While changing jobs and shifting careers is hardly unusual in today’s business world, Russ Palmer is somewhat unique in that he has been the leader of three very different organizations over the past several decades. He was CEO of Touche Ross (now Deloitte & Touche) for 10 years, dean of Wharton for seven years, and now owner, chairman and CEO of The Palmer Group, a corporate investment firm. Each of these positions required very different skills and the ability to adapt to a unique set of challenges — what Palmer calls “a context-driven approach to leadership.” In his new book, Ultimate Leadership: Winning Execution Strategies for Your Situation, Palmer describes how today’s leaders can adapt to, and succeed in, any business environment. He recently spoke to Knowledge at Wharton about his book and the challenges of leadership.
Below is an edited transcript of the conversation.
Knowledge at Wharton: Can you explain briefly what you mean by the “context-driven approach to leadership?” Is this the same thing as having the ability to read and react to a new situation, or is it broader?
Palmer: I think that it’s broader. Let me say that I have 20 books in my library and they are all about leadership. They take the form of either principles of leadership or what some leaders have done. But I don’t know of any that talk about context, which is how you execute leadership. Principles that we know include things like the personal integrity of the leader, judgment, serving as a symbol — but context is all about execution. In top-down organizations, the environment is one of “do it and do it now.” In academic organizations, it’s much more collegial. In non-profits, with volunteers, there’s a persuasiveness that has to take place all the time.
But when you change context — either because you have changed jobs or you are in a different environment, such as one where the leader of a top-down organization suddenly has to share a business roundtable with his or her peers — there definitely has to be a different kind of style in order to be persuasive. Or [it might be a situation where] a business person goes into academia, such as I did. I think that most of the people who have done that have found it very difficult and many have failed. So, it’s much broader: Context is about execution of leadership in different environments.
Knowledge at Wharton: Can you give us two examples — one a situation where a leader successfully applied this context-driven approach to a particular situation or organization, and one where he or she quite obviously failed to do this?
Palmer: When I first came to Wharton, the first exposure I had was to the faculty, who were very apprehensive about some accountant from a big accounting firm, with a BA degree from Michigan State University, coming in and being the Dean. So I had to go into a totally different context than what I was used to and try to win their acceptance.
During the first faculty meeting that I spoke at, I saw that I wasn’t really making headway. But at the end, I said to them: “If we are going to be the best, we are going to have to have the best faculty. And if we are going to have the best faculty, we are going to have to pay them at least equal to our competitors, Harvard and Stanford. I have done a study and you only make two-thirds as much as they do. I’m going to try to do something about that.” I think that that was the thing that clicked with them, and [made them think], “Well, maybe this fellow from the business world isn’t all that bad and we should give him a chance and see how he does.”
As far as a situation where I think someone went into a different context and wasn’t able to handle it, there is Bob Nardelli. He was from GE, as you know. He went to Home Depot, which had a completely different culture — a family culture that had been built up over many years. He tried to change that culture for whatever reason, in very short order. He brought in a lot of people from the outside. He treated the board differently than it had been treated in the past. He had some good results. But, as one analyst said, he alienated his stockholders, his board and his employees. He’s now at Chrysler and I think that that’s probably a little more akin to the environment that he had at GE, although GE makes money, so we’ll see how he does there.
Knowledge at Wharton: In a top-down organization, including the ones that you have cited — like the airlines, automakers, defense contractors, the military, hospital operating rooms — what are the landmines that lie in wait for leaders?
Palmer: The top-down organization tends to be more autocratic, although there are many top-down organizations that have very fine leaders who don’t hit the landmines. But in companies like construction companies, auto companies, airline companies — where it is a ‘do it and do it now’ situation — leaders sometimes have a tendency to remove themselves from the real world around them.
After a while, they don’t listen as much. They tend to think that they know all the answers. They often say to people, “We tried that four years ago and it didn’t work.” They become more insular; they don’t get down to the lower levels and talk to the people who are having day-to-day contact with customers and others. And they have a tendency often to hang on to their job for too long. It’s an exceptional situation where someone should stay at a job for more than 10 years. So, particularly in top-down organizations, this can be a problem.
