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Be Careful What You Give-You Cannot Take it Back

Last Thursday was “comp day” at one of the premier investment banking firms, Goldman Sachs. This is the day when employees are handed their bonus for their previous year’s performance. Unfortunately, some reportedly received nothing. If you’ve never received a bonus for your work, that’s not a big deal. If you have, it is a big deal. Let’s find out why.

Imagine you’re babysitting a friend’s child, Jimmy, for the day and he’s been happily playing in your yard. The day is growing long and you decide to reward Jimmy’s good behavior. “Hey Jimmy,” you shout, “you’ve been such a good boy today how ‘bout I take you down to the store and get you a new ball?”

“Awesome!” Jimmy replies as he runs to hop in the car. “Can we get a kickball?” he asks as he slides onto the car seat.

“Sure thing,” you reply. “You’ve been really good today, Jimmy, and I want to reward you for that.”

“Works for me, Mr. Leider. Thanks!”

Anxious to give his new ball a try, Jimmy slides out of the car and onto the driveway without even closing the car door. Stepping to the edge, he holds the ball in front, one hand on each side and swings his right leg back. Hesitating for a moment, he then swings his leg forward in a graceful, powerful arc, sending the ball to the other side of the yard and squeals, “Yippee! Thanks Mr. L. This is awesome!” “You’re welcome Jimmy. I’m glad you enjoy it.”

Jimmy kicks the ball back and forth in the yard, enjoying each kick just as much as the one before. But as he tires, Jimmy has some difficulty keeping the ball in the yard. You watch as he winds up for another powerful stroke. The second his leg connects with the ball you see a car speeding down the street, oblivious to the ball hurled into its path. In an instant the ball is under the car, and then POW! Without hesitating, the car speeds on past, either unaware of the damage inflicted or unwilling to face a dejected child deprived of his precious toy.

“Mr. Leider, Mr. Leider!” Jimmy calls. “Awwww.” Tears begin to stream down his face and you rush to console him.
While it is certainly expected that Jimmy would be sad that his ball has been crushed, let’s step back for a moment to analyze this logically. In the first part of this story Jimmy is quite content playing in the yard without a ball. He has a certain reference point in terms of toys to play with and games he is able to play. You introduce a new toy and new modes of play follow. You have changed the reference point, raising the bar, so to speak.

As a leader, every time that you give your team members something you are changing the reference point. If you don’t give as much as before or take something away you generate unhappiness. While this may not be logical, it is a fact of human behavior.

So be careful what you give. While you can take it back—it won’t be pretty.

Concepts:
• Every time you give team members something you generate a new reference point
• As humans, once we have an enjoyable experience we desire to keep it or repeat it

Keywords: leadership, rewards, happiness, endowment effect, loss aversion, reference point

References:
Kahneman, D., Knetsch, J. L., & Thaler, R. H. (1990). Experimental tests of the endowment effect and the Coase theorem. Journal of Political Economy, 98(6), 1325-1348.
Kahneman, D., Knetsch, J. L., & Thaler, R. H. (1991). Anomalies: The endowment effect, loss aversion, and status quo bias. The Journal of Economic Perspectives, 5(1), 193–206.
Munger, C. (1995, June). The psychology of human misjudgment. Lecture given at the Harvard University.
Tversky, A., & Kahneman, D. (1991). Loss aversion in riskless choice: A reference-dependent model. The Quarterly Journal of Economics, 106(4), 1039-1061.
Veenhoven, R. (1991). Is happiness relative? Social Indicators Research, 24(1), 1-34.

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Sears: A Fallen Giant

Last week Sears reported that it will close up to 120 Sears and Kmart stores. I found it to be another sad chapter in the story of a fallen giant. For me, Sears is akin to a giant sequoia tree—a mammoth, standing stable generation after generation. Unfortunately the retailer continues to erode its foundation a bit almost every year.

Let’s travel back in time for a moment. Many of you may not be aware that in the late 1950s to early 1980s considerable work on employee selection took place, primarily at Standard Oil Company, AT&T, and Sears. These organizations spent considerable time and money to determine how to select individuals most likely to be successful in their organizations. V. J. Bentz and L. L. Thurstone pioneered the efforts at Sears. Those studies became the basis for today’s selection instruments. Their efforts paid off.

Sears was the big Kahuna of retail. But it didn’t last as complacency and arrogance set in. Arrogance can blind you to new competitors, and I’ll give you a personal example. Many years ago I gave a presentation to a company regarding technology industry customer support. I listed WordPerfect (remember them?) and PCs Limited as exemplars. Before I could move past the slide one of the executives couldn’t pass up the chance to sneer at the name PCs Limited. “Who are those guys? They’re nothing.” was the comment. My retort was a simple, “Well, they may be nothing today but if they keep up the good service they’ll be something some day.” We do know them today—Dell. And the company I was presenting to, well, I’ll withhold comment.

