View from Davos: Leadership Today Requires More Caution, Less Exuberance

At the annual meeting of the World Economic Forum in Davos that ended last month, the extraordinary optimism of Asian — especially Chinese and Indian — leaders held center stage. For Michael Useem, director of Wharton’s Center for Leadership and Change Management, it all felt very déjà vu: In the late 1990s, a similarly exuberant spirit surrounded American business leaders. But the hubris of unbounded optimism can be dangerous, warns Useem, who moderated a session at the summit.

In gathering nearly 3,000 business and political luminaries from around the world in Davos, Switzerland, the World Economic Forum offers a unique window on those who lead the world’s great economies.

At the Forum’s annual meeting last month, the extraordinary optimism of Asian leaders held center stage. China’s vice premier Zeng Peiyan anticipated that his country’s GDP per capita in 2010 would be double that of 2000, and India’s finance minister Palaniappan Chidambaram hoped for 8% annual growth in his national GDP. Riding those platforms and recognizing the untapped fortunes that lie at the bottom of their enormous pyramids, Chinese and Indian business leaders were reaching for the stars. Symptomatic of the moment’s mood, one Indian chief executive told me that double-digit annual growth for him had come to mean not 10+% but more like 25 to 30%.  

This exuberant spirit of Davos felt very déjà vu, if “American” were simply substituted for “Asian.” When I plied the Davos halls in 1997, the miracles of the U.S. economy gave its business leaders a similar air of confidence, even missionary zeal. Intel’s Andy Grove seemed to walk on water, and Microsoft’s Bill Gates managed to part it: When Gates walked across a jammed reception, the throng instinctively opened the way, standing aside to whisper and gawk as one of America’s great entrepreneurs passed by them. Later, I attended a panel with the chief executives of four of the world’s premier companies, including ABB, Royal Dutch Petroleum, Siemens — and yes, Enron. It was the American CEO, Kenneth Lay, who proved the panel’s star, the audience most eager to discover his secrets of success.

From decision research we learn that the hubris of unbounded optimism can drive sub-optimal choices. From mountaineering we are cautioned by the guide’s warning to take greatest care upon summiting, when the thrill of conquest can cloud good judgment. We have only to remember the irrational exuberance that inflated the Japanese and Internet bubbles just a few years earlier to remember that the best of times can be a harbinger of the worst of times.

And that is precisely what good leadership at Davos was warning against. Former U.S. Treasury Secretary Lawrence Summers called for a more sober, more cautionary attitude. Both hope and fear pervade every economy, he advised, and at the moment he was seeing too much hope and too little fear.

If tapping down excess optimism was well on display, the equally important leadership principle of overcoming excess pessimism was also very evident. At the end of an opening brainstorming session, one participant spoke for many. This year, he said, Chinese and Indians are wildly optimistic, Europeans cautiously confident, but Americans “can’t sleep at night” — and he urged everybody to give the nearest American a hug.

The World Economic Forum serves to rein in the extremes, making for more judicious company decisions in the year ahead. But it also gives the business world an opportunity to see what the political world has to offer, allowing for more calculated decisions on that landscape as well. Company executives conduct road shows to inform big investors what lies ahead. For country executives, Davos is the show. It is here that they lay out their national strategy and their own leadership capacity for all to see. And what business leaders saw in Germany’s new chancellor, Angela Merkel, they liked.

The Years of Europe

Merkel said that she intended Germany to become Europe’s most innovative and fastest growing economy, and that she wanted its job expansion to stimulate employment across the continent. “People will look back,” she suggested, and “say that these were the years of Europe.” But for that to happen, a legacy of cynicism and entitlement has to be overcome. “The people have lost their trust in politicians to shape globalization,” she said, and “as the biggest economy in Europe, we must take up our responsibilities.” Her policy ingredients were tangible: Germany will liberalize its economy, streamline its bureaucracy and devolve its authority. But in granting greater discretion to the private sector, she also expected companies to exercise it more responsibly. What was essential, she said, was building a culture of “responsible freedom.” 

With the vision clear, Merkel offered her strategy for getting there. “We have to reshape the federal structure to expedite decision making,” she explained, and she promised execution of it: “We have to prove that we can implement.” She would hold her own leadership responsible for it: “We’re in a world of great transformation,” and “I’m accustomed to being at the forefront of [such] movements” for change. Her formula was both clear and instructive for anybody in Davos thinking about investing in Germany — or enhancing their own leadership: Vision + strategy + execution + drive = growth.

Being at the forefront of a great transformation, however, can also require great fortitude. “The basic ingredient of a leader,” observed Pakistan president Pervez Musharraf, is that he or she “should never panic…whatever the problem, whatever the circumstances.” U.K. Foreign Secretary Jack Straw suggested the same when asked what one piece of advice he would have for those in the international community, like himself, who were contending with the wrenching problems of Iraq: “We should not freak out!” 

That required, said Musharraf, a clear understanding of the situation, a clear strategy for addressing it, and a strong team for executing it. Drawing upon his own tumultuous experience at the country’s helm since 1999, Musharraf said that reaching informed and timely decisions had proven vital. One must hear opposing views and engage people in the deliberations, but then, he said, you “must never suffer from paralysis” and you “must decide.” Moreover, in reaching a decision, rarely are all the data available to be sure of its outcome. “Decisions are two-thirds facts and figures,” he warned, and “one-third a leap in the dark where you don’t have all the facts.” If you increase the one-third, you’re too “impulsive,” but if you increase the two-thirds, you’re “not a leader.” 

India’s chief minister for its national capital territory of Delhi, Sheila Dikshit, offered much the same formula as she sought to provide roads, housing and services to a burgeoning population around the capital. She said that she is working to expedite decisions in her various agencies on the premise that fast-track decision-making is essential for modernizing an infrastructure to service not only the sharp indigenous growth of India’s capital city but also the rising international traffic through it. 

The phrase “Davos Man and Woman” has been used in past years to capture the culture of those attending this annual talk-fest: They “have little need for national loyalty,” said Harvard professor Samuel Huntington, since they see “national boundaries as obstacles that thankfully are vanishing.” The “Davos Leader” of 2006, by contrast, is less concerned with erasing those national boundaries since they recognize that the inexorable forces of economic globalization are doing a good job of it.

The Davos Leaders this year are more concerned with incorporating what it will take to ensure that their company — or country — stays on a predictable path toward prosperity. And they recognize their own responsibility for making it happen. They are reminded by Merkel and Musharraf that strategic thinking, judicious decision making and personal courage are the essential ingredients.