Knowledge at Wharton: You were 37 when you took over as CEO of Touche Ross, the youngest person ever to attain that position in a “Big Eight,” now “Big Four,” accounting firm. But these days, CEOs, presidents and other top executives are often in their twenties. How much harder is it for young people to understand context-driven leadership, when they have had so little experience outside of the firm they started or helped make successful?
Palmer: You can be a leader at almost any particular age. So the fact that they are in their twenties doesn’t preclude them from being a leader. Many young people I have met are very fine leaders and they have good judgment. The thing that they lack, in some cases, is they haven’t had the experience. In some way this has to be supplemented over some period of time so that they don’t fall into the trap that many companies do.
You see buy-out firms purchasing companies that have been great — that have been built up to a certain level but no longer have the [right] leadership. You will find it’s because the original owners or founders haven’t broadened themselves to do the kinds of things we are talking about here. So, I would say that for these young leaders, it’s good to have some people around who have been through the fire, been through the wars, who they can listen to and who do understand context. On the other hand, I would say that one of the hallmarks of a leader is to be able to intuitively understand situations, and you can do that as well at 22 as you can at 37 or at any age.
Knowledge at Wharton: You relate the experience you had when you were a board member of Bankers Trust, and suggested to the CEO that he form a small group to identify potential threats to the bank. Two potential problems were a crisis in the Japanese stock market and a crisis in the derivatives area. Ironically both crises did come about and the bank still had done nothing to prepare for them.
Now, we see the whole subprime mortgage mess, in which banks and others failed to follow proper risk management procedures and ended up losing billions of dollars for investors. What prevented people from seeing and preparing for this outcome? Was it greed, arrogance, a herd mentality? Or is it just wishful thinking to hope that leaders who are making huge piles of money will stop and say “Hey, wait a minute, let’s set up a crisis contingency plan.”
Palmer: I believe that number one, it’s greed, and number two, “everybody else is doing it so it must be a good thing.” But how could we possibly imagine that what was happening wasn’t going to be a calamity in the end? We had people selling mortgages, saying … “Come in and we’ll give you a mortgage, and we’ll give you some money back.”
Why could they get away with that? It is because they had no risk. They sold somebody a mortgage, or gave somebody a mortgage and then they sold it to somebody — and at that point, they had no risk. The ‘somebody’ that they sold it to bundled these mortgages and sold them to somebody else. And then we broadened it out and securitized these mortgages in different forms and kept passing them around. Only at the last stop, in many cases, was there any risk involved.
But, if anyone had stepped back, they would know that this situation couldn’t go on forever. I think it was the herd mentality — the same herd mentality that said many years ago, “We know that there is a law against parking stock, but everyone knows that everybody does it.” Then a few people went to prison and then people didn’t think that any more. Not everybody joined this herd mentality. T. Rowe Price got out early on. They had a chief financial officer who said, “This doesn’t make any sense.” If anybody else had looked at it, they would have said the same thing.
Knowledge at Wharton: You talked a few minutes ago about your first Wharton faculty meeting, which was an example of understanding the self-interest of your constituents. But isn’t the constituent’s self-interest often at odds with what the organization needs or can afford?
Palmer: Yes, and it’s your job to bridge their goals with your goals. I’ll give you an example. We had students at Wharton and we had something that we called “The Plan for Preeminence.” The students didn’t seem too interested in it because they had given up a high paying job [to come to Wharton]; they were paying high tuition; they were forgoing two years of their salary; they were [getting an MBA] to get an even better job and make lots of money. They had very little interest in something that some dean called a Plan for Preeminence.
We constantly and consistently told them or suggested to them that the Plan for Preeminence was very important and that for the rest of their lives people were going to be asking them, “Where did you go to school?” They were going to be saying something like “Wharton” or “Harvard” or “Stanford,” and people were going to be fairly impressed, at least initially. And that was going to help them get jobs. It would help them open doors and it would help them in innumerable other ways.