Sears failed to adapt to changing market conditions as specialty retailers and big box stores left them in the dust. While Sears continues to be a strong retailer (number 10 last year) those with superior market strategies have prevailed.

Concepts:
• Use well-validated employee selection methods
• Remain adaptable to market conditions
• Never, ever become complacent or arrogant—maintain a healthy fear of competitors

Keywords: leadership, employee selection, complacency, adaptability

References:
• Bentz, V. J. (1967). The Sears experience in the investigation, description, and prediction of executive behavior. In F. R. Wickert & D. E. McFarland (Eds.), Measuring executive effectiveness (pp. 147-205). New York: Appleton-Century-Crofts.
• Bentz, V. J. (1968). The Sears experience in the investigation, description, and prediction of executive behavior. In J. A. Myers (Ed.), Predicting managerial success (pp. 59-152). Ann Arbor, Michigan: Foundation for Research on Human Behavior.
• Bentz, V. J. (1985). Research findings from personality assessment of executives. In J. H. Bernardin & D. A. Bownas (Eds.), Personality assessment in organizations (pp. 82–144). New York: Praeger Publishers.
• Bentz, V. J. (1990). Contextual issues in predicting high-level leadership performance: Contextual richness as a criterion consideration in personality research with executives. In K. E. Clark & M. B. Clark (Eds.), Measures of leadership (pp. 131-143). West Orange, NJ: Leadership Library of America, Inc.
• Bray, D. W. (1968). Choosing good managers. In J. A. Myers (Ed.), Predicting managerial success (pp. 153-165). Ann Arbor, Michigan: Foundation for Research on Human Behavior.
• Bray, D. W., Campbell, R. J., & Grant, D. L. (1974). Formative years in business: A long-term AT&T study of managerial lives. New York: Wiley-Interscience.
• Sparks, C. P. (1970). Validity of psychological tests. Personnel Psychology, 23(1), 39–46.
• Sparks, C. P. (1983). Paper and pencil measures of potential. In G. F. Dreher & P. R. Sackett (Eds.), Perspectives on employee staffing and selection (pp. 349–368). Homewood, Illinois: Richard D. irwin, Inc.
• Sparks, C. P. (1990). Testing for management potential. In K. E. Clark & M. B. Clark (Eds.), Measures of leadership (pp. 103-112).

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Vaclav Havel and Kim Jong Il: A Contrast in Leadership

The coincidental loss of two world leaders in as many days illuminates a stark contrast in leadership styles. It is difficult to find a greater difference in approach than that of Václav Havel of the Czech Republic and Kim Jong Il of North Korea.

Václav Havel was President of Czechoslovakia and the Czech Republic from 1989 to 2003. Prior to his rise to power he was an outspoken dissident of Communist rule in Czechoslovakia. His political plays and support for the opposition frequently led to imprisonment. In the fall of 1989 he became the head of the revolution against Communist rule, the Velvet Revolution. His nonviolent approach led to a bloodless transfer of power and election in 1990 as the first freely elected President of Czechoslovakia since 1946.

Havel was an idealist and always fought for freedom for all individuals, no matter how unpopular that stance may be. For example, he fought for the rights of Gypsies and Communists after losing control of the government.

In contrast, despot Kim Jong Il was a brutal and cunning leader. At his ascension to ruler of North Korea in 1994 he inherited a country which had lost its benefactor, was slipping into a large-scale famine, and whose economy was in shambles. Despite the dire situation, Kim was able to nurture a fledgling nuclear program to the point of creating nuclear weapons which he used as blackmail in a brilliant game of tactical brinksmanship with China, the United States, Japan, and Russia. The famine ultimately terminated over two million lives, almost 10% of the North Korean population. Yet Kim was able to maintain control by treating the military well and keeping a tight lid on dissent.

At the time he rose to power, pundits predicted his rule would unravel before his second anniversary as leader. Instead, Kim played his cards extremely well and beat all odds, maintaining rule, oppression and the country’s borders. Kim Jong Il led by fear, intimidation, and unpredictability.

The passing of these titans should give all leaders pause. As I observe and interact with leaders in organizations I see the complete spectrum of leadership, from abusive to congenial, from command and control to laissez faire, from respectful to disdain. It may be a good time to look in the mirror and assess your leadership style, much as many around the globe are assessing the leadership style of Havel and Kim.

Questions:

• Do you lead more frequently with fear—or empowerment?
• Do you direct team members—or nurture their creative energy?
• Do you respect everyone, even those seemingly without any power?
• What legacy will your leadership leave behind?

