ebj leadership without control

7/21/2019 EBJ Leadership Without Control

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Being the chief executive of any company is ademanding job. It’s even more difficult whenleaders do not have authority that iscommensurate with their responsibilities.

Not long ago, business leaders had plenty of control. Positioned at the top of a hierarchy, theywere well placed to influence managers andemployees below. The boss made a decision; the

employees implemented it. If the decision waswise, the business prospered.

Organisations are not as orderly as they oncewere. Some of the hierarchies have beendismantled, and businesses’ organisational andeconomic systems have become increasinglycomplex. With minimal job descriptions andblurred lines of authority, leaders face a day-to-daystruggle to define and implement strategy.

Throughout, they are held accountable formatters beyond their direct control. Nowhere isthat more evident than in professional servicefirms. Leading an accounting firm, an advertisingagency, a management consultancy, an executivesearch firm, an investment bank, or a law firm isnot about giving orders to employees further downthe hierarchy. It’s about manoeuvring a group of peers who are star performers. Titles reflect that:many professional service firms do not have chief executives but have ‘managing partners’, ‘seniorpartners’ or ‘managing directors’.

Being a managing partner is a bit like boxingwith one hand tied behind your back. You lack thepower to enforce decisions – even though you are

78

Leadership without controlPaul Rogers and Tom Tierney

EUROPEANBUSINESSJOURNAL

Leading an accounting firm, an advertising agency, a consultancy, an investmentbank, or a law firm is not about giving orders to employees further down thehierarchy. It’s about manoeuvring a group of peers who are star performers –

who constantly question, debate, and even oppose initiatives. It’s like boxing with one hand tied behind your back: You lack the power to enforce decisions –even though you are in charge. This article, by two Bain partners, examineshow leaders of professional service firms successfully meet that challenge. It lays

out how they can become masters at brokering agreement on important decisionsamong the firm’s elite players – a delicate balancing act that requires emotionalintelligence, constant monitoring of the firm’s undercurrents, careful

groundwork preparation for strategic moves, and continual tweaking of organisational structures to make sure they serve the needs of both the firm andits star players.

Ad dr es s fo r co rr es po nden ce: Samantha Axtell, Bain &Company, 40 Strand, London WC2N 5HZ.

Paul Rogers,Director, Bain &Company, London

Tom Tierney, former worldwide Managing Directorof Bain &Company

© Bain & Company 2004



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in charge. Leaders of professional service firms mustbecome masters at managing complex powernetworks and building consensus. They have toknow how to lead the firm from within, brokeringagreement among star players on importantdecisions and then enlisting their help to executethose decisions. It’s a skill that top executives in allorganisations can learn from. Star players wield a

great deal of power in most companies. If theydisagree with a leader’s direction, they may go downthe elevator one evening and never come back.

Limits to leadership

At conventional corporations, chief executives areselected by a higher authority – the board of directors. Because corporate CEOs are acting onbehalf of shareholders, employees are expected toimplement leaders’ decisions with a minimum of disagreement.

But at professional service firms, the selectionof the top executive, the firm’s strategy, and eventhe length of the top executive’s tenure are allgoverned directly or indirectly by an elite group of employees with whom the top executive works ona daily basis. Leaders get their mandates from theirpeers – who question, debate and even opposeinitiatives. If the managing partner wants to takethe firm in a new strategic direction, change thecompensation system, or even promote a younghire, he or she cannot make the decision alone.Often, the firm’s governance process dictates thatthe decision be made by all partners.

In professional service firms the leader ’spositional authority – the respect and deference heor she commands by virtue of holding the positionof top executive – is much weaker than in

traditional corporations. Leaders’ ability to steertheir firm, therefore, depends much more on theirpersonal authority – the respect and clout theyhave earned by virtue of their abilities and therelationships they have built. Leaders of professional service firms don’t control; theyexercise influence. To do that, they need to inspiretrust and confidence among their colleagues. Theirpeers must believe in the leaders’ integrity and thatthey’re focused on the best interests of the firm.