So it was in their interest that they help us make Wharton the best business school in the United States. Once we convinced them of that and once they could see that, they jumped in and helped us implement The Plan for Preeminence. So we bridged our goals — The Plan for Preeminence — with their goals, which I’ve already described, and moved forward.
Knowledge at Wharton: When describingyour tenure as head of Touche Ross, you write about how you saw an opportunity to expand into the Middle East, specifically by establishing a relationship with Saba & Company, the main accounting firm in that area. As you recount in the book, a chief reason that Saba ended up joining with you was that you and three others from Touche Ross actually went to their offices in Beirut to meet with the top partners.
Most other Americans at that time were choosing a safer place to meet, where bombs weren’t going off and buildings weren’t getting blown up. But these days, everyone travels almost everywhere and most companies know that they must staff their offices abroad with local leaders, etc. So, what kinds of competitive advantages are there for leaders seeking business abroad, from the perspective of the context-driven approach to leadership?
Palmer: Find out what their goals, needs and desires are and help them fulfill them. It’s one thing to say, “We want to sell you something or we want to buy something from you.” That’s a simple business transaction. But, it won’t forge the kind of relationships that you need in today’s world, our flat world with businesses and multiple companies.
In addition to doing business with them, you can find out: “Do they need certain types of training that you have in your organization?” You can be helpful in training them. Or maybe they can be helpful to your organization with certain technologies that you can share, marketing expertise. Be more of a supplier or a customer — be someone who has an interest in their business — and do your best to help them achieve their goals.
Knowledge at Wharton: You also talk about the need, every few years, to ‘re-seed’ or ‘re-pot’ yourself, so that you make sure that you get new challenges, whether it’s in the same organization or in a totally new organization. Do you still believe that? About how often should people consider finding these new challenges and how do you ensure that they’ll actually be available to you?
Palmer: Well, I do believe it. Ten years is a long time to be in a job. I was the CEO of Touche Ross, now Deloitte & Touche, for 10 years. We had 400 offices in 90 countries. I traveled constantly, over 200,000 miles a year. And after 10 years, number one you get worn down a little and number two, what’s new? You’re doing the same things, you’ve had the same experiences, you’ve been to the same restaurant in Paris when you met with the head of the Paris firm. You need to re-pot yourself. John Gardner wrote a great book on renewal. Everybody should read it. So, yes, you need to reinvigorate yourself, get your blood moving. Going into a new challenge is a great way to do that.
Conversely, if you stay too long, it’s not a good thing. There are very few leaders who can stay in a job 15 or 20 years and not have a lot of people thinking, “When are they going to go? It would really be good for the organization.”
Knowledge at Wharton: You say that the ultimate pitfall is hubris. Is that a personality trait or is it something leaders inevitably pick up once they get into positions of power and start believing that they are invincible. And, how you do recognize that you have become so ego driven that you are no longer effective and in fact could be dangerous?
Palmer: Well, it’s something that is picked up: You weren’t born with it and you probably didn’t learn it early on. But you got yourself into a situation where everybody came into your big corner office and told you many times what you wanted to hear. They said, “That was a great speech that you gave” — even though they know somebody else wrote it for you. “That was a great article that you were in, in the Wall Street Journal.” At cocktail parties people always wanted to meet you and say, “This is so and so, the head of such and such.” And so, after a while, you start believing your own press clippings.
Again, as I mentioned earlier, you have a tendency to stop listening. You have a tendency to have all of the answers, not only for your business, but for everything. You know about global warming, about Iraq and AIDS … so forth and so on. You can go to a cocktail party and pontificate, and as long as someone doesn’t know too much about the subject, he might be impressed. You have more and more meetings to tell people how it’s going to be. And you have less and less meetings to tell people how it should be.
You don’t really have town hall meetings with your employees because you just know that you are going to go out there … and because they don’t know the facts, they are going to start bitching about a bunch of stuff. You just don’t want to hear that anymore. And then, your last act, you have a big reorganization and put out a new corporate manual — and that’s just about the end of you.