Keywords: leadership, authentic, dark side

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President Obama Lays the Vision

As if unrolling a tapestry, last week President Obama laid out a remake of Teddy Roosevelt’s New Nationalism speech from 1910. Some call the President’s speech a populist appeal. I don’t care so much if it is or isn’t, but I do care to find out if we can sift through the speech to glean a few leadership tidbits.

In the speech we see clear signs of charismatic leadership. President Obama lays out the vision—fair rules, superior education, and a strong middle class developing and manufacturing innovative products for global consumption. He states, “We should be known for creating and selling products all around the world that are stamped with three proud words: Made in America.”

Secondly, he works to build a bond with his supporters. He does this by reiterating the pain they’ve felt through declining fortunes and echoing their hope for a better future. The speech is a rallying cry to pull together. Will members of each side of the political divide listen and pay heed? I doubt it.

I frequently tell people that we, as humans respond to pain. The current pain is not great enough for the politicians. When it does become significant, when a catastrophic event takes place then they will pull together.

In the meantime, whether you’re conservative or liberal, listen to the President’s speech or read a transcript. Look for his vision and how he builds a bond. I think you’ll find a few nuggets in there.

Concepts:

• Charismatic leadership characteristic #1: lay out a compelling vision
• Charismatic leadership characteristic #2: build a bond with your followers
• Humans respond to pain

Keywords: charismatic leadership

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The Leadership of Herman Cain: Round 2

Republican hopeful Herman Cain enjoyed a meteoric rise in popularity following the announcement of his bold 9-9-9 plan, but has recently endured painful missteps, an erosion of support back down to the single digits, and an exit from the race. Let’s look at these missteps and what he could have done to prevent his loss.

In recent weeks allegations of sexual harassment by Cain have come to light, along with assertions that settlements were made with some victims. Mr. Cain vehemently denied that any of these incidents took place, and in fact declared that, “I have never acted inappropriately with anyone. Period.” Really? I think all of us, at least once, have acted inappropriately. For individuals considering candidate Cain I’m sure this was a concern. Strike one: the words and manner of his response begged the question of authenticity.

Enter the next phase where Cain was at a loss for words when asked if he agreed with President Obama on Libya and as he asked how to say delicious in ‘Cuban’ while sipping a fine cup of Cuban coffee. Strike two: if you’re going to be a leader you need a minimal working knowledge of your area.

Herman Cain entered the final phase of his imploding candidacy when a woman named Ginger White came forward and detailed a 13 year affair with Cain. She came prepared with records itemizing phone calls and text messages at all hours of the day. Once again, it was as much what he said in response as how he said it. Strike three: denial and arrogance remain.

Contrast Cain’s response with that of President Bill Clinton on August 17, 1998 when he finally admitted, “I did have a relationship with Miss Lewinsky that was not appropriate…” I believe that it was at that moment when the American public began a shift from reviling the President to accepting that he had made a mistake. It is easier for us to have empathy with someone who makes a mistake and admits to it rather than someone who remains defiant.

So like a rocket ship that fails to reach orbit, Herman Cain shoots skyward on the clear, bold leadership of his 9-9-9 plan, enters a slow arc at the apex, then plummets earthward, gravity tugging on his arrogance and inexperience. Had Mr. Cain said early on that he may have made some mistakes in the past, that he regretted them, was working to do better, and had studied up on foreign policy, I believe he might still be a contender in the Republican primary race.

Concepts:
• Apologize for mistakes with humility and authenticity
• Have a good working knowledge in the areas you are leading

Keywords: leadership, humility, authentic

References:
• ABC News. (1998, August 17). Bill Clinton Admits Affair [Video file]. ABC News. Retrieved from http://abcnews.go.com/Archives/video/bill-clinton-lewinksy-affair-1998-9533796
• Geiger, K. (2011, November 17). Herman Cain: ‘How do you say ‘delicious’ in Cuban?’ [Video file]. Los Angeles Times. Retrieved from http://articles.latimes.com/2011/nov/17/news/la-pn-cain-cuban-20111117
• Journal Sentinel. (2011, November 14). Herman Cain on Libya [Video file]. Milwaukee Wisconsin Journal Sentinel. Retrieved from http://www.jsonline.com/multimedia/video/?bcpid=13960334001&bctid=1275195602001
• The Associated Press. (2011, November 8). Cain: ‘Never acted inappropriately with anyone’ [Video file]. The Washington Post. Retrieved from http://www.washingtonpost.com/politics/cain-never-acted-inappropriately-with-anyone/2011/11/08/gIQAMt3h2M_video.html

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