Thursday, April 10, 2008

Risk Leader

Fundamentally, a leader goes first, and leads by example. The other people are called followers. Everyone is going the same way. On a slightly deeper, but important level it is useful to understand that real leadership involves inspiring people by example that a risk can be surmounted. People do not need to be led if the direction they are going in involves no personal risk, that’s just supervision. The leader shows how to step over the fear and take the risk.

The issues around taking risks are something an innovator gets very familiar with very quickly. Our brains tend to become inelastic around repeated success patterns. This phenomenon manifests itself in a strong negative, almost protective, reaction to something that threatens to alter the pattern. Innovation is, of course, all about altering some existing pattern. The risk the innovator faces is the personal consequences of putting forward something that gets everyone’s hackles up. The first response to a good idea often involves a personal attack “With all due respect[1] your idea is crazy”, or “this is just a poorly conceived, stupid idea.” Because strong synthesizers often have low EQ’s they are not adept at navigating the interpersonal landscape, including confrontation. Devil’s Advocates can kill good ideas if the person with the ideas lacks confidence in the organization. Leadership makes pushing forward such ideas more palatable. Leaders must set an example showing a willingness to take risks. It is impossible to lead people to take risks if you do not significantly participate in the risks yourself.

An officer wanting to lead his soldiers up the hill into a hail of gunfire needs to inspire his troops to move forward. If the officer is standing there if full body armor with bullets bouncing off and his troops only have their cotton uniforms, he may have a little trouble delivering that needed inspiration. It doesn’t take a great synthesizer to see that today’s CEO’s seem to be immune from personal risk. Simply the amount of the compensation a CEO takes home means that the fundamental risks most people face in losing a job do apply to the executive ‘leader’. Second, many companies have announced lay-off due to declining performance, without preceding such layoff with some significant diminution of Senior Executive compensation. The people, most in control of the company’s poor performance, suffer the least or not at all. And finally, recently we’ve seen CEO’s who’ve led their companies into disaster; get led to the door and walk away richer than if they’d led the company to success.

When Harold Geneen, the CEO of ITT, was issued stock options by the board of directors, he immediately went out and borrowed a huge amount of money to exercise those options. Options are popular because they remove the downside risk for the recipient. By exercising them immediately, he put all that risk back in, and doubly so, since he had to borrow the money to buy the shares. He understood. If the leader wants to lead a great company, then he needs to set an example as a risk taker.
If boards want their CEO’s to take leadership roles, they will need to construct pay packages that put back the risk. Huge pay should come with huge risk. Severance package for CEOs should be based solely upon the subsequent performance of the company as reflected in dividends.
[1] “With all due respect” really means “I am tolerating your idiocy”
Post a Comment