With the Wall Street meltdown in the news today, yesterday, and presumably for weeks to come, it was fascinating to read the article “Eyes on the Wrong Prize: Leadership Lapses That Fueled Wall Street’s Fall” from the website of the Wharton School of the University of Pennsylvania. While the pundits point blaming fingers at greed and lack of regulatory oversight, the Wharton faculty say “The shocking succession of corporate meltdowns signals a massive leadership failure across the financial services landscape, according to Wharton faculty.”
From the article:
[Wharton management professor Peter] Cappelli says too many managers simply choose not to lead. He says managers believe that if they hire smart people and provide huge financial incentives for individual results, management of the firm will take care of itself.
Surveys of incoming MBA students who had worked in finance, and particularly in investment banking, according to Cappelli, indicate that managers in these fields are particularly harsh and ineffective. These managers provide little feedback, expect long hours in the office even if they are not productive and destroy an employee’s work-life balance. The long hours make up for management’s lack of discipline and planning. “All the problems were smoothed over by bonus money, lots and lots of it, based on individual performance,” Cappelli writes in a column published this week by HR Executive. “Taking risks to achieve one’s individual targets, even if it puts others or the organization as a whole in danger, seems acceptable. Covering up failures becomes the norm.”
And here’s the opinon of another Wharton professor:
Thomas Donaldson, Wharton professor of legal studies and business ethics, says top level managers too often focus narrowly on issues that concern their organizations and do not pay enough attention to what is going on across their industry. “These problems are so tightly connected to broader problems in the overall financial services and banking industries. Everybody in those industries needs to be better attuned to slowly percolating [crises] and ethical issues,” he says.
So on Wall Street we’ve had “managers,” not leaders. They hire good people, drive them to work long hours, and if the numbers are good at the end of the quarter they get their financial incentives in the form of large bonuses. Contrast this with leadership, especially with what we at Barnes & Conti refer to as “Inspirational Leadership.”
We define a leader as, “a person to whom others turn for direction, inspiration, moral authority, or support; someone we trust to guide us toward a shared future.” The difference between a leader and a manager is that a leader sets the context and a manager works within the context to achieve the results. In the current meltdown, it certainly looks like there was little or no context, and the desired result was profits for the shareholders and bonuses for everyone else.
Let’s take things one step further. What is inspirational leadership? Inspirational leaders have a mission, they have values, and they have a vision. I quoted professor Donaldson (above) on the narrow focus of the Wall Street managers; they lacked vision for a broader context and values to deal with potential ethical issues. Inspirational leaders impart the vision, mission and values by one or a combination of the following skills:
- Inspiring: including envisioning, encouraging, and challenging others
- Engaging: by inquiring of others, listening, and contributing appropriate help to support others
- Building trust: by identifying with others, disclosing relevant information about oneself, and empowering others
- Sustaining commitment: by re-energizing the vision and overcoming obstacles, recognizing the contribution of others, and facilitating learning from failures and successes</li>
According to Donaldson, there can be a cost to pay for lack of leadership, especially when the company’s reputation is at stake. Says Donaldson, “every year, companies lose more through damaged reputations than they do from regulatory fines or legal actions.”
I couldn’t help but notice that the Wharton faculty didn’t have much to say on the leadership training and development they offer within their MBA programs; specifically, how do they create leaders not managers? The information I shared with you about inspirational leadership comes—not from an Ivy League business school—but from a Barnes & Conti course called Inspirational Leadership.
If we’re going to get through the current mess, it should be painfully clear to all. We need leaders who can inspire. And if the business schools seemingly overlook the importance of developing inspiring leaders, Barnes & Conti will be more than happy to help.