Leadership with a capital L*

Since CAs are in the business of building better organizations, they should also be concerned with applying the principles of leadership

By David Kane and Josée Santoni

*This is an expanded version of an article that originally appeared in the December 2004 issue of CAmagazine

Leadership has fascinated everyone from philosophers to generals for thousands of years. We still learn about it in school, attend conferences chanting its merits and hire consultants to help us foster it. From a broad perspective, leadership can be expressed in many ways. It is a bold statement, a firm leap in a given direction, a display of genuine corporate courage. As Lance Secretan says in his Globe and Mail article of September 1, 2004, great leaders “have a vision so compelling that it becomes a magnet for the passion of others.”

Since leaders have the ability to capture the minds and hearts of those surrounding them, it stands to reason that leadership is a key prerequisite for corporate success. And since CAs are in the business of building better organizations, they should also be concerned with applying the principles of leadership.

The link between corporate success and leadership
CAs promote strategic planning, internal controls, accountability and the like, but let’s face it, leadership is the primary success factor in any journey – in business or elsewhere. The reason is simple: a leader has the ability to bring together the right people, to clearly define their roles and to convince them to take on the required tasks no matter how thankless and unglamorous some of them might be. The leader will define how the various players will work with each other, describe their responsibilities and encourage their progress. The leader’s job is to chart direction, communicate it to all involved and ensure progress is being made as planned. Without these elements, there is no team and no success.

Furthermore, leadership is essential for dissipating the otherwise omnipresent fear of corporate governance. Leadership gives people the ability to move forward with confidence and accept risk without paying undue regard to protecting themselves. A leader ensures employees feel proud about their contributions and will be supported in all efforts contributing to the objective.

Think about it. Managers will avoid sensitive issues for fear of being caught making a stand if there is no strong leader supporting them. You then end up with situation similar to a hockey game where the centre ice trap is the strategy of choice for both teams. Don’t make a mistake and you might win.

In book Good to Great, Richard Collins identifies 11 of the best-performing companies over the past 20-odd years. Originally, he had no intention of focusing on leaders, but on successful organizations. But his research prompted him to look at the leaders of these great organizations, and he was surprised to find that they almost always shared the same characteristics. Level 5 leaders, as he calls them, generally exhibit the following traits:

• A paradoxical mix of personal humility and professional will.
• Ambitious for the organization’s success, not their own.
• Set up successors for even greater success.
• Fanatically driven to produce sustained results.
• Compelling modesty.
• More plough horse than show horse.
• Take full responsibility for problems and deflect praise to the team.

However, all this talk of modesty and humility paints a rather boring portrait of great leadership. While this style is highly praised in Collins’ book, we all know it is a much tougher sell to some shareholders, who are not necessarily interested in a long-term approach.

The cost of non-leadership
In most organizations, procedures and models have been developed to assess the cost of inadequate internal controls, lurking business risks or weak governance, but few have attempted to assess the cost of non-leadership. In fact, non-leadership will cost your whole organization by:

1. Creating a fat-cat culture of nonchalance
   Quite simply, people get away with doing less just because they can. What is not measured usually does not get done.
   
   Furthermore, we feel there is a strong correlation between non-leadership and corporate mischief. If you have a strong captain at the helm, you will think twice about making a cunning deal with a supplier, because you know that someone is watching (internal controls) and that you will be dealt with firmly (leadership).
   
2. Creating widespread insecurity and confusion
   Without clear directions, your employees (the smart ones at least) will quickly fill in the blanks with their own version of what is expected of them. You can easily imagine the level of confusion that will ensue. The funny thing is, the better and more devoted your people are, the greater the potential damage, because they will all take it upon themselves to save the day. The collective malaise will eventually create irreparable damage to the team and a terrible waste of the corporation’s intellectual capital.
   
3. Creating a situation where resources are allocated in a manner inconsistent with business strategies
   The consequences of non-leadership are unclear direction and a management team that is easily distracted by the flavour of the week. Resources get allocated to the loudest voice or the most prestigious opportunity. Hard work and tough challenges tend to draw less attention in these kinds of environments. The result is an erosion of the core business and a substantial decrease in effectiveness. Some organizations can afford this behaviour, some correct it in time and many others will not survive it.

Leadership without accountability
Leaders are powerful people. Even with fewer resources and less status or authority, they manage to accomplish what they set out to do. They are, therefore, a dangerous breed. Remember, they are fearless. Political leaders have the charisma to lead people into a peace process but also into battle; the same goes for business leaders.

