Builders and destroyers

Builders and destroyers

Some leaders build communities. other leaders strip them bare. which species is most likely to survive?

Is leadership just about leaders? If you ask "ordinary" people, it refers to leaders telling others what to do. Academics often seem enthralled with leaders. In more than a century of research and theorising, relatively little has been written about the contribution of followers or the context in which leadership occurs. The media are no different. When an enterprise performs well, the headlines rarely celebrate the entire staff's efforts, mostly just the leader's. This popular focus on leaders is too simplistic. Leadership is not just about one individual's personal characteristics or behaviours. Leaders cannot achieve great heights without the led. A more systemic view of leadership is required, and clearly there is more than one kind of organisational leadership.

Leadership paradigms

Under the traditional classical leadership, followers have little say in what gets done. The classical paradigm is evident in traditional cultures in China and France, where the led wait for their orders and rarely participate in shaping objectives. It is also alive in Australian business, despite our claims of egalitarianism. This is really puzzling, given research showing that Australians do not like telling others what to do. Many Australian organisations have adopted transactional leadership. Here, followers have somewhat more say in negotiating conditions as deals are struck between employees and management. Whether this is a legacy of decades of unionism or a way to fend off potential litigation is difficult to say. However, in principle, everyone knows where they stand. Transactional leadership is important for keeping the day-to-day business going. It can result in continuous improvement, but is not the leadership required to take an enterprise to new heights or major breakthroughs.

For that, visionary leadership is needed. Under the visionary paradigm, staff and leaders share a view of the future and a set of values. The vision informs people about where they are heading, while values guide members in how to act. For example, if integrity and teamwork are shared values at Firm A, then people will act differently from their counterparts in Firm B where profit at any cost is the shared value.

Increasingly, research is showing that organisational performance is higher under leadership involving a shared vision than under classical and transactional leadership. The people led work harder, collaborate more, and are committed to the vision that they share.

Finally, organic leadership breaks with convention. Here, there may not necessarily be an appointed leader. The idea of leaderless or "leaderful" organisations is hard for many people to accept, but these enterprises are not without leadership. Leaders emerge from within the group as their skills are needed. Individuals filling leader positions may rotate or completely change as conditions change.

Decisions are taken collectively under organic leadership. Accountability and responsibility are shared among group members. In a fast-paced distributed world, dependent on highly skilled knowledge workers, organic leadership may be the way of the future for many enterprises. But effective organic leadership does not just happen, it needs to be managed.

In creating organic leadership, strong transactional processes and systems provide a consistent foundation. In addition, a common vision and set of values are essential in maintaining groups striving for organic leadership. Thus, effective transactional and visionary leadership are preconditions for organic leadership.

Organic leadership arises when the humans controlling the transactional and visionary leadership components let go of control. Control becomes shared among the members.

One very successful, organically led organisation is WL Gore & Associates, makers of Goretex® products. The founder, Bill Gore, introduced organic leadership at the company's inception in 1958. Ever since, no one tells others what to do at Gore. People take on responsibilities by making binding commitments to others at this employer of choice.

Leadership philosophies

At the top of an enterprise, particular leadership philosophies prevail. These are creation, self-profiling, destroying value, and rebuilding. Parallels to these four kinds of leaders can be found in nature. Creators and rebuilders are like honeybees - collaborating to offer valuable (honey) products and (pollination) services, building communities, and adding value throughout the entire (ecological) system.

Many environmentalists and farmers are currently very worried about the future of the human food chain now that bee populations are declining. In a similar way, all of us should be worried about the consequences of insufficient creator and rebuilding leadership. In their place the self-profilers and value destroyers gain the upper hand. In nature, these kinds of leaders find their parallels in locusts - swarming on to healthy green crops and stripping them bare before dying. Locusts bring human misery through famine and starvation. Although locusts have survived as a species, the cost to society is high, and the impact on the environment can be catastrophic.

Creation: Here the leader builds for the future. Creator leaders view themselves as stewards for future generations. This means investing in innovation and in their people capital. Creator firms will not cut research and development or training, even in difficult times. Creators care for the interests of multiple stakeholders. They develop long-term relationships with employees, suppliers, customers, and the local community. These firms typically exhibit a high degree of concern about protecting the environment. Creators strive for high-quality products and services within their nominated price category. Ethical behaviour ensures that brand and reputation remain intact. An essential component of creator leadership is trust and loyalty from all stakeholders. Creator CEOs say things like "it's all about loyalty".

This includes loyal investors, who are in for the long haul. It is challenging for listed companies to counter the short-term focus of the financial capital markets, but some do. When Google listed, management made it quite clear that they were creators. Traders and others seeking quick returns were to look elsewhere.

US-based Bill Gore was a creator. Gail Kelly strove for creation at St George Bank before she moved on. Australian business also has many lower-profile creators. These are often private entrepreneurs and small business people who try to build their businesses for the long term, like Janine Allis of Boost Juice Bars.

