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Lincoln and leadership

2012-12-06 09:08:41

Schumpeter

Outsiders can make the best leaders and also the worst

Dec 1st 2012 | from the print edition

IN MAY 1860 the Republican National Convention met in Chicago, in the teeth of the worst crisis since the revolution, to choose a presidential candidate or, rather, a president, since the Democratic Party had split asunder. The candidates included two of the most experienced politicians in America William Seward and Salmon Chase but the delegates bet instead on a one-term congressman who had failed to win a Senate seat for his native state, Illinois, and who suffered from debilitating depressions.

Abraham Lincoln now regularly tops historians lists of the greatest American presidents. But he owes his greatness partly to the fact that he was an outsider on whom no sensible man would have bet. He made a series of bold moves such as sending ships to supply Fort Sumter, thereby forcing the South to fire the first shot of the civil war that his more experienced rivals might not have made. And he gave a series of nation-defining speeches that nobody else in the country could have delivered.

It is no surprise that the leadership-cum-management industry has embraced the outsized figure of Lincoln. Donald Phillips s study, Lincoln on Leadership , bears the subtitle Executive Strategies for Tough Times . Nor is it surprising that Steven Spielberg s film, Lincoln , is boosting the lessons-from-Lincoln trade. Executives are once again practising the Gettysburg address before their mirrors and reading the book that gave Mr Spielberg his inspiration, Doris Kearns Goodwin s Team of Rivals .

Most of this is nonsense. Mr Phillips uses Lincoln to illustrate well-worn nostrums such as the virtues of managing by walking around (Lincoln spent a lot of time walking around battlefields). Ms Goodwin s advice about teams of rivals would produce havoc in the average corporation. Any boss who imitated Mr Spielberg s Lincoln and roared that he was clothed in immense power would soon find himself out of a job. Towering genius disdains a beaten path, Lincoln once said, which limits what can be learned from his example.

But not all Lincolnology is tosh. In his new book, Indispensable , Gautam Mukunda, of Harvard Business School, uses Lincoln to examine one of the liveliest debates in modern management whether insiders or outsiders make better bosses. Before the financial crisis the consensus was strongly in favour of insiders. But it is shifting, partly because so many insiders made a hash of things and partly because companies are casting around for a way to reignite growth. In an annual study of 2,500 companies Booz & Company, a consultancy, calculates that the proportion of chief-executive posts going to outsiders rose from 14% in 2007 to 22% in 2011. In Europe the share went from 14% to 31%. On November 26th Britain broke with precedent by appointing a Canadian, Mark Carney, to run the Bank of England.

The better angels of our nature

Mr Mukunda divides leaders into two types, filtered and unfiltered . The filtered are known quantities: insiders who have been subjected to a succession of tests designed to reveal their strengths and weaknesses. The unfiltered are enigmas: outsiders like Lincoln who have never been tested by high office; insiders like Winston Churchill who have fallen out of favour; or transplants like Mr Carney who have made their reputations in alien organisations. Filtered leaders tend to make little difference: the other insiders on the shortlist might have done just as well. But unfiltered leaders can make a huge difference, sometimes for the better as Lincoln and Churchill did, but more often for the worse.

Another recent book from the HBS stable, William Thorndike s The Outsiders , reinforces Mr Mukunda s argument about the possible advantages of unfiltered leaders. Mr Thorndike examines eight bosses whose firms outperformed the S&P average by more than 20 times over their business careers and finds that they were all outsiders who brought fresh perspectives to their industries. Katharine Graham of the Washington Post was a widow who had not had a paid job for years, Bill Anders (General Dynamics) was a former astronaut, Tom Murphy (Capital Cities) had never worked in the media before he took over a struggling television station and Warren Buffett (Berkshire Hathaway) is Warren Buffett.

But for every successful outsider there are a dozen failures: think of Carly Fiorina at Hewlett-Packard, John Sculley at Apple, Bob Nardelli at Home Depot, Richard Thoman at Xerox or Jeff Skilling at Enron. Al Dunlap leapt from company to company, cutting jobs and boosting short-term profits as he went, until the Securities and Exchange Commission forced him to put his chainsaw away. Booz points out that in 2009-11 34.9% of outside bosses were sacked, compared with only 18.5% of insiders.

This suggests that it is best to avoid outsiders if things are humming along fine. It is much easier to go from good to bad than it is to go from good to great. But if things have stopped humming if your company is in crisis, like General Motors, or your industry is being reshaped, like telecoms then you should look for an outsider. The standard method is to choose a star from another organisation, but many turn out to be duds. One alternative is to appoint an insider-outsider , such as a high flyer who has left to do something else. Tony Hall, appointed to the BBC s top job to replace a man ousted after 54 days in the post, fits that bill: he was a BBC man who left the corporation to run the Royal Opera House. Another option is to draft in someone to do a senior job for a while before deciding whether to give him the top slot. Mr Mukunda suggests that you take informal soundings from any prospective hire s colleagues rather than rely on formal interviews. The reason why companies tend to bet on insiders is

not that they think they might be clothed in immense power but that they know what they look like in their underwear.

http://Economist.com/blogs/schumpeter

from the print edition | Business