The subtle art of buildingconsensus

Without strong leadership, the diffusion of powerthroughout a professional service firm can paralysedecision-making and undermine the execution of strategies. But if a firm’s leadership is too forceful,partners will reject its imposition on theirautonomy. Professional service firms require adelicate balance of power between their top leadersand the partners they serve.

At any point in time, the managing partner of aprofessional service firm is shepherding dozens of discussions and decision cycles, each with its ownprocess, set of participants, and timing. The leader’sjob is to ensure that critical decisions are madethoughtfully and in a timely fashion – even if theultimate choice differs from what he or she would do.

Marvin Bower, the managing partner who

shaped McKinsey in the 1950s and 1960s,recognised the importance of consensus. Bower didnot want McKinsey to change itself from apartnership to a corporation. He energeticallyopposed the move, until he realised that most of thepartners had a different view of what would be inMcKinsey’s best future interest. Ultimately, the firmbecame a private corporation. It remains so today.

Leaders of professional service firms don’talways have to give in to prevailing opinion. But if they want to effect dramatic change, they mustprepare the ground carefully. At Goldman Sachs,

three generations of chief executives initiateddiscussions about whether the firm should becomea corporation and go public. The deliberationstook a decade. However, when the partners finallydecided to take Goldman public, a strongconsensus to go forward had been built.

Reaching consensus is rarely quick or easy.Anyone who has tried to broker agreement amongcolleagues with diverse points of view andcompeting agendas will recognise that it is nosimple undertaking. It requires more than rationallogic backed up by persuasive rhetoric. Even small

issues can draw emotion and irrationality into theprocess of decision-making.Bringing about a meeting of the minds requires

leaders to have a healthy dose of what psychologistDaniel Goleman calls ‘emotional intelligence’. Theymust be self-aware, self-regulating, and empathetic.

Leaders need to understand their own moodsand motivations, and appreciate how their ownemotions may be colouring their perspective.Leaders must keep those emotions in check, as well,

Leaders of professional service

firms don’t control; they

exercise influence



80EUROPEAN BUSINESS JOURNAL

suspending judgement and thinking before acting,so that the discussion moves toward agreement,instead of toward increasingly angry debate. Theyneed the capacity to put themselves in anotherperson’s shoes and to understand and respond fairlyto positions that differ from their own.

Building consensus and formulating a coherentand viable strategy require an intimate under-standing of all that is going on beneath the surface of an organisation. Emotionally intelligent leaders keeptheir antennae finely tuned to the undercurrents attheir firm.

Getting the full pictureSuccessful leaders avoid the tendency to be inwardlyfocused. They continually monitor their own firm’swin–loss ratio across business lines and regions, forboth clients and recruits. They carefully examineinnovations. Wherever possible, they collectinformation on their firm’s strategic identity, themarketplace, and their firm’s position relative to it.

To deepen his understanding of his organisation,Ed Meyer, CEO of Grey Global Group, travels the

globe several times a year, meeting with influentialmembers of his firm and probing to learn what theybelieve the future holds and how they feel about thebusiness. Good leaders, like Meyer, tend to listen atleast twice as much as they speak. (One managingpartner we know of even refers to himself as the‘chief listening officer’.) They augment informalconversations with formal feedback loops such asemployee surveys, office surveys, project teamdebriefings, upward feedback, skip-level interviews,360° feedback, and exit interviews. The tactics vary,but the goal is the same: to gather insights andfeedback from people around the firm and develop aclear picture of its challenges and opportunities.That puts managing partners in a stronger positionto anticipate what lies ahead and manoeuvre anorganisation to meet it.

Leaders as aligners

At the strongest firms, organisational practices andstructures fit both the strategic requirements of the

business and the needs of star employees. Whensuch alignment exists, star employees work toadvance the best interests of the firm. Decisionsare smoothly implemented, the firm enjoys astrong competitive position and financial health,and it often becomes an industry leader.

One of the key tasks of managing partners is tosee that such alignment happens at the firm. Barring

a major change in the firm’s circumstances, theprocess is incremental, calling for continual fine-tuning rather than periodic blunt thrusts. Themanaging partner is always pushing here and pullingthere, modifying this policy or changing thatperson’s responsibilities. Aligning a professionalservice firm is much like trimming the sails of anAmerica’s Cup boat – victory is won through tinyartful adjustments to a powerfully designed vessel.

