implications of this for leaders in the corporate sector? Do the same leadership traits still apply? Deliver superior results? Former TD CEO Ed Clark once observed “It’s incredible how much energy and power is out there on the front lines if they think you are a true believer too.” Starbucks CEO Howard Schultz recently observed of Americans: “Broken promises, void of truth in leadership have led to a fracturing of trust and confidence not only in our elected officials but in our institutions.” They have “cynicism, despair, division, exclusion, fear and yes, indifference.” (3) Indifference? We are all most familiar with the pathetic employee disengagement statistics cited in so many recent surveys. Yet Schultz’s, (possibly a Level 5 leader) latest results at Starbucks include $3.6 billion profit on $19.2 billion revenue. Not too shabby.
Perhaps the Sanders phenomenon could inspire leaders in all organizations to conduct a personal mirror check on those six leadership characteristics:
• Does my own agenda align with that of the organization? Is it perceived that way?
• Have I set a vision for the company that resonates with and includes employees?
• Do I walk my talk?
• Am I perceived as honest? credible? humble?
• Do employees truly believe that I’m sufficiently committed and strong-willed to pull off the vision?
Often, when the answer to these questions is ‘no, or not really’, it’s by default rather than design. These traits are easy to overlook, and sometimes call for painful personal growth. Yet the data show that as we work to master them, employees connect and deliver better performance.
Honesty, forward thinking, competent, inspiring, professional will, and personal humility: these have enabled Bernie Sanders to make a serious leadership run that eight months ago, no one believed possible. Business research directly correlates leadership behaviours with superior performance, further justifying any efforts to improve our leadership capabilities. It’s well worth our looking in the leadership mirror.
Now you may ask “What about Trump?” but that’s a blog for another day.
1. Kouzes, Jim, and Posner, Barry, The Leadership Challenge, Wiley & Sons, 2002
2. Collins, Jim, Good to Great, William Collins, 2001

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The Myth of Maximizing Shareholder Value

A while ago I was watching Bill Moyers interview Columbia professor and Nobel Memorial prize-winning economist Joe Stieglitz. Moyers was decrying Wall Street and the culprits of the 2008 financial meltdown, and in response to his question of how to remedy this, Stieglitz replied “we forgot that we make the rules.” He went on to say (I’m paraphrasing) that there isn’t and never was a ‘free market’, and that all markets, to serve society properly, require some degree of regulation. Fixing the problem, Stieglitz said, requires telling the politicians to change the rules. He also denounced the widely accepted idea that the real purpose of any business is to maximize shareholder value. In our business, I’ve come to understand the intense pressure that CEOs are under, not the least of which comes from meeting quarterly share price expectations. Yet I have never accepted that; instead believing that when a company values and grows it’s people, they in turn delight customers, innovate, create, and all stakeholders, including shareholders, win big. Shareholder return is a result, not an objective in itself, and when it becomes the overriding objective, we arrive at where we are now.
The link below is a review of Roger Martin’s book Fixing the Game, in Forbes magazine, back in November, 2011. Martin describes how a shift in the 1970′s to the notion that maximizing shareholder value was the true purpose of a business, led to the financial meltdown and the income distribution gap that, he contends (and I agree) is threatening the very system of American capitalism that originally strengthened democracy.
The takeaways for me are threefold:
1) that the majority of CEO’s are well-meaning and capable people, but they are handcuffed by the widely accepted “expectations market” that demands quarterly guidance, and compels a short-term focus and earnings management. This is both damaging to society, and unsustainable in the long run. To allow these leaders to revert to focusing on ‘delighting customers’, and building sustainable businesses that add tremendous value to society, we must shift away from the mindset that the purpose of a business is maximizing shareholder value. Further, regulatory policy must shape and enforce a corresponding behavioural shift.
2) Research continues to show that companies that prioritize employees, customers, and then shareholders (Martin cites J&J, P&G, and Apple) actually generate better (often significantly better) results than those that simply manage to expectations. This implies that reverting to a ‘real-market system’ yields a win/win result for all stakeholders. It takes a longer-term focus, and sometimes more work, but is sustainable and more stable.
3) The problem is much worse now. Four years after the article was written, investment banks are significantly larger than before the 2008 crisis, and Wall Street’s quarterly guidance system continues to reward irresponsible CEO behavior. Executive compensation at best reinforces short-term thinking, and in worst cases, creates moral hazard and self-serving decision-making.
While this story deals with the financial and business sector, the need for strong, authentic leadership in all sectors has never been greater. No one who reads the daily news would deny that the world is experiencing that proverbial ‘paradigm shift’ in not one, but many areas: business, geopolitical, science and technology, cultural, media and more. We are in a place where, as Marshall Goldsmith wrote, “what got you here, won’t get you there.” We need to reinvent a lot of things; discard old systems that no longer serve us well. That calls for deep transformation, and that, in turn calls for courageous, authentic leaders; leaders who remember that we make the rules.

