As Europe struggles to find solutions to its sovereign debt crisis, Wharton management professor Michael Useem sees the opportunity for leadership there to rise to a challenge: Putting Europe's needs above their own country, and themselves. For politicians seeking reelection, it might be a difficult challenge, but Useem says the willingness to make tough decisions and put others' needs before their own are the most inspiring and important qualities leaders can demonstrate in a crisis.
Useem, who is director of Wharton's Center for Leadership and Change Management, recently authored The Leader's Checklist, a collection of 15 principles that can help leaders navigate successfully through even the most difficult circumstances. Using such milestone events as the rescue of the 33 Chilean miners in 2010, the collapse of AIG in 2008 and the surrender of the Confederate army at Appomattox in 1865, Useem illustrates the difference between good and bad leadership, and how to achieve one's own personal leadership success.
Useem spoke to Arabic Knowledge@Wharton during a recent visit to Abu Dhabi, the capital of the United Arab Emirates. An edited transcript of the conversation follows.
Arabic Knowledge@Wharton: Is the global financial crisis a crisis of leadership?
Michael Useem: The sovereign debt crises in Europe, and the problems we've had in the U.S. with Lehman Brothers and Bear Stearns, are in many respects self-inflicted wounds. It was an avoidable crisis, a product, to use a tennis term, of 'unforced errors.' That is, errors did not have to be made — and some of the errors, certainly in the case of our own financial crisis in the U.S., were a product of greed, inadequate regulation, and ultimately just very weak leadership within the companies, and also within the U.S. government in anticipating the possibility of a huge sub-prime mortgage crisis.
Leadership, including the actions by government officials, and decisions by top corporate executives, may become absolutely critical in as much as the impact of leadership unequivocally is greater during a crisis or in periods when markets and organizations are going through just a whole lot of change. As we dug out of the crisis in the U.S., a lot of credit was due to people like Henry Paulson, then our treasury secretary, for taking action to avert a true calamity.
From a distance, it appears the European sovereign debt crisis is also the result of self-inflicted wounds, with politicians in particular making decisions in their respective parliaments that led to this moment. What feels different in the European context is that there are many quarrelling players who are sometimes partners. At the center of the storm, the Chancellor of Germany is one of many players stumbling to form some kind of agreement on how to move forward. So in some respects, the sovereign debt crisis in Europe feels less acute in the sharpest sense than the failure of Lehman and the days that followed with the collapse of Merrill Lynch and AIG. But having said that, the lack of discipline, of a coordinated and somehow centrally aligned political leadership in Europe seems to be a major liability at the moment.
Arabic Knowledge@Wharton: What can leaders do in that instance when they're facing difficult financial decisions or difficult political decisions? What's the onus on them?
Useem: This is obvious as soon as I say it: Number one, think strategically, that is, to get beyond the moment. Don't worry about all the players. Think about what you would do that may cause other people to react well or poorly, people whose cooperation and alignment you need.
Number two, and this I think has been vexing in both the U.S. and in Europe right now: Decide decisively. Again to Paulson's credit here, during that big mess in 2008, he and his team made a series of decisions, including creating the TARP fund; these were extraordinarily time sensitive decisions that had to be made or else the catastrophe would have doubled or tripled. So deciding decisively when your inner spirit militates against that is a test of leadership if you will.
And number three, this is the very definition of what it means to lead: Transcend your party. Transcend your own history. And in the case of Europe at the moment, transcend your own national interest to find the right way forward that Europe needs, not just Germany, nor France, nor just Italy. Easier said then done, as Angela Merkel is elected by the people of Germany and not by the people of Europe. But at the end of the day, we, as followers of such events, look upon people like Nelson Mandela who could transcend the place they are in the world to visualize and create a better place, even though in their own narrow self-interest the costs are very high. I hope we see the same thing in Europe now, and certainly in the U.S. as well: Leaders in high office who are able to transcend the "here and now" and focus on the ultimate purpose — in this case the economic prosperity of Europe and the U.S.
Arabic Knowledge@Wharton: Considering Europe's dilemmas, how does leadership reach consensus, if some members of a coalition or group feel that other members are the ones responsible for creating the crisis situation?
