WHARTON LEADERSHIP DIGEST
May, 2004, Volume 8, Number 8
CONTENTS
Leading Uncertainty and Change: Wharton Leadership Conference on June 2, 2004
Dangerous Business: Lessons for Leading from the New York Fire Department
Governing Boards: What Makes for Effectiveness
Directors and Executives: What Makes for Diversification and Acquisitions
Women Take Flight: Leadership and Flying
Leading Uncertainty and Change: Wharton Leadership Conference on June 2, 2004
The Wharton Leadership Conference in Philadelphia on June 2 is focused on "Leading in an Era of Uncertainty and Change," and its speakers include John Byrne, Editor-in-Chief of Fast Company; Jamie Gorelick, National Commission on Terrorist Attacks Upon the U.S.; and Richard Myers, Chairman of the U.S. Joint Chiefs of Staff. The conference agenda can be found here, and online registration is available here.
Dangerous Business: Lessons for Leading from the New York Fire Department
By John Salka, Battalion Chief, New York Fire Department
Can business leaders really learn anything from the officers of the New York Fire Department? After all, much as you might talk about "putting out fires" around the office, there’s not much chance that you’ll be asked to lead your people into a burning board room. Go a little deeper, however, and you might be surprised to find that the differences between business organizations and the FDNY are mainly superficial. Like any successful organization, from the Marine Corps to General Electric, the FDNY owes its more than 100 years of excellence to a leadership tradition focused on resolving the same fundamental obstacles and concerns, and reaching similar goals in terms of serving their customers, as most for-profit companies.
Ironically, the insights that the FDNY can offer today’s business organizations have never been more applicable. Though technology has certainly improved since the days when Times Square was an orchard and fires were fought with leather buckets, for the most part firefighting succeeds or fails due to fundamental qualities such as teamwork and leadership. Unlike most industries, the lessons of mass production and mechanization, of time-and-motion studies, could not be applied to putting out fires. The job was, and is, a matter of taking highly-trained and capable individuals (who habitually operate in tense, chaotic environments and don’t respond well to rigid, top-down management styles) and organizing them into effective teams.
If that makes firefighters sound something like today’s highly-specialized knowledge workers, and firefighting like the fast-paced, ever-changing business environment in which they work, it should. Furthermore, unlike many organizations, which seem roiled every five years or so by a new management paradigm, the FDNY can be seen as a kind of leadership workshop, where for more than two centuries, we’ve focused on shaping and refining an effective leadership approach.
Generally speaking, people are curious about firefighting. For instance, they often want to know if we’re scared, or what it’s like to run into a burning building. However, the questions I get from leaders in other kinds of organizations are much more along the lines of: "How do you get the men and women who report to you to follow you into such dangerous situations?" Of course, this is really a question about the specific leadership approach that makes such a thing possible, and is usually followed by a second question, one that is no less pressing for being implied: "Is this something that I can use in my own job?"
The answer to the second question is "Yes, absolutely." And the answer to the first is by following something I call "The Leadership Triangle." The name has its basis in fire terminology, but essentially, it’s a shorthand description for the three fundamental components of the leadership approach that I’ve adopted while in the FDNY. These concepts come into play every time I face a crisis, need to resolve a situation, or simply interact with my people.
You Can’t Put Out a Fire with an Axe
The first principle focuses on trusting your people and allowing them to do what they’re good at. More than that, however, it means allowing them to do what they’re good at in the manner that best suits them. Here’s an example: Despite what you may think, things are pretty quiet whenever we pull up at a fire. There are no shouted orders or rapid-fire commands, no hysterical displays of "follow-me-boys" leadership. Instead, our people immediately go to work, often without any direction from their officers. Firefighting being what it is, it’s simply not practical to indulge in micromanaging and hovering; as leaders, our role is to prepare and train our people for their jobs, and then provide them with the trust that enables them to do that job. If we’ve done our part, then every firefighter on the apparatus will understand his role and how it contributes to the larger goals of the team.
The phrase, "You can’t put out a fire with an axe," actually has its roots in the rivalry between engine companies (the guys with the hoses) and truck companies (the firefighters who, with their hooks, power saws, and axes, engage in search-and-rescue). Engine guys use it to remind the "truckies" that, even though they may get all the glory with their dramatic, nick-of-time rescues, the engine companies are the ones crawling around in the smoke and cinders putting the fire out. However, I started using it to mean that you need to get the right person on the right job — for instance, you would no more use an engine guy as part of a truck company than you would put a salesperson to work designing software. In other words, use your people according to their abilities. Spend time discovering what they excel at, and then put them in positions where they can do the organization and themselves the most good.