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VW Trust: Gone in 60 Seconds…

Upon reading the recent Volkswagen admission to installing stealth software that fooled EPS testing devices, my immediate thought was “here we go again. yet another corporate ethics scandal.” Since 2008, we’ve read increasing accounts of multi-billion dollar fines levied to banks, for everything from LIBOR manipulation to sub-prime mortgage deceit. Such amoral behaviour seems to have become commonplace news in all sectors: Enron engages in ‘off balance sheet’ accounting; JP Morgan Chase is fined $9 billion for their role in the sub-prime fiasco; drug-maker Turin jacks price of 62 year old cancer/AIDs drug by 5500%; Volkswagen sidesteps the EPA regulations for 11 million cars. Just another day in corporate world.
Public complacency is understandable; repeated examples of slap-on-the-wrist, no admission of guilt deals between offenders and government regulators have left us feeling cynical and helpless to alter the corrupt practices.
These events however, are indicative of a larger, much more serious underlying problem: the confusion of purpose; confusion between the original purpose for which an organization first formed (say, to make an affordable, reliable “people’s car”) and the purpose dictated by Wall Street: uninterrupted growth in quarterly earnings per share.
That confusion just cost Volkswagen $28 billion in market value, not to mention the brand trust that took decades of the dedicated hard work of thousands to engender. Gone in 60 seconds.
When discussing purpose, one of my favorite analogies is the saying “profit is like oxygen; we absolutely need it to survive, but it is not the reason we live.” Of late, for corporations, it has become the latter, sometimes due to greed and corruption, but often due to intense pressure from gradually evolved systemic forces.
There was a time when businesses started due to an idea. Someone detected a market need and organized a company to create a product or service to satisfy that need. Financial markets provided access to capital for those companies, and the return to investors was a cost of creating and getting the product to market. Somewhere between that time and now, the purpose seems to have shifted, and the pressure on leaders to comply with that shift is enormous. Facing decisions of whether to go with long-term strategic product or service investments, or to satisfy analysts expected numbers, which leader action does the system reward? And sometimes, the pressure creates a trap from which even well-meaning leaders cannot escape.
Back in 1982, Volkswagen CEO Carl. H. Hahn embarked on an aggressive growth strategy, one with aspirations of global market dominance and cost leadership. To be fair, back then, that strategy may have made perfect sense to assure the company’s long term future. After all, global competition began to intensify around that time, and it was his duty as CEO to position Volkswagen for success in that global environment.
But implicit in that strategy was a shift in purpose (or at least the danger of it) from one of making excellent cars to one of growth. Even if the growth was intended to drive scale cost economies so VW could effectively compete, it nevertheless shifted purpose to profit. To getting more oxygen.
The various investigations will determine whether Mr. Winterkorn is guilty of illegal behaviour, and if so, he should be justly dealt with. My contention though, is that whatever the outcome at Volkswagen, it should make us pause to reconsider the systemic pressures that drive even honest, responsible leaders to make disastrous decisions. Financial analysts serve a useful purpose of keeping management from complacency, by presenting us with ‘best case’ financial performance estimates for that company, against which we can compare actual results. But that useful function becomes dangerous when analysts ignore the real purpose of the business, which is not simply to make as much profit as possible (Peter Drucker contends that the sole purpose of any business is to create a customer). To be responsible, analysts must include corporate mission, and a long-term investment horizon in their reports. For a long time, this has not been the case; quarterly guidance has ruled the day.
It will be interesting to learn to what degree Mr. Winterkorn’s and senior management’s incentive packages were tied to the growth strategy. We should be learning by now that we live in a complex, interconnected ecosystem, where disruptions in any one segment (financial, political, social, environmental) have significant impact on all the others. In the end, we make all the rules and regulations. We can decide that ROI will have a broader definition than simply shareholder returns (after all, what exactly is the definition today of a shareholder?) We can set the rules to encourage and reinforce those CEOs who keep corporate mission in proper perspective, and do more than just live to breathe.
In it’s zeal to maximize short term profits, Volkswagen management has jeopardized the very existence of the company, threatened the livelihood of thousands of employees, and possibly even damaged the German economy, which in turn would impact the global economy. It’s time to learn from this and rethink the current capitalist system that we’ve allowed to evolve, (largely through undue and unethical influence of Wall Street in the U.S.) so that systemic pressures tempting good leaders to make foolhardy decisions are at best, eliminated, and at worst, significantly reduced.