Useem: Let's say when a company such as the great German manufacturing firm Siemens wants a new chief financial officer. Siemens would go to a search firm and ask for a set of best worldwide candidates to become chief financial officer; not necessarily German, not necessarily English, just the best in the world. One of the high ranking partners of this firm then goes out to people around the world who know a lot of perspective candidates who could become a senior financial officer for a company like Siemens. But the main search principle is there is no control, there is no authority, and it's purely informal. The art of leading within this firm is persuading people through influence and not through an authoritative line.
Back to Europe, it's sort of an obvious point. These sovereign leaders are all going to, as they say, 'Hang separately if they don't hang together.' Especially for Merkel, the work at hand is pushing, cajoling and otherwise persuading people over whom she has no direct control to step forward and support a solution. Pushing the European banks and some American banks over which they have no direct control either to take a bigger haircut on the debt that they have with Greece in particular but elsewhere too. The issue becomes the art of exercising and influence without power itself. It probably begins with a vision of where Europe has to go and then a very persuasive way of articulating and communicating that. People do understand why in the short-term they have to have higher taxes, or hunker down for a period, but only if it is effectively explained, and that's the challenge.
Arabic Knowledge@Wharton: Does leadership avoid difficult decisions when there isn't an incentive? Can they be criticized if they show more of a will for self-preservation? We often demand politicians to make decisions that they ultimately get criticized for anyways.
Useem: Everybody in a position of any authority has to be savvy about career management and then separately about exercising their leadership responsibilities. On most days of our lives, thank goodness, what's good for our career is good for the company or the country. But there are times, and this is certainly one, when what is good for the country or the company may certainly in the short run or even more, be very costly to our own career. For the politician it may mean weakness in the polls and maybe defeat when the election comes. The same thing happens in business. You've got people who've taken very brave stands — I think about some of the whistleblowers that called American companies to task for malfeasance. In most cases, they'd see their own career suffer, but on the other hand, they did a noble work on behalf of a greater cost. I think that's what we all struggle with.
I don't want to get too normative by saying, 'You'll always have to put public interest above private self-serving interest.' But, almost by definition, somebody who's given a leadership position by virtue of election or appointment in the case of a company, they really shouldn't have taken the position, in my view anyway, unless they're willing when it comes to that dilemma to sacrifice their career, at least in the short-term, for the greater good.
Whether the politicians in Europe are going to rise to that lofty plane or not is yet to be seen, but I think we would agree that really is the definition of what leadership is, in the sense that it's never easy and it's especially hard when your own self-interest is not being pursued.
There's a great book by Jim Collins called Good to Great. In it, he argues very persuasively how the 11 companies that he followed went from good to great. The defining and contrasting element from other companies was the role of the top executives always looking to the company's purpose and not their own self-enhancement. It's one of the great distinguishing qualities that explain why so many people are always ready to follow those at the helm who look after everybody's interests and not just their own stock options.
Arabic Knowledge@Wharton: So is that a characteristic that's important for leadership to demonstrate during a crisis?
Useem: I think it's the most important. It is probably one of two or three vital mindsets that a person in a crisis needs. You still have to make these decisive decisions wherein every emotion in your body is saying, 'Don't, it's too risky, hold back.' So, being decisive in a crisis is also key. One point I would unequivocally agree with here is that it's during a crisis that we see the best or the worst in leadership. It'll bring up the best in the best and it'll bring out the worst in those who are not the best.
Arabic Knowledge@Wharton: One could say that's common knowledge.
Useem: It is. That often for me is a little marker about our cultures and how millions of people think similarly about the universe we inhabit, whether in Abu Dhabi or in my case here in Philadelphia. In extraordinary times, we hold people to a higher standard, and those who fall short can tumble greatly in our esteem because they failed to make decisions, they wilted under the pressure. And conversely, those who stood strong — think of then New York Mayor Rudolph Giuliani after 9/11, and some of the rescue people there, we gave them our total admiration because it's then when we knew that their self-interest was transcended by their public commitment.
Arabic Knowledge@Wharton: Were there any other skills or tactics that you think are important for leadership in a time of crisis?
