Thursday, February 4, 2010

Responsible Leadership

During the week of January 20th, IMD President John R. Wells spent time in Denmark, Finland, Norway and Sweden. Apart from meeting numerous CEOs and senior executives, he also spoke at two larger business forums: one attended by close to 200 people in Copenhagen and also a big crowd in Helsinki. The topic was Responsible Leadership.


President Wells spoke about the recent financial crisis, specifically how the recent turmoil in financial markets is ascribed by many to be a failure of leadership and the calls for more responsible leadership continue to grow. However, as President Wells mentioned: “There is a danger that we take too narrow a view and simply bow to the critics demanding more corporate social responsibility. Responsible leadership is more than this; it is a balance between getting the right results and getting results in the right way.”

With a considerable amount of humor and passion, he went on to describe these two parts of the equation. He demonstrated what these “right results” should be in depth with numerous examples from business. They require not only a good business strategy, but solid implementation and leadership. Many corporate failures are due to inertia, whether strategic, structural or personal. And as Jack Welch, Chairman of GE, once said:

I’m convinced that if the rate of change inside the institution is less than the rate of change outside, the end is in sight. The only question is the timing of the end.

To avoid inertia, organizations must strive to have an agile strategy and structure, and this requires agile people with an agile mind. For sure easier said than done, nevertheless organizations can make a difference by lowering levels of fixed assets, infuse flexibility in the formal architecture and turbo charge the informal architecture by encouraging communication through social networks. President Wells also shared his views on what to think about when hiring people and how to encourage learning behaviors.

So what does it mean to get the results “the right way?”

“It is a matter of being fair, being honest and taking a broad, long view of the impact of business decisions
," he explained.

The capitalist view is that the goal of an enterprise is to maximize shareholder returns while minimizing the returns to all other stakeholders, be this customers, employees, suppliers or regulators, which is not conducive to building trust. Life is a multi-round game. The goal must be to look for win-win situations rather than play a short term win-lose game.

Ensuring a commitment to honesty and fairness in an organization is a complex issue. Many reward systems do not encourage such behavior. Indeed, they do the opposite. Compliance systems can also fail, especially if they are not backed up by appropriate rewards and punishments. Finally, it is important to encourage behaviors that reflect these values and that begin at the top. Those in the rest of the organization emulate the behavior of top executives. Leaders are responsible for managing rewards, compliance and values. The combination of all three helps drive honesty and fairness.

President Wells argued that a firm which delivers results AND delivers them the right way is more likely to deliver superior sustainable performance for the long term. Corporate social responsibility programs are important but not a substitute for good leadership of the enterprise. Firms should be encouraged to help solve society’s problems. They should looks for ways to do this profitably, focusing on activities where they can excel.

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