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Game of Thrones: 5 Leadership Lessons

One of the most watched television series over the past 5 years has been The Game of Thrones. While aptly criticized for its inane, gratuitous use of sex and graphic violence, the plots are definitely intriguing, and any story of power struggles among seven kingdoms is bound to offer useful lessons of leadership. Here are five that resonated with me. (For those who have yet to see the series, a spoiler alert is in order.)
1. Actions speak louder than words – Although Jon Snow is a mere Steward of the Night’s Watch on The Wall, his actions during the attack of the Wildlings proved far more effective than the blustery words of acting Lord Commander Alliser, so much so that when the brotherhood held their elections after the battle, Snow was voted new Lord Commander. Alliser himself fought bravely during the battle, but Snow motivated, mobilized and directed the men to strategically fight off the attack, then led by example with courageous resolve.
Leaders are constantly scrutinized, and employees often remain silent about their loyalty and opinions. To talk a good game and construe silence as agreement and commitment is a risky strategy. Leadership is a relationship between followers and leaders, and credibility is built more through example than mere verbal communication. Authentic leaders walk their talk.
2. Surround yourself with (and listen to) those wiser than yourself -The young Queen Daenarys Targaryen is intelligent, ethical, and clear about her vision for ruling a better society, yet also aware of her youth and inexperience in the regal role. Her humility and wisdom result in surrounding herself with trustworthy and wise counsel (Jorah, Daario, Missandei, Hizdahr, Barristan), and there are several occasions when, upon listening to their arguments and advice, she courageously changes her original decision, to follow the wiser course of action. She does not need the idea to be hers.
The very traits, behaviours and characteristics that raise a person to a position of power and authority are often antithetical to those required to maximize results once there. Bold decisiveness and self-confidence make it natural and easy to rely on one’s own counsel. Yet history repeatedly shows that ‘none of us is smarter than all of us’. Effective leaders seek out diverse and conflicting opinions, and listen for hard truths rather than political or popular input. They constantly guard against hubris of others and of themselves, and make broadly informed, sound decisions.
3. Don’t judge the book… – Tyrion Lannister at first glance is a deeply wounded, cynical, drunken philanderer; to many the joke of the powerful Lannister family and ‘also ran’ of the court. As the series progresses, we see him surprise many in the court when appointed the King’s Hand: shrewd, political judgement, an honest sense of humour, a penchant for truth, compassion for the downtrodden and innocent, and even courage in battle. The wily, yet similar Lord Varys was perhaps the only one who looked past the book’s cover, and spotted the highly capable person beneath the facade.
There’s a saying that conflict is caused by those whose needs are not being met, or who feel they are not being heard, yet often we do not openly declare that. If dissonant, we can act out our dissatisfaction by stirring things up in the workplace. Intelligent leaders read the book cover but then look deeper into the pages. Sometimes the troublemakers are just that. Other times, once heard and understood, the troublemaker comes aboard, and can even turn into a champion of the cause who brings others aboard too. Good leaders mine deep to find the talent beneath the surface.
4. Shared visions trump singular ones – if one follows the logic of the plot, it’s difficult not to concede that Stannis Baratheon likely is the true claimant to the Iron Throne. He certainly believes it, and it becomes his obsessive vision to gain the throne by any means. This leads to iron-willed, ruthless behaviour, and in his unswerving ambition, he eventually loses men, brother, wife, daughter, and finally his own life. His attempts to form alliances were by threat, bribery or force. Never did he consider crafting a shared vision of the Seven Kingdoms with other stakeholders.
Because leaders tend to be prescient creatures, it is normal and easy to craft their own vision and forge ahead with good intent and strong will. But is that sufficient? Some of the most effective leaders in history achieved superior results by beginning with their vision, then vetting it through many camps and layers of stakeholders. They truly understand that radical and deep changes can only be achieved through the concerted effort of everyone whom the vision will affect. By inviting input from representatives of all who will be affected, great leaders create a comprehensive and encompassing shared vision that inspires and galvanizes all whose effort is required to achieve it.
5. Expect the unexpected – the rivalries of families and Kingdoms had been ongoing for centuries, and given the times and technology, competition had largely been the same: swords, spears, catapults, horses, armour. The paradigm was clear, and while strategies varied, those doing the planning knew more or less what to expect. That is, until Daenarys showed up with three dragons (which had not been around for a thousand years). This caused many leaders who, (other than trying to murder Daenarys as a child), did not see her as a major threat, to hastily re-evaluate their strategies in light of the new realities.
While the leaders in the Game of Thrones may be forgiven for overlooking the possibility of dragons entering the scene, the lesson is timeless: we cannot predict the future, and must therefore build agility and resilience so as to be able to quickly react to the inevitable surprises. In WWII, the dragon was nuclear weaponry. Recent corporate dragons (Apple, Uber, 3D printing) have already disrupted several industries, whose leaders were no doubt competently planning strategy under the old rules. The game is changing, and so too must expectations.
Will we ever learn?
There has been much praise and much criticism of Game of Thrones, but love it or hate it, there are valuable leadership lessons woven within. When one reviews history: the Civil War, both World Wars, global politics and nation-building, all of these leadership mores are recognizable; sometimes by their skilled application, and sadly, more often by their absence. The cost of ignoring them has been high. And of course they are equally applicable to the ‘battlefield’ of corporate competition, where the risks are less fatal, but the quality of society is nonetheless seriously impacted. Hopefully our political and corporate leaders will watch the series and take notes.

