Week 7: Flawed Leadership

• Housekeeping• Final Questions on papers?

• News• Theories

• Cognitive resources theory• Incidence & cost of flawed leadership• Why they go astray• Substitutes & neutralizers

• Team Task

There is a proliferation of new books on dealing with difficult bosses

• Crazy bosses

• I hate my boss

• Dinosaur brains

• Surviving your boss

• Working for a loser

• Neanderthals at work

• Coping with difficult bosses

• Dealing with people you can’t stand

• When smart people work for dumb bosses

Ok, so he’s not a boss, but would you want to work for him???

Flawed Leadership– What were they thinking?

• How is it that leaders who are initially selected for a position based on their competencies, may eventually fail dramatically? What are the causes of this downfall?

• How could "at risk" leaders be identified earlier? What mechanism would enable this? What kinds of interventions might be useful?

• What are the effects of a flawed leader on an organization (consider organizational culture as well as impact on performance)? Think of some examples of such events.

Premises • cognitive resources refer to the leader's intelligence, ability, technical competence • leaders make the best use of their cognitive resources under different situations • stress is an important situational variable • use of intelligence & rationality is best under conditions of low stress and high follower support and

competence • use of prior experience/intuition is best under conditions of very high stress

Backlash to CEO Pay

• During 2003 CEO compensation rose 9.1%.

• Topping the list of the top paid CEOs is Reuben Mark, from Colgate-Palmolive, who earned a salary and bonus of $5.1 Million and long-term compensation of $136 Million, bringing his total pay to $141.1 Million.

• Rounding out the top five are

• Steven Jobs of Apple Computer (Total pay: $74.8 Million);

• George David of United Technologies (Total pay: $70.5 Million);

• Henry Silverman of Cendant (Total pay: $54.4 Million);

• Sanford Weill of Citigroup (Total pay: $54.1 Million).

What motivates Fortune 1000 CEOs? According to a study of 208 Fortune 1000 CEOs:

Fear - 43%Power - 22%Money - 7%(St. Louis Post-Dispatch, 03/26/2004)

• In the past five years nearly 2/3 of all major companies worldwide replaced their CEOs

• 35% of all new executives entering a new position will fail (Center for Creative Leadership)

• 40 percent of all executives entering into new positions will either leave voluntarily, be terminated or receive an unsatisfactory review within 18 months (Manchester Partners International)

• 70% of CEO have considered quitting, and 35% of top executives would say no to CEO position (Burson-Marsteller CEO reputation study)

• The typical Fortune 500 company has had 2.3 CEOs in the last decade (Center for Executive Options)

• 15% of the problems a consultant was hired to solve were related to narcissistic managers.

• Hertzberg (1968), and more recently Hogan, Raskin, and Fazzini (1990) report that the base rate for flawed leadership is between 60-75% in organizations

• the failure rate of corporate executives in the US  from the 1980's-90's was about 50% (DeVries, 1992).

Trends

• Incompetent management has been estimated at 60% in one large hospital (Shipper & Wilson, 1991) and 50% in a large aerospace organization (Millikin-Davies, 1992).

• It was found that 25% of managers abuse employees enough that workers call in sick, slow down productivity, or change jobs.

• This costs industry and the economy up to $5 billion annually

• Liability tends to follow such problems and 29 states have upheld personal injury claims related to abuse of power.

• volatility increases following a CEO turnover, even for the most frequent type, when a CEO leaves voluntarily and is replaced by someone inside the firm

• Out of 253 chief executive departures, those that were involuntary were up by 70% compared to 2001. Performance-related terminations accounted for 40% of all chief executive turnovers (Booze-Hamilton)

• See CEO Turnover: http://www.ceogo.com/CEODEPARTURES/CEOTURNOVER/

Trends cont’d

International CEOs

• When Michael Ovitz left his post as president of Walt Disney Co. after 14 months, his severance package totaled an estimated $90 million in cash and stock options.

• John R. Walter, AT&T president and chief operating officer, left after nine months with an estimated severance package of $26 million,

• Top executive Gilbert F. Amelio exited Apple after 18 months with an estimated $7 million severance package

• Replacement costs can be as much as 150 percent of the departing person’s salary

• Turnover of a senior executive within four years typically costs $1 to $10 million, including original and follow-up search and selection costs, plus buyout and outplacement

The costs of failure can be astounding

Martha Stewart

The Economic Cost$ of Scandal

• Martha Stewart Living Omnimedia has reported 4th quarter loss of $2m due to high legal fees & loss of sales

• Stewart’s television network holiday special was cancelled resulting in TV revenues dropping from $9.6m a year ago to $6.4m

