Why the temptation to see individuals as key to organizational success is more dangerous that you think

It has once again been proved that we misunderstand the true causes of organizational success. Egged on by the media, who dote on simplistic answers to complex situations, we thoughtlessly treat the actions of CEOs and top teams as the primary — sometimes nearly the sole — causes of organizational performance. This belief is not true and never has been. The high-pressure, anxiety-ridden workplace culture thus created is both the root cause of today’s obsessive, “macho” management style and its catastrophic over-emphasis on short-term results. Our heroes aren’t seeking dragons; they’re attempting the impossible — and doing it with our money.

The worst aspect of this error is the other common assumption that providing huge financial incentives, typically share options, will encourage top executives to work harder, thus ensuring rising profit goals are met. This is often described as aligning the executives’ interests with those of the shareholders. They both want money, and, since the shareholders believe the executives’ actions are the key to producing it, almost no amount is too great if results seem to follow quickly.

After years of this nonsense, we find ourselves again in a sorry mess. Top salaries have never been higher, so — by the logic just explained — corporate performance ought to be stellar, especially in those parts of the business world where executive rewards have been greatest: the financial sector.

Instead, we have self-inflicted chaos, due largely to a potent combination of greed, short-termism, and incompetence in managing risk. The “brilliant” individual executives on whom the whole edifice rested have been found to have feet of clay. Meanwhile, the middle-class is becoming poorer and the poor have been ignored altogether. As a society, we have lavished money on a group who have shown themselves to be as helpless to avert disaster as they were greedy in bringing it about.

A mistaken faith

Conventional management ideas are based on the assumption that individual executives — especially CEOs — have a major influence on performance. It’s directly akin to the old-fashioned view of history as a chronicle of the acts of “great men” (plus a tiny handful of great women, only grudgingly admitted).

Of course leaders have some impact, but it’s far less than most people believe. There are far too many variables, complications, and sheer unknowns for any one person — or even a whole group of senior executives — to be able to impose what they want on the world at large. As recent events have proved yet again, the reality is that most of those at the top stared at the spreadsheets, sat through the presentations, and nodded to their “experts,” without having more than the sketchiest idea of what was happening in their name.

And that’s without the fact that for every Company A that wants the market to go in one direction, there will be a Company B (and probably Companies C, D, E, and F too) who wants more or less the opposite, and is working just as hard to bring that about. No one can be the winner in this fantasy game of changing reality; the truth is that none of them have much effect on the universe — yet when chance turns one into a temporary success, they gladly take the credit.

Let’s bring these two points together and see what we have. First, we have the basic assumption that the actions of leaders are the main determinant of corporate success. It’s false, but everyone seems to believe it — including most of the leaders themselves. Next, their remuneration is closely tied to short-term business outcomes. Can you can see why it is inevitable that leaders will do everything they can to bring about a series of short-term booms, virtually regardless of the longer-term busts that follow?

By then, they will have taken their money and moved on. Due to this system of rewards, executives imitate the actions of a high-stakes gambler and ignore the careful choices needed by a long-term builder of corporate and community growth. Like nearly everyone else, they do what pays them most.

Where individual leaders really do matter

When it comes to creating the culture of a company, the actions of people at the top have enormous influence. Ever since hierarchies came about, those below have studied — and copied — what those above them do. People emulate the boss’s behavior (after all, it worked for him or her, didn’t it?) and apply some subtly flattery at the same time. Besides, going against what the boss thinks isn’t a smart way to win favor. Subordinates study, analyze, and copy the boss all the time. No boss thinks of copying their subordinates.

The outcome of this erroneous belief in the superman-type leader is two-fold: it makes leaders devote all their waking hours to the impossible task of trying to force the future to turn out exactly as they want it to; and it causes subordinates to get the idea that doing the same themselves is the key to making it to the top.

Knowing they will be blamed for every short-term failure, and richly rewarded for every equally short-term success, leaders become extremely anxious. They strain every nerve to try to bring about favorable results, including hounding and harassing all those around and below them. Their subordinates copy their actions faithfully, assuming this will propel them upwards in their turn. Meanwhile, no one is watching the store. In a game of winner-takes-all, the most outrageous, blind risks are dressed up as courageous decisions, and short-term fluctuations in the market as clear signs of personal brilliance.

The resulting corporate culture is high-pressured, full of long hours and anxiety, and riddled with stress. It cannot be otherwise, since everyone is devoting themselves to doing the impossible: to making reality move according to their personal wishes by sheer willpower and effort.

It’s time to slow down and return to reality . . . before we make things even worse

The truth is that actual organizational results come in the main part from a shifting combination of luck, being in the right place at the right time, and favorable effects from a myriad of people you don’t even know about. All this anxious striving and worrying is mostly for nothing.

Copying the actions of successful leaders of the past, following the latest management panaceas, hiring expensive consultants — none of them have more than a marginal impact. The continual anxiety and stress at the top quickly gets replicated throughout the organization, until everyone, at every level, is straining and obsessing over how to impose their will on the immediate future. No one stops to ask the simple question: “Does any of this make any measurable difference to reality?” If they did, maybe they would notice that, once again, the emperor has no clothes.

Let’s all calm down. The future will be what it will be. We can, at best, only have some limited impact on the small part of it that directly surrounds us. The further away the thing we desire lies, the less we will be able to make it happen by force. In the long-term, we can try to work with events to encourage good outcomes. In the short-term, we can keep our nerve.

Business has always been more about commonsense and teamwork than the flashy actions of a few “stars.” Commonsense in lending would have prevented the sub-prime mortgage mess. Involving others and listening to a wide range of views might have allowed leaders to admit to their own ignorance, instead of jumping into risks they neither understood nor could measure.

The trouble with heroes is that, for every one who manages to slay the dragon and rescue the damsel, many more ended up as that dragon’s dinner first.

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Technorati Tags: “macho” management, short-term results, self-inflicted chaos, greed, short-termism, and incompetence, changing reality, actions of leaders, determinant of corporate success, creating the culture of a company, doing the impossible, actual organizational results, myth of heroic leader, executives as heroes

Photo credit: Vladimer Shioshvili