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Corporate Transformation and the Physics of Culture

“Everything is energy and that’s all there is to it. Match the frequency of the reality you want and you cannot help but get that reality. It can be no other way. This is not philosophy. This is physics.” Albert Einstein
As a novice student of neuroscience and quantum physics, I’m constantly fascinated by new discoveries that seem to support what sages have maintained for millennia: that there are energy forces that create outcomes, and they are driven by thoughts and emotions: “Faith can move mountains” Mark 11:23; “Love conquers all” Virgil
For centuries, Newtonian science dispelled those notions, (perhaps rightfully so for the times), and focused our attention on only those facts provable by the scientific method. But as technology advanced, people like Einstein circled us back around to the earlier truths.
What does this have to do with corporate transformation, or a leader running a business? A lot. For the last 100 years, most research and attention has been devoted to the fundamentals of management. Statistical models drove marketing, economics, finance and production. Everything else was relegated to that “Soft Stuff” bin; dismissed as emotional fluff that had nothing to do with running a hard-nosed business. And even when trusted gurus like Tom Peters, and (justifiably) revered managers like Lou Gerstner cautioned us that “Wait, this soft stuff matters…a lot!” many still chose, and choose, to ignore it.
But new findings in neuroscience and quantum physics indicate that there are fields of energy that do in fact interact with not only other fields, but with those of individuals as well. Consultant Margaret Wheatley suggests “Many scientists now work with the concept of fields–invisible forces that occupy space and influence behavior. I have played with the notion that organizational vision and values act like fields, unseen but real forces that influence people’s behavior.” Leadership and the New Science, 1999. These fields constitute your organizational culture.
This physics of culture has huge ramifications for any leader struggling to effectively adapt their organization to the constant, rapid change of the world today. As Einstein instructs, you must “match the frequency of the reality you want.” Is your market changing every six months, while your organization is saddled with rigid bureaucracy and clogged decision pipelines? How does a culture of complacency and disengagement ‘match’ your desired reality of high agility, deep resilience, and proactive innovation?
Culture is energy. Walk into a Four Seasons hotel, a Nordstrom’s, or an Apple retail store, a Southwest Airlines counter. You’ll feel that energy. The frequency is high. Those companies are currently thriving. There is a strong match. They’re creating a desired reality.
Any leader striving to succeed must conduct an audit to determine the match between their ‘energy frequency’ (culture) and that of the reality they seek to create. Mission, vision, and strategy matter, and leaders are responsible for creating and implementing all three in genuine and meaningful ways. But that is just the beginning. Corporate transformation requires mastering the physics of culture. Culture drives successful implementation. If your vision calls for innovation yet your culture values and protects the status quo, the energies don’t match. No amount of strategizing, managing and controlling will remedy that imbalance.
Explore your organizational culture. Define it. Test to see if your senior leaders are aligned in their understanding and embracing of it. Then compare it to your stated vision. If the energy frequency doesn’t match that of your desired reality, at least you will now know where to start changing. “It can be no other way.”

