Tuesday, January 27, 2015

Thoughts on The Secret Sauce of Corporate Leadership in The Wall Street Journal

Yesterday, I read this great piece by Lawrence Cunningham about the need for a "skeptical #2" in the C-suite.  He's absolutely right, of course:  the best leaders of anything* (big businesses, small businesses, higher education, primary and secondary education, government, teams of people, etc.) recognize that they need people who can force them to think things through.  The "skeptical #2" is the opposite of the "yes man."  He or she is the person who says, "yes, but."

Here's my favorite part of the piece:
Many legendary CEOs were the more visible halves of hidden duos: Mike Eisner with Frank Wells at Disney ; Roberto Goizueta with Don Keough at Coca-Cola ; and Tom Murphy with Dan Burke at Capital Cities/ABC. Though the arrangements varied among personalities and settings, there are common threads. A prominent leader drew enormous value from a second in command who quietly contributed complementary talents, provided a sounding board—and exercised veto power. Results went far beyond good governance and performance to extraordinary achievement.
It's that "complementary talents" point that we should take away from this piece, if we remember just one thing about it.  No one's good at everything, and the value of an honest, direct second-in-command is that that person can bolster those skills that aren't as strong in the leader.  Great second-in-commands are hard to find, because they have to have enough ego to be able to speak frankly to the leader and yet be willing to let the leader take the spotlight.  And they have to have enough clout with the leader to be taken seriously.

What if there's no good second-in-command?  A Chief Legal Officer (if there is one, and if the structure allows the CLO to interact with the CEO directly) might be able to help.  If the CEO is smart enough and secure enough in his or her talents, some other direct way of giving the CEO advice might help, but the point is to be able to reach the CEO before a big decision is made, not afterwards.  The most important thing that a leader must know is that very smart people can make some very dumb decisions (for my incessant squawking about this, see, e.g., here, here, here, here, here, and here), and that even the most talented of people needs a trusted ally to help provide the necessary checks and balances.
* Anything that involves more than one person.  If you're "leading" just yourself, you're either a bit unstable or really, really self-actualized.

Sunday, December 21, 2014

We're not very good at learning from our mistakes, are we?

My husband, my friend Bala, and I have edited two books on Enron.  We edited the first one as a way of figuring out what had happened at Enron so that people could avoid making those mistakes again.  We did the second book after realizing that no one seemed to have learned from Enron, and we wanted to figure out why smart people don't learn from their mistakes.  (I'm talking with the publisher soon about a third edition, meant for both law schools and business schools.)

Two different articles this week made me realize that the willingness to learn from mistakes is a rare quality.  The first one, in the Wall Street Journal, involved a CEO who allegedly wanted his subordinates to lie about the company's financials (shades of, among other things, WorldCom).  The second one (here) has to do with Fannie and Freddie being willing to finance mortgages that have very low downpayments.  A three percent downpayment leaves the buyer with very little skin in the game.

So why don't we learn from others' experiences?  There's a whole slew of possible explanations, but the one that appeals most to me is the idea that humans will find a number of ways to fool themselves--maybe not consciously, but subconsciously.  After all, "we're" not manipulating financials; we're "adjusting" them to comport with the predictions that "must" be correct.  "We're" not encouraging people to lower their emotional and financial connections to their homes; we're "enabling people who wouldn't otherwise be able to afford a home to get one."  It's a frustrating business, this refusal to extrapolate from past financial disasters.  But it's a stubborn problem.

Saturday, November 8, 2014

Hat tip to Jack Ayer for pointing out this interview about ethics and finance.

Here.  My favorite paragraph in the interview?
The ethical subversions which have cost banks and their shareholders so much, the collusion and self-dealing, were genuinely frowned on in my parts of the financial world. However, the wide gap between our practices and our clients’ true interests was so inherent in our business proposition that I can easily imagine how such behaviour seemed perfectly appropriate to practitioners elsewhere in the firms.

Friday, October 24, 2014