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Knowledge@Australian School of Business

Adaptive Leadership: Can the One-trick CEO Be Retrained?

Published: September 21, 2010 in Knowledge@Australian School of Business
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The swift removal of Australia's former prime minister, Kevin Rudd, from the nation's top job by a group of disaffected subordinates may have provided pause for thought for business leaders on their own management styles. Rudd had guided Australia through the global financial crisis but was dumped in late June. The former diplomat and bureaucrat, who had enjoyed "rock-star status" after coming to power in 2007, was rebuked for being a micromanager who wanted to be across the tiny details of too many decisions. His authoritarian management style did not suit the post-financial crisis environment – or his Australian Labor Party colleagues.

But Rudd, now Australia's foreign affairs minister, is far from alone in falling from grace due to a seemingly intractable approach to management. CEOs and other executives with inflexible leadership styles only operate well when the economy, their competitors and customers, the regulatory environment and technology remain relatively unchanged, experts claim. The inability to adapt is a career-limiting factor in 2010. And the "one-trick pony" leader – often surrounded by "yes men" (and women) who support the leader's world view and keep bad news at bay – is earmarked as a dying breed. Chief executives of listed companies, in particular, are under increasingly sharper scrutiny and they must be responsive to the environment in which they operate, insists Loretta O'Donnell, academic director of the AGSM Graduate Certificate in Change Management at the Australian School of Business. "CEOs and organisations that can manage change tend to outperform competitors in their industry sectors," she notes.

The CVs of "two-dimensional leaders" provide clues for those who may be most at risk, observes Barry Bloch, partner in leadership consulting at Heidrick & Struggles, a global executive search firm. Typically, they have one-track careers with "experience in single industries or single companies", he says. And the inability to adapt often reflects where they have learned to lead.

Take the case of Dick Fuld, known as "the Titan of Wall Street", who had worked at investment bank Lehman Brothers for 39 years before he became its CEO in 1994. Fuld was the longest tenured CEO on Wall Street when the company filed for bankruptcy in September 2008 – the largest bankruptcy in US history. He was well known for his authoritarian leadership style. In early 2007, the CEOs at Lehman's competitors, Merrill Lynch and Citigroup, were asked to step down by their boards because their leadership was deemed inappropriate to take the companies through the tougher financial times ahead. Fuld was aggressive, confident and sure of the way forward, but drove Lehman into bankruptcy because he couldn't be told that the complex financial modelling that the company had used to evaluate sub-prime mortgages was incomplete. Yet even David Li, the financial economist who created the original formula used by Lehman Brothers and others to cost securitised debt, had warned: "No one should believe everything that comes out of it."

Who's Not Listening Now?

A hallmark of the authoritarian leader is not listening to others, bypassing the opportunity to hear bad news. A common tactic is keeping people who may challenge their approaches at bay by surrounding themselves with those who understand and support their style of leadership. Frequently, a cabal of chosen operatives goes with a CEO when he or she changes jobs.

For example, former US communications executive Sol Trujillo set up a two-tiered employment system at Australia's dominant communications provider, Telstra, where he served as CEO from 2005 to 2009. Trujillo – variously described as "a bit dictatorial", "kind of petulant" and "confrontational" – imported US executives on two- to three-year contracts, while Telstra's Australian group managing directors were offered contracts of only six months. Up to 80 US executives, including Trujillo's inner circle of Phil Burgess (who took the role of public policy and communications chief), Greg Winn (chief operating officer) and Bill Stewart (strategic marketing chief), had worked with him previously at two telcos in the US. Trujillo believed he needed to import executives because Telstra lacked capability in those key areas. Over time this arrangement may have hampered his access to objective feedback, insiders suggest. Local knowledge may also have been a problem. A factor working against Trujillo during his tenure at Telstra was his US background, although his offshore experience was one of the key reasons he was hired. Former Australian federal treasurer Peter Costello, writing in The Sydney Morning Herald in May 2009, reflected: "To bring in an outsider to Telstra who had no understanding of the previous life of Telstra as a government monopoly, no appreciation of the sensitivity of the privatisation, no respect for the role of the regulator to promote competition, and no inclination to understand these things, was a big mistake." Telstra's share price dropped 38% in the four years of Trujillo's stewardship.

The risk in a leader having the same group of confidantes is that they may not receive the right feedback, according to Tim Powell, managing director of human resources group, Hewitt Associates. "Constant, fearless feedback is essential for senior leaders. No one is so gifted that they can lead well without feedback," he says. And no-holds-barred feedback is healthy, not only for the organisation but also for the CEO's career, Powell notes, because it helps to pinpoint the areas where the leader may need further development.

Rosemary Howard, executive director of AGSM Executive programs, observes that the approach of many leaders is narrow. "There's a tendency to favour a particular way of working. Without deliberate learning and development, people may not fully understand the subtleties and complexities of an environment and may not adapt to new situations." And this is likely to happen when executives change country cultures, she says. But Powell asserts there is more talk about CEOs who won't change than there are people like that: "Some have style preferences that suit certain circumstances, but most are reasonably rounded and agile." He believes that one of the reasons many Australian companies managed well through the recent economic downturn was because of the high quality of its leaders. "CEOs who were clear about their vision and strategy were winners over the last cycle," suggests Powell. However, Howard sees it differently. "People from other countries comment on how Australia doesn't invest in the rigour of its leaders and how Australia is the place where ‘not good enough is considered good enough,'" she says.

Throwing the Switch

CEOs and other leaders whose style is not suited to a new environment or market conditions are not beyond redemption. "They can learn to lead differently," emphasises Bloch, whose organisation works with boards to help them have frank conversations with chief executives about the need to change leadership styles. "Changing the leader's style is an investment decision by the board and needs to be viewed that way. The first step is to identify what needs to be learned. The more senior the individual is, the more qualitative and extensive the discovery phase will need to be, starting with a review of the skills and experience they have and the personal and business decisions they've made, followed by qualitative 360-degree conversations with a wide range of people who can share real insight into the leader."

Bloch's research reveals five "levers for learning". Leadership is learned through formal training (about 5%), on-the-job learning (more than 80%), coaching and mentoring (about 10%), unstructured learning, such as reading books (less than 1%), and through special projects and secondments (about 5%). Specific development needs and learning preferences determine which combination of these should be used to create a well-rounded leader.

Howard is quick to point out the mistake of people thinking they can learn everything "from the school of hard knocks". Understanding the benchmark of "best practice leadership" is also crucial, she says.

And there's certainly no one-size-fits-all change management leadership style, according to O'Donnell, who refers to a model developed by Doug Stace and Dexter Dunphy in their book Beyond the Boundaries: Leading and Re-creating the Successful Enterprise. Leaders can choose to be coercive, directive, consultative or collaborative when managing change that might be fine-tuning, incremental, modular or across the whole organisation. "Managers need a repertoire of styles so they can choose the appropriate one for particular situations," O'Donnell says. And while CEOs set the tone and style, leadership as a capability is ideally widely distributed across organisations.

Interventions, such as executive education, intense and rigorous management courses, mentoring and coaching are catalysts – but they only go so far to ensure lasting change will filter through an organisation, says O'Donnell. "My research indicates that a systems perspective is required," she says. "Along with leadership support, internally consistent human capital systems including recruitment, training and development, career planning, remuneration and knowledge management systems, as well as symbolic and practical changes, such as improving the physical environment, can all work together to help sustain organisational change. Human capital systems can be seen as a process of executing strategy in many organisations, particularly knowledge-based ones. These systems often outlast the tenure of many CEOs."

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