Wednesday, October 27, 2010

Can Leadership Be Taught?

The debate is probably as old as commerce itself. Can competent business leadership be taught? Is it something inherited? Is it an inborn trait? Or can it be developed, taught, groomed, or nurtured? Can business schools teach students to develop habits, skills, practices, knowledge and analysis to become strong senior leaders of major corporations?

The Consortium's IN Magazine (online at permitted two Consortium alumni to tackle the same questions. They hold their "debate" in the latest issue. Alumni Michael Carson and Christopher Earley each take sides and go at it--of course, in a respectful, business-like way. There are no easy answers to the question, no matter if some think so. Carson and Earley recognize that in their analyses.

There are some skills, experiences and background senior managers and strong leaders must have. They aren't necessarily born with them. On the other side, some people have natural tendencies to manage complex organizations, convince constituencies of their points of view, and execute business strategy (or "make things happen").

In the leadership of global financial institutions, skills, background and knowledge are a necessity to lead and run complex organizations. Even the best bank CEOs of global banks can't run their organizations without a sufficient understanding of capital markets, market and credit risk, bank products, systems and technology, and financial regulation. More and more, they also need to understand global cultures, politics and economics.

But if all else is equal (meaning, if we assume among top-tier managers, knowledge and skills are equal), will the best leader be the one who learned leadership in school, learned along the way to becoming senior, or simply has an inherent ability to manage, execute, visualize and inspire?

When evaluating leadership, performance (based on such widely known metrics as return-on-equity or percentage increase in stock price or market value of the firm) counts for much. Performance will typically be the first benchmark in determining who is a good leader or who is mediocre and drifted up the ranks with good luck in hand.

The ability to execute counts, too. The best leaders--despite what might be happening on the bottom line--manage to overcome obstacles and resistance to get things done. That can be projects, acquisitions, expansions, and innovation. It can also be managing through disaster, catastrophe, or regulatory hurdles. Often, execution and performance are correlated

Charisma counts, too, although it's hard to define or describe. Strong leaders are able to inspire employees, get the best and most from them, and harbor a culture where people want to be there and want to contribue. They have that something special to win over clients, squash bureaucracy and inefficiencies, and encourage boundless innovation. They get others to follow them, because others believe the creed, understand the mission, or enjoy the culture within which they work.

The debate above is really then about whether these qualities and abilities can be learned in business school or developed along the path to senior management.

Business schools, we know, can't hand over a platter with a to-do menu that shows the budding executive how to be a strong leader. They can, however, study and assess strong leadership in the past and show how leaders were effective in numerous circumstances, business situations, or industries. They can show how they fared in financial difficulty or how they might have overhauled an organization through bankruptcy. They can show how they envisioned and pushed for expansion, innovation, or new ideas and products. They can show how they re-engineered companies, directed them into new businesses or products, or boosted performance by cutting costs without killing the enterprise.

In finance, over the past several years, assessing strong leadership has been tricky. Those who were described as powerful, effective leaders a decade ago were being blamed for the financial crisis years later. In 2005, few could be found who might have said the leaders of Merrill Lynch, Lehman Brothers, Wachovia, and AIG were incompetent, clueless or out of touch.

At Merrill, CEO Stanley O'Neal rode the coattails of a senior mentor, but proved himself along the way to be smart, detailed-oriented, meticulous, and extraordinary astute about cost-cutting and boosting Merrill's returns. He had a reputable background in investment banking and spent time as CFO.

Once the crisis came about, O'Neal was suddenly regarded as aloof, unaware of the risks the firm had been taking throughout its product lines, unfamiliar with the nuances of mortgage products and securitization, and incapable of gaining a full grip of the risk-management role.

Former Merrill CEO John Thain was considered one of the brightest, young leaders at Goldman Sachs during his rise there. He moved on to be the vital force that led the New York Stock Exchange out of the dark ages of sort by expanding the organization, taking it international, welcoming its electronic transition and revolutionizing how it oversaw stock trading around the world. Yet at Merrill, he is considered the one who never fully grasped the deep problems at Merrill or never successfully disclosed the extent of them to outsiders.

At Lehman, Richard Fuld for years was considered its heart and soul. He was the link to the old-boy Lehman, the senior banker who brought Lehman back from its early 1990s ashes (when it was owned by American Express) and marched it back to its prestigious bulge-bracket status by the mid-2000s. It was his leadership, many said years ago, that willed Lehman back into solvency in the late 1990s' financial crisis, when rumors about its liquidity problems almost sacked the firm.

Today, many consider Fuld (along with Bear Stearns' Jimmy Cayne) an example of senior leadership without a clue of how the complicated organization below him was run or with no understanding of the risks of mortgage products and high leverage on the balance sheet.

At Goldman Sachs and at the U.S. Treasury, Robert Rubin was considered a stalwart, bright leader. The history books say Goldman Sachs separated itself from the pack under Rubin's leadership. These days, some want to blame the financial woes of Citigroup on him, when he was a senior insider at the bank and observed much of the decision-making that led to disastrous results during the crisis.

The lesson here is that those who assess competent leadership shouldn't be so quick to attach labels. Or they should develop more careful, thoughtful criteria and assess leadership not over the span of a few momentum years, but the span of a long career. They should assess leadership in the face of many scenarios, circumstances and benchmarks.

This doesn't, however, address the original question: Are the best leaders born that way? Some are born with or develop traits that contribute to outstanding leadership: passion, confidence, enthusiasm, intensity, etc. Many, however, learned the trade along the way, mastered their industry or function, established networks and relationships, and sprouted from a foundation of skills they learned long ago (while in business school?). The best leaders combine skills and natural abilities: They combine accounting and finance skills with passion and intensity, for example.

There is no easy answer. Carson and Earley in their own essays tackle the topic and deserve a hearing. Some things can't be dismissed, however. If you plan to become a strong leader in finance or plan to lead a bank or financial institution, you can't do it without a competent appreciation and understanding of accounting, finance, capital markets, economics, marketing, organization management, financial regulation, and business policy--skills you can, for certain, pick up in business school.

Tracy Williams

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