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JPMorgan Chase Way off the Mark

Shareholders of JPMorgan Chase bank voted today to retain the joint office of CEO and Chairman, with Jamie Dimon remaining in the posts.
Many larger clients had triggered the debate over splitting the jobs, in the wake of the London Whale investment scandal that cost the bank some $6.2 billion in trading losses. The bank and Dimon had argued that letting Dimon keep both jobs was the most effective form of leadership.
Dimon and the bank are way off the mark.
In the short interview below, McKinsey & Company consultants speak with Harvard’s Gary Hamel, well known leadership professor and writer. Hamel lays out a concise and logical argument for how leadership must be redefined going forward if organizations are to gain the flexibility, agility, and resilience necessary for success. He submits that the traditional pyramidal organizational structure cannot sustain the speed, pressure and knowledge demands in a timely manner. He correctly notes that by the time (if at all) that the next idea, opportunity or threat reaches top management’s radar, it’s too late; the window has closed. In the case of Dimon, either he knew about the activities around the London Whale trade (but that’s a topic for another blog) or he didn’t, in which case either he’s negligent, or the job is too big for one person. It would be most interesting, in my view, to hear Dimon refute Hamel’s theory and defend the decision to keep CEO and Chairman role.
Perhaps most troubling is that even if Hamel has failed to perfectly describe the future of effective leadership structures, at the very least he is correct about the general direction in which it must move: syndicated versus consolidated. How can JPMorgan Chase be so far off the mark? Hubris and the narrowest definition of shareholder maximization; Dimon’s deep belief that he is smarter than anyone else. And while he may well be, in a one-to-one context, he isn’t smarter than all the best minds at JPM. It is disheartening to see monolith companies insist on clinging to leadership models past their prime, and doing so certainly doesn’t serve stakeholders efficiently. One thing is certain: should any investment bank decide to operate based upon Hamel’s model, Mr. Dimon and his bank will fall quickly behind.

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Pope Francis I: Level 5 Leader?