Follow the Smoke
So what should I be doing, then, as a leader in these situations? I’m not getting in their way or micromanaging them; rather, I’m trying to help them by gathering information and assessing the nature of the situation at hand. To do this, I observe, I ask questions of my officers who are close to the situation, and I also open myself up to feedback from the front-line firefighters. The more accurate my characterization of the problem my people are facing, the better equipped they’ll be to handle it. I call this leadership point, "Following the smoke."
In my case, of course, the smoke is often very real, and by tracking it to its source, we can uncover the fire and kill it. For you, the smoke may be quarterly reports, weekly sales numbers, or customer feedback. Strive to be receptive to all information, particularly data or observations that seem to contradict your assumptions. Because no matter what form your smoke takes, it’s your best opportunity to face the real problems facing your organization. Ignore it, and you may be allowing a small fire to turn into an unstoppable inferno.
Give Them "The Pipe"
The FDNY emphasizes the importance of leadership at every rank. While this certainly sounds like a nice thought, and many companies might express a similar philosophy, in the fire service it’s more than an aphorism: it’s a necessity. As I’m outside evaluating the situation and formulating a plan, my junior officers have taken their teams inside the building to begin their preliminary attack and search procedures. As a leader, I can only be successful when other people take on leadership roles and responsibilities. If I had to be everywhere at once inside that burning building, with a fire that’s jumping from floor to floor in the blink of an eye, we’d be in a lot of trouble. Therefore, it’s essential that the officers, as well as the senior men (the most experienced firefighters in the company), be leaders in their own right. This enables them to support the more junior firefighters, guide the team, and supply me with constant updates so I can do my job effectively.
Leadership at all levels doesn’t just happen. Since leadership is not an "on-demand" quality, it’s essential that existing leaders in an organization take the time to develop those who show leadership potential. You can do this in your organization by delegating responsibility to those below you. Start giving likely candidates the freedom to make mistakes and discover their own style; at the same time, use these mistakes as opportunities to educate, and not simply to criticize. In engine companies, the nozzle end of the hose is often referred to as "The Pipe," and manning the nozzle is a leadership role. That’s why I call this process of building leadership among your people as "giving them The Pipe."
Ultimately, I think it’s clear that these three principles really have nothing to do with my specific field — firefighting — and everything to do with smart, effective leadership. By putting these principles — to work, you can inspire your people to follow you anywhere, even if it happens to be into a burning building.
Note: John Salka is the author with Barret Neville of First In, Last Out: Leadership Lessons from the New York Fire Department (Porfolio/Penguin, 2004). John Salka can be reached at john@fivealarmleadership.com, and Barret Neville at barret@nevilleagency.com.
Governing Boards: What Makes for Effectiveness
By David A. Nadler, CEO and Chairman, Mercer Delta Consulting
Mercer Delta Consulting, in conjunction with University of Southern California’s Marshall School of Business Center for Effective Organizations, recently conducted a corporate board survey to assess how the boards of major U.S. public corporations operate today and how their practices are changing in light of new governance legislation, regulations, and guidelines. While directors indicated that boards last year increased the time they spent monitoring their companies’ financial performance and accounting and governance practices, there seems to have been little change in the amount of time boards spend on succession planning, senior leader development, director education and training, and board assessment. Further, only 41% of directors responded favorably when asked to rate the effectiveness of the new governance practices in improving overall board performance, and a mere 12% of directors responded favorably when asked to rate the effectiveness of new governance practices in improving company performance. These findings underscore a hidden danger of governance reform: misdirected management effort. When the reforms become a valuable end in themselves, they can easily lead to a massive waste of time, energy, and focus. To re-direct wasted effort, our survey pinpoints specific areas where focused work is needed.
The survey results are based on responses of 249 directors drawn from over 200 corporate Boards, 86% of whom were outside directors, 12% of whom were inside directors, and 2% were unspecified.
Specific survey results indicate that corporate directors:
Think Their Boards are Effective. Overall, 90% of directors surveyed expressed positive views regarding their boards’ effectiveness, including fiduciary oversight and — to a lesser extent — strategic oversight.
Do Not Think Their Boards Devote Enough Attention to CEO Succession. Nearly 40% feel that their boards are not devoting enough time to CEO succession planning, and only half rated their boards favorably when it came to effective succession planning.
Spend More Time Formally Evaluating CEO Performance and Compensation. 79% reported that their boards have formal evaluation processes for CEO performance, up from 67% in 2001; 86% said they measure the CEO’s performance against a set of mutually-agreed-upon (the CEO and board) targets set at the beginning of the year, and 88% include formal feedback sessions with the CEO.