Sometimes, chief executives themselves can bethe source of misalignment. In 1992 Charlotte Beersadded a worldwide client service group to ad agency

Ogilvy & Mather’s structure. The new structure metthe need to provide integrated global service tocustomers like IBM, but it didn’t mesh with theexisting compensation system. At Ogilvy & Mather,many local offices had minority owners whosecompensation was contractually tied to results intheir country. The consequence: confusion andfrustration for Beers, until the compensation systemcould be redesigned to fit the new structure andstrategy, and the firm could be realigned.

Like master chess players, the leaders who excelat alignment anticipate cause and effect manymoves ahead. They have an uncanny ability tounderstand all the moving parts of their business,and how those parts influence one another directlyand indirectly. They recognise that there arecomplex links among the choices they make toshape the firm’s strategy and organisation.

Managing alignmentthrough rewards

Shaping and anticipating star behaviour is key togetting alignment right. In professional servicefirms, influence is more important than control.But there is more to managing alignment thanpersonal influence alone. Leadership also endowsthe chief executive with the power to make key

Emotionally intelligent leaders

keep their antennae finely

tuned to the undercurrents at

their firm

Good leaders ... tend to listen

at least twice as much as they speak



81LEADERSHIP WITHOUT CONTROL

decisions, which influence star behaviour. Themost important are leadership assignments,promotions, and budgets or financial controls.

Putting the right people in the right jobs iscentral to effective leadership. Promotions,especially to partner, provide another opportunityto influence the firm’s future. The same is true of budgeting decisions and financial management.

Although leaders of professional service firmscannot allocate resources nearly as freely as theircorporate peers, they can use budgeting and planningprocesses to build consensus around the firm’spriorities. They can lobby and cajole other partnersto help shift resources from one area to another. Byassigning people who endorse their agendas topivotal management roles, leaders can also guide afirm’s direction and improve its alignment.

All of those decisions have the power to shapestars’ behaviour. However, none of them are aspowerful as rewards. Stars are always competitive.Rewards, both monetary and non-monetary, have anuncanny ability to align the motivation of individualstars with the firm’s overall culture and values.

Recognising that, astute chief executivesdistribute recognition in all forms: personalattention, public accolades, special internalassignments, extra vacation, client opportunities,speaking opportunities, media interviews, awards,gifts, offices, first-class travel, technology allowances,season tickets, and important-sounding titles – tomention a few.

Partner compensation, of course, is a majorfactor, and leaders need to do what they can tomake sure their firms’ financial incentivesencourage the right behaviour. But the power of non-financial rewards cannot be overestimated.

How do you know if you’resucceeding?

When evaluating a leader’s accomplishments,many firms take a rear-view look at their financial

performance. Sophisticated firms measure it acrossa number of variables: revenue growth, pricerealisation, utilisation, operating margins, profitper professional, and cash flow per partner.However, such backward-looking, or ‘lagging’,indicators are not always reliable measures of leadership success. Laying off employees, slashingrecruitment, halting knowledge improvement, and

cutting training budgets will boost profits in theshort term but may cause damage in the future.

Another measure of managing partners’ successis their popularity among other partners. Since themanaging partner essentially works for his or hercolleagues, popularity is significant. In some firms,it will dictate whether a leader is re-elected. Butpartners’ perceptions of the leader may notaccurately reflect reality. Their opinions may bestrongly influenced by the nature of their personalrelationship with the managing partner and theirpersonal financial rewards, which may rise and fallwith changes in the economy.

Instead of relying solely on ‘lagging’ indicatorsto define their leaders’ success, firms should lookclosely at ‘leading’ indicators that anticipate afirm’s performance down the road.

One way to do that is to measure the firm’sstrategic success. To what extent has it madeprogress against its strategic goals? How is itperforming in the marketplace, against its directcompetitors, in serving its target clients? What isthe depth of its cumulative knowledge andexperience supporting each line of business, andhow has that evolved relative to competitors?What are the cost and quality of the firm’s services,relative to competitors? Is there any sign of strategic obsolescence or drift? Are past strategicdecisions proving to be thoughtful moves on amultidimensional chessboard, or costly – evendisastrous – shortcuts?