• Shares have fallen from $19 to just over $9

• In 2003 Stewart reported that legal fees, lost business, & lost opportunities due to the Imclone insider trading scandal had cost her over $700m

• A conviction could have resulted in $2m in fines & 30 years in prison if found guilty of all charges

Vision is nice, but doers and team players are

more successful

Overview of GroupThink

1

23

4

Team Stagesof Development

Promotion ofTeam Cohesion

Advantages of Cohesion

Team Pressureto Perform

Flawed Organizational

Structures

Symptoms of GroupThink

Consequences ofGroupThink

Countermeasures

Leadership

The Advantages of High Team Cohesion

• High esprit!• Strong effort • Unified vision• Action oriented• High goal setting• Rapid decision making• Team commitment and loyalty • Member support & encouragement

Team Cohesion: The level of commitment, loyalty, and team spirit experienced by team members

Pressure: Organizational culture and situational conditions that create stress and performance pressure on the team

Flawed Organizational Structures: A lacking of organizational and team procedures and controls by which team processes and outcomes are monitored

Group Think: Eight symptoms of decreased decision making effectiveness

Counter-measures: Internal and external procedures to monitor team processes and decisions in order to reduce the risk of groupthink and promote effective decision atmosphere

Symptoms of GroupThink

Overestimation of Group1. Illusion of invulnerability2. Inherent morality

Close-mindedness3. Rationalization4. Stereotypes of outsiders

Pressure to Uniformity5. Self-censorship6. Direct pressure from group7. Mind guards8. Illusion of unanimity

When it hits the fan: Consequences of GroupThink--faulty decisions

1. Fail to adequately determine their objectives and alternatives

2. Fail to adequately assess the risks associated with group decisions

3. Fail to cycle through discarded alternatives to reexamine their worth after a majority of the group discarded the alternative

4. Not seek expert advice

5. Select and use only information that supports their position and conclusions

6. Does not make contingency plans in case their decision and resulting actions fail

Reducing or PreventingGroupthink

• Use scientific method--gather data, understand and explore before conclusions• Brainstorm before discussing course of action• People in power positions (leaders) should refrain from early opinions• Invite outside experts--seek information that does not support preferred course• Develop criteria for evaluating options against• Assess risks, revenge effects, and regret analysis• After initial solution, develop second solution• Make contingency plans• Devil’s advocate--Encourage members to raise objections & concerns (challenge norms)• Multiple Advocacy--subgroups make different proposals• Have group be evaluated by persons separate from the leader• Second chance decisions• Have group members get feedback from constituents on tentative decision• Develop multiple scenarios and contingencies for each scenario• Nominal group technique and Delphi method• Foster diversity in group membership

1. Procrastination 2. Perfectionism 3. Type-A (workaholic) 4. Narcissism (self-centered) 5. Authoritarian 6. Low self confidence 7. Stress dumper (contagion) 8. Conflict avoidant 9. Need to be liked/accepted 10.Need to know everything 11.Need to be certain of everything 12.Chronic anger, abrasive, sarcastic, vengeful 13. Incompetent, "Peter Principle" 14. Insensitivity to needs and expectations of others 15.Cold, aloof, distant, arrogant 16.Betrayal of trust, break confidence 17.Unable to take strategic view (long term planning) 18.Unable to use staff effectively and build cohesive team 19.Over-dependent on advocate or mentor 20.Unable to adapt to superior with different style 21.Overly ambitious; thinking of next job, playing politics 22.Specific performance problems with business (not know the

business) 23.Over-managing (Unable to delegate or build team)

Personal Traits of Failed Leaders

Untying the Double-Bind

Leadership Substitutes & Neutralizers

Can’t hide poor leadership– but sometimes you also can’t get rid of it

• Will tampering/intervening with the situation make it worse?

• Will attempted intervention increase the resistance, stress, or punishment?

• Will it get better on its own SOON without intervention? (e.g., retirement, imminent transfer, health problems, legal issues, etc.)

• Will it take more effort and expense to change it than will be gained in benefit?

• Do you have "response-ability" to influence the conditions and outcome (e.g., right, legitimacy, authority)?

• Can such change be done within the constraints of time, money, safety, skills, effort, availability, support, etc?

• Will the probable amount of change due to the intervention be enough to reduce the problem effects?

The feasibility of changing a problematic situation can be difficult to determine, and there is not clear formula for its assessment. Here are some criteria that can be used for consideration:

Feasibility of change

Team Task: Case Analysis

1. Identify a familiar case for analysis and discussion

2. Use a theory to account for the case– exactly how did the leader fail and why?

3. Use the theory to consider an intervention: What could have been done to intervene early or late in this case to improve the outcome?

4. Evaluate the utility of the theory to account for this case