The election last week of Pope Francis I sent the media scrambling to unearth available details of his past, sordid and otherwise, in an effort to build a character profile of the new Pope. Aside from the disputed issue of failing to protect two Jesuits from the violent Argentinian political regime in the 1970′s, the main conclusion is that he is a man of genuine humility.
This conclusion was supported by his actions during the pre- conclave, and post-election periods in Rome: staying in modest quarters, travelling by bus, collecting his own baggage from his hotel and paying his own bill. While cynics may claim that this merely could have been shrewdly effective and symbolic theater, further scrutiny reveals that it is in fact a consistent behaviour pattern of many years. It is said that in Buenos Aires he lived in a modest one-room apartment instead of the “palatial Archbishop’s mansion”, made his own bed, cooked his own meals, and spent a large percentage of his time in the slums working with the poor. Pope Francis it seems, when it comes to humility, is the real deal.
What does this have to do with a blog on business leadership? Watching this Pope reminded me of Stanford management guru Jim Collins’ best seller Good to Great. In it, he identifies Level 5 leaders as rare yet highest in achieving sustainable results. Specifically, they “embody a paradoxical mix of personal humility and professional will.” So far, it would appear that the Catholic Church has elected at worst, a leader with half (the tougher half to develop?) of the Level 5 pre-requisites; at best a master reformer for the organization.
Collins again:”Level 5 leaders display a compelling modesty, are self-effacing and understated…are fanatically driven,infected with an incurable need to produce sustained results…display workmanlike diligence-more plow horse than show horse…are resolved to do whatever it takes to make the (organization) great, no matter how big or hard the decisions.”
While his record of church reform in Argentina and his work with the poor shows leadership authenticity and skill, those localized challenges pale in comparison to the ones currently and globally facing the Catholic Church: systemic, longstanding financial and child-abuse scandals, declining, disenfranchised membership, and perhaps most important, an entrenched, rigid and highly political Curia. The Church needs change, yet has been known for centuries as (and remains) the poster-child of institutional intransigence (albeit also the oldest continuously operating organization on the planet; they must be doing something right).
And so begins a case study in the making; one that leaders of all organizations in business, government and non-profit sectors might consider observing and learning from. The publicity surrounding the Vatican has highlighted the current problems and opportunities facing the church, and from his first few addresses, it appears that the new Pope clearly understands and holds strong opinions about them too. Whether he does indeed possess the professional will and “fanatical drive” to rattle and move that Vatican mountain remains to be seen, but his history to date would demonstrate that he is certainly not afraid to swim against the current, and to live out his strongly-held values.
Perhaps if he succeeds, it will force some broad reflection about Level 5 leadership. Many leaders at lower levels also possess professional will, and a results-oriented focus. It seems the humility factor is much more rare, and is perhaps the key factor in motivating employees, members, and all other stakeholders to embrace the values and vision of the organization, to commit intellectually and emotionally, to take ownership by placing the objectives of the organization ahead of their own. Difficult stuff; Level 5 for sure. If he succeeds, we all might do well to take a page out of his book on combining and developing the two powerful leadership behaviours.
So as the Pope starts off on this difficult journey, he can take comfort that he has already mastered the more difficult half of the Level 5 leader formula. I will watch with interest to see whether his will can withstand and dissolve the anticipated resistance, and restore the church to its original mission and faithful constituents. It’s a monumental task, and I wish him well; God bless and Godspeed.

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Strong Leadership Leverages Talent

There’s an old adage in business that says “People join companies, and quit bosses.”
In my own experience, this has proven true, and recent research supports the claim.
In a study of 1000 American executives (cited in Forbes magazine) positive psychologist Michelle McQuaid found that (only) “35 percent of Americans are happy at their job. And, 65 percent say a better boss would make them happy. Only 35 percent say a pay raise will do the same thing. A 2009 study published by the Harvard Business Review suggested, “…the majority of people say they trust a stranger more than they trust their boss.””
If we accept the premise that success in today’s hyper-competitive business environment demands the best talent, and that a majority of that talent dislikes and mistrusts their boss, the need for exceptional leadership that attracts and retains star talent becomes painfully obvious.
The brand recognition, product/service reputation, or culture of a company may initially grab the interest of the best talent, but it’s the attitude, style and behavior of their direct superior that determines the quality and pace of their growth, level of motivation and fulfillment, and possibly even their decision to stick around. Every employee’s daily reality is directly influenced by the leadership skills of their boss.
The unfortunate thing is that often a poor relationship between boss and subordinate is not intentional. Hectic pace, market pressures, and financial stress, can easily suck a manager into the vortex of minutiae that disconnects them from direct reports. It’s not necessarily that they don’t want to connect more deeply with employees or show interest in their development; sometimes it’s simply too much distraction and too little time.
Regardless of intent, the primary responsibility for keeping top talent within the fold still lies with leadership (including line managers and supervisors), which means they must take a strategic approach to attracting, challenging, engaging and inspiring employees. The most effective way for leaders to go about this is to create an environment or culture that is supportive, challenging and inclusive.
Here are a few steps leaders can take to create that environment:
1) Start with yourself: make sure you’re clear about whom you want on the team, what you expect of them, what talents each brings, and how to best leverage them.
2) Clarify corporate identity and values for your people, and make sure your actions demonstrate both. Regularly (daily, weekly) schedule specific actions that reinforce those values to employees
3) Create opportunities for employees to develop (as Dan Pink suggests) autonomy, mastery and purpose in their work. Hold firm on accountability, outcomes and deadlines, but let the ‘how’ evolve from their own ideas. Monitor, don’t micromanage.
4) Spend brief time in every meeting connecting the daily tasks to the larger picture. Remind people why everyone comes to work there; what they’re trying to accomplish in the long term. Help employees to feel part of something bigger than their own roles.
5) Recognize and reward their behaviour that supports and ‘lives’ the organization’s values; give timely corrective feedback when it doesn’t.
6) Coach people to think through problems and challenges for themselves, as opposed to instantly giving them the answer.
Employees will often gladly endure adverse circumstances such as stress, tight deadlines, and frustrating changes, as long as the relationship with their direct boss is strong. Trust and the clear communication of company identity, mission and values lets employees feel an integral part of a cause larger than them, and engender a loyalty to the boss as well as to the company. In this way, strong leadership leverages talent.