Knowledge at Wharton: You talk about how in times of crisis, a leader often has to make difficult decisions, without consensus and even without explanation. But, since it’s almost always preferable to work with your team and to communicate well with everyone, how do you decide that the crisis is so great or so unique that it warrants this kind of go-it-alone approach?
Palmer: You determine that because you have great judgment. Leading in a crisis is your job. It’s not anyone else’s job in the organization. You don’t have an office that you delegate this large crisis to. You are the leader and you take charge in a crisis situation. You know it’s a crisis because your judgment tells you that this is a real crisis.
I just want to add that there’s been a controversy forever on whether leadership can be taught. Leadership can be taught to a point. Leadership can be learned through experience. But you can’t make a person a great leader if, for instance, they don’t have judgment — and judgment can’t be taught. Judgment can be matured through experience. That’s why, even though we don’t like to think about this sometimes, there has to be a selection process. In that selection process a very heavy factor is the judgment of the individual.
I can reiterate the story that I told in the book of the school that came to me and wanted me to lead their new business school. I asked them what the objective was and they said, “The objective is to train outstanding leaders.” And then I said, “Well, how are you going to draw these?” They were being drawn from the various parts of the other school. And then they said, “Anybody can get in.” I then said, “How do you bridge those two things…. Can everybody from the other schools be outstanding leaders?” They said that they were going to think about that. Anyway, judgment, leading in a crisis — you will know it when it happens.
Knowledge at Wharton: Apart from your own experiences, you also draw upon the experiences of other leaders, one of whom is General P.X. Kelley, the former head of the Marine Corps. There’s a story in your book about how he motivated one of his marines. Can you tell us that story?
Palmer: Yes. I can’t remember if it was in Vietnam, but it was one of our war zones. Kelley had a soldier who was a malcontent and who was [causing trouble, couldn’t get with the program and so forth. He called him in and he talked to him and found out that he had a background in music, particularly the violin. The next time the supply officer — the person who gets everything that you need, no matter what he has to do or where he has to go to get it done — came in, Kelley told him that he wanted a violin.
He was able to get this violin and called this marine in and said, “I have something for you. Turn your back to me.” He [then held out the violin]. The marine turned around and broke into tears. After that he played the violin, including at some of the evening gatherings they had, and he became a totally different soldier — a very productive soldier. It shows that non-rational means can be some of the best means of motivating people.
We think about money as the motivator, or the bonus as the motivator. But the non-rational motivators are equally important and sometimes have greater impact than the traditional money, bonus, promotion, etc. type things. In American Education Centers, a large group of schools that I owned, we had a yearly get-away called the Presidents Club. The people worked all year long to see if they could go to this. We went on cruises and different types of things. I can tell you that that was as important to our organization and to motivating people as the bonus system ever was.
Knowledge at Wharton: My last question is: What do you think is the most important lesson, in your book, that leaders and managers can draw?
Palmer: The most important lesson is that integrity is the foundation of leadership. If there is one thing that’s even more important than judgment, it is that everyone around you believes that you are ultimately fair and honest and believe in what you say. I don’t know how some of these politicians we are seeing on television can be a leader. They’re calling each other liars and asking for apologies and saying all kinds of things. The leader has to have integrity that is above reproach. And I worry about that.
I worry that in today’s world, some of our young people who are being turned out of Harvard, Wharton, Stanford and other fine business schools haven’t totally learned that. They think that the job is to get the transaction done, to get the edge on the transaction, to not let people know what they are really thinking, to say things like, “If you don’t do that, I’m going to walk out of here.” Well, the other person doesn’t do that and then, they don’t walk out of there.
I’m not saying this about all students. In fact, the great majority of them have integrity. But we are fostering an environment on Wall Street and other places that says, “This is the way we do it and therefore it is right.” So, going back, integrity is the foundation of leadership. I don’t know how we change our selection process for places like Wharton to assure that the people coming through the front door are of the highest integrity.