Generally speaking, we as a society are a tolerant bunch. There have been numerous examples lately of organizations where commercial values have plummeted and where leadership remains in place and continues to be paid handsomely in spite of it all.

While board members are ultimately responsible for making executives accountable, they have a tendency to assume the same executives will look after things for them. Nothing can be further from to truth if you are dealing with what we call “binge leaders” — people who abuse their power, taking advantage of the status and position it confers to do as they see fit.

Leadership is not necessarily popular
The leadership high ground is often a dangerous place. Merely doing something exposes you to criticism. The old adage “the buck stops here” is very appropriate, since we sincerely feel that in any organization, success or failure is directly tied to its leadership. When things go wrong, it is always the fault of the top person. When things go well, the top person should be credited with orchestrating the events that led to the success.

But beware: corporations (large or small) have their own political systems. Since political forces have their own sets of rules and ideologies, you will almost always find objections even to the noblest ideas. True leaders understand this and are usually able to get the dissenters (generally those who stood to lose power, prestige or influence) to support them. If that is not possible, they make them irrelevant to the process.

Why is it so hard to describe and identify born leaders?
There are three main reasons:

1. We confuse leadership with personality and image.
   We tend to get caught up in personality and image because true leadership is too difficult to describe and therefore measure. It appears that what we honestly want is exceptional short-term gain, based on a solid foundation that will ensure sustained positive results and stability for the long term, while being led by a charismatic, energetic and visionary individual who will fix everything that is wrong, avoid disrupting relationships with stakeholders and not get his or her name on the front page of the newspaper for the wrong reason.
   
   We recently asked several of our colleagues to name a business leader. Surprisingly, most named Donald Trump and Virgin Group Chairman Sir Richard Branson, based mainly on their visibility and star power. Well, Mr. Branson descended a few years ago from a crane over the Virgin Megastore in Times Square, tearing off his clothes to reveal a muscled bodysuit and a cell phone under shorts, all in an effort to launch Virgin Mobile USA, whose motto is “We have nothing to hide.” Most leaders would never attempt similar stunts (this is not his first), but they are nevertheless leaders.
   
2. We confuse leadership with prominence
   This is a fundamental mistake. Being the head of an organization (or part of it) only requires a nomination; but that does not mean you are a leader. A leader will create a sense of purpose and an environment conducive to collective understanding of what needs to be done. Leaders influence others and shape events; prominent figures (other than leaders), are the convenient façade of leaders, the man or woman who is pulling the strings.
   
3. We confuse non-leadership with mismanagement and mischief
   We need to stop associating greed, mismanagement, stupidity and incompetence with lack of leadership. These are fundamentally different issues. Even the absence of these characteristics does not mean you have leadership. Leadership is not predicated on the presence of good or bad.

Why do we have such difficulty getting it right?
If we know good leadership is good for the organization and we know more or less what it looks like, why are there so many instances of bad leadership?

Compensation packages certainly aren’t the problem. Look at any of the pay and/or separation packages that have been bandied about in the press. The problem is that the people authorizing these amounts do not fully understand what they should be demanding from the executive, let alone what they are paying for.

We often see situations where you would think leadership qualities would be highly valued; in reality, however, some decision-makers do not want any superstars or energetic performers putting undue pressure on the organization. It is one thing to talk about leadership, innovation and pushing the envelope; it’s quite another to get the culture to accept these ideas.

Often, too, technical skills are placed ahead of leadership skills. For example, we met with a senior VP of HR who moved through the organization from the marketing department. When a new president came on board, the VP was questioned about his skills in managing HR: “What does a marketing person know about benefits, pensions and labour negotiations?” The VP replied, “What does an HR expert know about growing the value of this business?” At the very least, an understanding of the business allows you to go out and get any expertise needed.

At a recent seminar sponsored by one of the provincial institutes of Chartered Accountants, the instructor made a compelling case for the need for true leadership in any organization. He then invited participants to write on a piece of paper (not to be shared with anyone else) the name of the real leader in their organization – not necessarily the president; it could be a VP. After a moment of silence, the instructor told participants if they could not find true leaders in their organizations, they should update their CVs and start thinking about moving on. Many organizations are quite proficient at wasting money, giving poor service and providing low value to their investors. Weak leadership will accelerate the deterioration of an organization’s value.

True leadership can only be had when boards understand the need for it, have the commitment to go out and get it and show enough courage to back executives and hold their feet to the fire when tough choices are made.

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David Kane, BCom, BA, and Josée Santoni, MBA, CA, are associates at SMCS Inc. (www.smcs-inc.com), a Montreal-based organization dedicated to business development and organizational effectiveness. They can be reached at info@smcs-inc.com.