Believe Their Boards Have the ‘Right’ Mix of Competencies. 90% indicated that their Boards have the appropriate mix of skills and experience to contribute meaningfully, but directors were less positive when asked to rate board member competencies in specific areas.
Feel Sufficiently Independent from Management. 88% percent rated their boards favorably in regards to their independence from management.
See Increasing Separation of Executive and Director Roles. 15% reported that their boards have a non-executive chair who is not a current or former employee of the company (up from 10% in 2001), and 46% said their boards have an independent director who serves as lead or presiding director, a 14% increase from 2001.
Consider Their Boards’ Committee Structures Effective. A vast majority (90%) rated their boards’ committee assignments favorably in utilizing members’ skills and experiences.
Feel They Get Adequate Information from Management. Generally positive regarding the information management provides to carry out their work, only 28% of directors rated favorably their boards’ independent (outside of management) company information channels.
Have Productive Relationships with Senior Management. 86% feel they have adequate exposure to key senior managers, 90% "work well" with senior management, and 73% feel that their expertise and experience are utilized by senior leaders.
Are Increasingly Evaluating Their Boards’ Effectiveness, but Not at the Individual Director Level. 56% of directors reported that they formally evaluate their boards’ performance, up from 42% in 2001, but only 24% said that their Boards regularly evaluate individual directors, up from 19% in 2001.
Note: David Nadler can be contacted at david.nadler@mercerdelta.com.
directors and Executives: What Makes for Diversification and Acquisitions
The functional backgrounds of executives and directors influence are known to influence their decisions on a range of company practices, including diversification and acquisitions. But the impact of that background may differ markedly depending on whether the individual is the chief executive or a director.
Drawing on a sample of 200 firms listed in the Fortune 500 from 1985 to 1985, Michael Jensen and Edward Zajac expected that financial backgrounds among CEOs would lead to greater diversification and acquisition since they tended to prefer such growth, in contrast to CEOs with production backgrounds who more often looked to internal growth. The researchers found systematic evidence in support of this forecast: Replacing a non-finance CEO with a finance CEO, for instance, was associated with more than $100 million annual additional spending on acquisitions.
The investigators also predicted that non-CEO directors with financial backgrounds would be less drawn to diversification and acquisitions than non-CEO directors with other backgrounds. The researchers argued that non-CEO directors with financial backgrounds would be especially skeptical about whether diversification and acquisitions would enhance shareholder value. Here too the evidence confirmed the forecast.
The prior functional experience of directors and CEOs affects their views on critical company decisions — but in the case financial experience as it bears on diversification and acquisitions, with opposite consequences.
Source: Michael Jensen and Edward J. Zajac, "Corporate Elites and Corporate Strategy: How Demographic Preferences and Structural Position Shape the Scope of the Firm," Strategic Management Journal, v. 25, 2004, pp. 507-524.
Women Take Flight: Leadership and Flying
By Sue P. Stafford (right), pilot and airfield owner, and Linda Fritsche Castner (left), pilot and Simmons College
Airplanes and business leaders may seem like an unlikely pairing, yet the flying of airplanes holds a surprising power to instruct. We know this from research we conducted over the past year through a workshop that combines traditional classroom instruction with experiential activities, aircraft ground instruction, and flight time for women who have not flown before. The workshop also includes guided discussion to assist participants in transitioning their newly developed "pilot in command" perspectives to their personal lives. Our research confirms that the workshop experience leads to empowerment.
The workshops — entitled Women Take Flight — have included two dozen women of diverse ages and background. We found that the experience did little to develop self-reliance. In fact, most participants reported themselves to be fairly self-reliant before the workshop started! But all participants reported an increase in empowerment, self-esteem, and self confidence. Said one participant, "Every time I take a risk, I feel more confident about myself in general. This confidence is partly because I feel that others will respect me more and partly because I proved that I could push my own conceived limitations and that helps me to believe that I can surpass other limitations yet to be encountered."
It would appear that when participants with a desire for self-development experience an emotionally challenging learning process, as in the Women Take Flight workshops — they can enhance their self-respect and sense of personal empowerment. We have consequently renamed the workshop Leaders Take Flight, and we are now testing whether flying experience can help both men and women build the courage to take managed risks, a capacity to navigate by establishing clear intentions and setting firm directions, and an ability to make fast and accurate decisions and to communicate and coordinate with others.
Note: Linda Castner and be reached at upupaway@ptd.net.
Copyright 1996-2004, Wharton Center for Leadership and Change Management
University of Pennsylvania.