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Leadership and the Bottom Line

When deciding how to best allocate limited resources to performance improvement systems and activities, leaders tend to err on the side of factual research.
So over the years, as academic and private sector research established the reliability of such concepts as the profit impact of market strategy (PIMS), total quality management (TQM), business process management (BPM), and Six Sigma, real and perceived risk was reduced, and adoption of those practices became more mainstream. Today we’ve reached a point where Boards can even be held accountable by shareholders for ensuring their companies are applying these proven best practices.
We’re now approaching just such a time in the field of leadership development. An existing and fast-growing body of research is proving a causal link between leadership development and shareholder value. There are three connected facts that establish this:
Fact 1: Leadership development drives employee fulfillment
Fact 2: Employee fulfillment drives customer satisfaction
Fact 3: Customer satisfaction drives shareholder value
These three elements are highly interconnected, and employee fulfillment is maximized by a strong, adaptive culture.
A Strong, Adaptive Culture Impacts Profitability
Several landmark studies have demonstrated the power of corporate culture in successful companies. Agility, speed and resilience allow continuous discovery and exploitation of new products and markets. This is known as ‘adaptive capacity’, and stems from a collective clarity and commitment to shared mission, values and vision of the organization. Culture drives sustainable competitive advantage, and in one study, yielded an 8.7 percentage point difference in operating margin over a weaker culture competitor. The difference derived from higher employee and customer retention, and productivity.
The Cost of Fear and Cultural Entropy
All organizations have some level of cultural entropy, (defined as the energy involved in sustaining bureaucracy, internal competition, hierarchy, empire building, image, blame, information hoarding and the like), but research also shows that companies with weak or toxic cultures suffer from fear paralysis, and high cultural entropy. There is a concrete cost to these fear-driven behaviours, usually reflected in higher turnover and employee disengagement, lower productivity, efficiency and commitment, and lost opportunities. In weak culture companies, it is usually a big, yet hidden number.
Strong Leadership Builds Strong, Adaptive Cultures
While research co-relates high performance with strong, adaptive cultures, and excessive costs with weak ones, it also shows that adaptive cultures cannot be achieved without highly developed leaders. Expert Richard Barrett tells us that “ultimately, the culture of an organization is a reflection of the personality of the leader or the personalities of the leadership group.” To transform a culture, one must either change out the leadership, or the leaders must be willing to reflect upon and make changes to their approach.
It is the domain of the leader to:
• Be self-aware; clear about his/her own values, beliefs, strengths, weaknesses, vision for the future
• Clearly understand and communicate the mission, values and vision of the organization (create the culture)
• Align their own and their employees values with those of the organization
• Create an environment of fairness, openness, collaboration, and responsible risk-taking
• Attract, retain, motivate and inspire the best possible talent to engage and deliver on the mission
• Strengthen others resolve during difficult periods by leading by example
• Build trust
Notice no mention of technical proficiency, functional skills, and intellectual superiority. Of course, at higher levels of management, those capabilities are almost pre-requisite, but the important finding of the research is that they alone are insufficient to drive outstanding results. The reason is that today, only pools of bright, highly-engaged, interactive, collaborative people will win the race.
Perhaps the leader could do it him or herself in the past; not any longer.
This is good news. Now we no longer need to speculate on the efficacy of leadership development programs on profitability. The ‘bottom line’ is: leadership development builds the bottom line.
What is the current culture in your organization? How much cultural entropy exists? What steps are you taking to ensure your best leaders are getting the development they will need to step up to the challenges of tomorrow?

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