Useem: At the moments when the future of a country or a company is on the line, we tend to focus on a key person. There's endless discussion in the U.S. right now about the role of Steve Jobs at Apple and his successor Tim Cook. Research-wise, we know that the success of Apple was not just a product of Steve Jobs; he had enormous impact but it was also due to a lot of the people around him as well.
The way we tend to think of about leadership, we tend to individualize. We look at the top person. It's done in most business magazines. It will feature the chief executive officer and not the top team. But I think it's really important to really look at it as a team sport and not just an individual set of actions.
The success of the U.S. in pulling through the crisis in the fall of '08 was not just George W. Bush or Hank Paulson, but dozens of people who worked extremely hard and brought lots of ideas to the table. Thus, in a tough period, this is almost a truism; it helps having people around you who are battle-hardened and loyal to the vision of where you want take the enterprise or the country. Call it the top team, but everybody on it is bringing something different to it. You can do wonders the way you cannot do as an individual.
The most recent illustration of this that I've had to work on directly is the rescue of the 33 miners in Chile, where the minister of mines stepped forward and led the rescue, but he created the ultimate wonderful outcome in major part because he created a fantastic team of people. He took a different function each with a different leadership responsibility. And he reminded the team continually to just "keep our eyes on the prize. The only reason we're here is to get these 33 guys back to the surface." The minister of mines, his name Laurence Golborne, is now held in enormous esteem within Chile… But on top of that, the five or six people who were his direct reports should equally sort of bask in that glow of great triumph.
Arabic Knowledge@Wharton: When does leadership move from short to long-term solutions? Some countries caught in the current economic crisis are pursuing measures that are not necessarily going to solve the main problems but could act as 'band-aid solutions.'
Useem: To think truly strategically is to do so when you don't have to. During a crisis, you've really got to focus in on getting through the short term. When times are good, that's often when we turn away from thinking about potential problems to enjoy the glow of success. But when you have a successful period that's exactly the time to begin to tackle longer-term problems. The Japanese carmaker Toyota follows this principle of continuous improvement. When things are going well, the Toyota mindset, it's working philosophy, is not to sit and enjoy the great achievements but to tackle the next six problems while you've got the time and the resources to do it. So, good times are the best time to look ahead and anticipate bad times.
Arabic Knowledge@Wharton: Whether it's the Arab Spring or the Occupy Wall Street protests, people are demanding change and reform. What can leadership do to address this demand? How do leaders address disenchanted followers?
Useem: It's one of the great issues of our era. We've seen some leaders react badly, while others have embraced the challenge. The one sentence from me on this is we add to our risks by ignoring indigenous, angry, or protesting voices coming from below. The boring psychological phrase would be, 'We need a lot of active listening.' The first error is to dismiss protest as a product of odd, deranged individuals who have nothing better to do than sit in a park or go into a great square in Cairo. The task of people who are in leadership positions in such protest movements, or those who are in authoritative positions within government or private institutions, is to help articulate what exactly is wrong. The protesters often feel the anger but they don't necessarily have a productive solution. You'll see signs at the Occupy Wall Street terrain saying, "Close the Fed", which is not going to happen and should not happen. But seeing that kind of a sign, step back and say, 'OK, what's the underlying grievance even if the way the solution is articulated is not ideal?'
To put that differently, this is almost a truism certainly in the private sector: Anticipate what people want before they've been able to really articulate what they want as consumers. In the case of politicians, to appreciate unemployment and the economic stagnation that is incredibly vexing for people in Tunisia, Egypt and Libya, they actually have to hear the complaints, and then compose solutions.
Arabic Knowledge@Wharton: Considering the number of protests springing up, whether in the Middle East, America or in Europe, is it an indictment of leadership?
Useem: It is an indictment, in the sense that leadership has failed to address genuine concerns out there. You could turn that upside down; it's also a call for leadership. 'Come on everybody, let's get in there, there are profound grievances.' Obviously the concerns are very different from what drove the Arab Spring to what is putting people on to Occupy Wall Street. A protest really should be seen as signifying deep-rooted, profound, unresolved problems that those who have influence really ought to jump in and begin to solve. It's a call to leadership as much as an indictment of leadership.