Creator firms foster a solid social core that makes them more resilient to setbacks than their competitors. They are most likely to employ visionary and organic leadership paradigms.

Self-profiling: This kind of leader needs no introduction to the Australian public. Our corporations are filled with self-profilers, pursuing what we might call 'business-as-usual'. Here, CEOs are paid a small fortune for being part of the leadership system, hundreds of times more than most individuals being led. The focus is on short-term returns to shareholders and almost no-one else. Typically, the shareholders include the CEO and top management. The best business schools prepare the self-profilers for a glorious, but typically short-lived, reign.

With their narrow focus on the next reporting deadline, self-profilers are not greatly concerned about the future of their enterprise - beyond their own term. The important thing is to associate their tenure with excellent returns - even if this means postponing innovations and staff development, alienating stakeholders, or laying off staff. Sometimes the need to make the enterprise look good and maximise short-run shareholder profits means that ethics have to be compromised. To self-profilers, that is just collateral damage.

Australia's public records abound with examples of enterprises that seem to self-profile, from Telstra to Qantas. Some Qantas employees live in constant fear of losing their jobs - not an unrealistic concern given the frequency with which the airline lays off staff. Customers are not particularly pleased with changes to services, costs, and frequent flyer benefits, not to mention recent strikes by unhappy engineers. Suppliers claim to be heavily squeezed - this is not a long-term strategy because driving suppliers broke reduces the supplier pool and can drive prices back up.

Self-profiler behaviours are clearly not sustainable. They may show profits and success in the relative short term, but what happens when no more costs can be cut? For achieving the objectives of self-profilers, the classical, transactional or visionary paradigms can be useful. Of course, some followers may buy into the self-profiler's vision, which may be short-lived. Things can, however, get worse, as the next category of leaders' actions shows.

Destroying value: Creators strive for long-term value, self-profilers for short-term returns. Some leaders actually destroy value rather than build even short-term value in their organisation. Destroying value can be deliberate - as some private equity and hedge funds have shown in recent times. They think it is clever to take over a firm and strip it of its assets or saddle it with huge debts. This may offer very quick returns to investors, but what does it do for the business or for society? These value destroyers behave as if "the business of business is business", and that is all it should be.

Destroying a successful firm can also be accidental. Not understanding the dynamic system from which leadership emerges, some leaders act in sheer ignorance. They don't consider the long-term ramifications of their actions. Building materials supplier James Hardie's long-time reluctance to adequately cover its liabilities towards asbestos victims injured by its products provides an example here.

Other firms destroy value by laying off some of the workforce to meet short-term needs. This not only violates the shared values within the organisation and creates fear in the survivors, it can also destroy the culture. Some of the best people start to leave, and so the decline begins.

Mergers and acquisitions are another excellent way to destroy value rather than create the promised synergies. Foster's taking over Southcorp wines comes to mind here, plus many examples of clashing organisational cultures that destroy value. Sometimes value is destroyed because a firm is caught between creator leadership and self-profiling leadership. This can be confusing for the led. Which values should be followed? A good example of confused values comes from private wealth manager UBS. This global bank developed a creator culture at its Swiss headquarters. In 2000, UBS took over Paine Webber in the US, which sported a self-profiling culture. Which culture would dominate? Recent events at UBS, under which the Swiss CEO had to resign, leave little doubt that the self-profiling culture eventually won. In May 2007, UBS shut down its in-house hedge fund, Dillon Read Capital Management, losing $US384 million from overexposure to the US subprime mortgage market. Huge losses followed in 2008. Poor risk management, misaligned incentive programs, and a short-term focus on making quick returns shook the foundations of this former creator organisation.

Destroyers are most likely to rely on classical or transactional leadership paradigms. Employees who co-operate in the destruction can be rewarded (or punished). It is hard to imagine much employee buy-in to a destructive vision.

Rebuilding: The good news is that it is possible to rebuild a creator culture after self-profiling or value-destroying leadership. An excellent example of a publicly-listed Australian company that is doing this is Westpac. Success shows up in a decade of consistently strong financial performance, becoming an employer of choice, regaining customer trust, and becoming a global leader in sustainability. Westpac's rebuilding leadership gives hope to those who are concerned at the prominence given to self-profiling and value-destruction leadership in Australian business. Wal-Mart is rebuilding itself into more of a honeybee organisation. Perhaps others will follow suit.

Rebuilders need a clear vision and set of values to harness the energy of the led. The visionary paradigm is likely to serve rebuilders well. Rebuilding creator leadership is costly in many ways, so it is wiser to preserve creation leadership and resist the temptation for self-profiling and value-destruction.

Gayle Avery is professor in management at Macquarie Graduate School of Management. Her book, co-authored with Harald Bergsteiner, Honeybees and Locusts: The business case for sustainable leadership is due out in 2009.

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