A second way is to track the intangible assetsthat drive the firm’s business model. Those includeits client base, reputation, organisational assets andstar performers.

The strength of a firm’s client base can beevaluated by analysing client retention rates, clientprofitability, and the underlying dynamics of customer loyalty. What is the firm’s share of aclient’s total business? Why do clients remainactive, and why do they defect? When competingfor business, whom does the firm lose to, and why?What is the status of client assets across geographicregions or within practice areas? What is the flowof requests for proposals, in quantity and quality? Isthe overall client portfolio stronger or weaker than

By assigning people who

endorse their agendas to

pivotal management roles,

leaders can also guide a firm’s

direction and improve its

alignment



82EUROPEAN BUSINESS JOURNAL

it was three years ago? The answers to thosequestions provide a good picture of the health of the firm’s client assets.

Reputation is important because it shapes afirm’s external strategic identity, its core brandvalue in the marketplace. Advertising, businessdevelopment, and outreach may augment strategicidentity and enhance awareness among target

customers. But in a world where clients’perspectives remain heavily influenced by word of mouth, it is reputation that drives a firm’s revenues– for better or worse.

The most accurate reflections of leadershipperformance are a firm’s organisational assets andits star employees. Stars drive a firm’s success. Theknowledge, motivation, and loyalty of stars willdetermine the value of a firm’s intellectualproperty, the dynamism with which it is applied,and the extent to which it endures. Organisationalassets, meanwhile, are the means by which a firm’sstrategy is implemented. Organisational choices(people, systems, structure, and governance) andleadership combine with culture to reinforce (orundermine) a firm’s alignment.

Aligned organisations andhappy stars suggestleadership success

The most important indicator of a leader’s ability inprofessional service firms is therefore the extent towhich the organisation is aligned and stars are happy.

Happy stars and an aligned organisation suggestthat the one-armed boxer in charge is successfullynudging the complex network of peers in the rightdirection for the future.

How do you tell that a firm is aligned properly?If decisions, once made, are followed through on,that shows good alignment. If people systems fitthe firm’s culture, and both reinforce itscompetitive differentiation; if the processes fordecision-making function well; if partners are

satisfied with both their level of participation andthe direction of the firm – all indicate that theorganisation is properly aligned.

More than anything else, the state of a firm’salignment is revealed by the answer to onequestion: Does the organisation function overall ina way that drives the firm toward its strategicgoals? Or, far more common, is all or part of theorganisation broken, producing a two-steps-forward-one-step-back (or even three-steps-back)scenario?

Stars’ happiness can be gauged through theirloyalty and the extent to which the firm is anemployer of choice. To determine that, leadersneed to ask: What is the level of turnover amongthe firm’s stars? Are stars more or less motivatedthan they were a year ago? How long do theyexpect to remain with the firm? Is the firmattractive to star recruits? How does it performagainst direct competitors when recruiting? How isthe firm perceived within the markets (such asgraduate schools) from which it hires talent?

Leadership without control

Professionals who do not have formal leadershipresponsibilities may have difficulty appreciatingthe daily demands confronting their leaders.Responsibility without enough control, limitedhierarchy, and a complex business model combineto generate enormous stress, especially for the chief executive. And while the leader is attempting toaddress tomorrow’s opportunities, the firm’spartners demand attention to today’s problems.

Unlike the CEO of a traditional company, theleader of a professional service firm is accessible tohis or her many constituents, and consequentlyvulnerable to being inundated by points of view,demands, and distractions. Leading in thatenvironment is difficult but not impossible. Itrequires something subtler than the authoritarianorder-giving of hierarchical organisations. Chief executives in professional service firms must beattuned to the opinions of key individuals andsubtle power networks; they must submit to thewill of the majority, but direct where necessary;

they must move the firm in the right direction,while taking care not to push it off course. In short,they must lead, but they can never control.

ebj leadership without control

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