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Jeffrey Pfeffer
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Jeffrey Pfeffer

Jeffrey Pfeffer is the Thomas D. Dee II Professor of Organizational Behavior at the Graduate School of Business, Stanford University, and author of the Sept. 2010 book, POWER: Why Some People Have it and Others Don’t.

How AIG Went Blind

There was a time when CEOs felt their job was to intelligently balance the requirements of various stakeholders including customers, employees, suppliers, the community at large and, of course, shareholders and other providers of capital. Those days ended a while ago and now it's all markets, all the time, as a forthcoming book by my former doctoral student Jerry Davis makes clear. In markets, it's every person for him- or herself, Steve Pearlstein's pleas for cooperation and concern for community well-being notwithstanding.

Leaders need to be able to put themselves in others' places--to be able to see the world through a different perspective, to be able to anticipate reactions to their actions. But research consistently shows that power, such as that held by CEOs, tends to make people less attentive to others and more focused on satisfying their own needs, including their ego. Optics--how things look--matter, and if leaders lose their ability to see the world through others' eyes, they ought to consider getting some counsel from those who can and do see the world differently.

Moreover, leaders, including political leaders, also need to better understand the social psychology of money and the corrupting effects of economic language and theory so they are not blindsided by the consequences of the compensation and other management practices they unleash. Consider the research of Kathleen Vohs of the University of Minnesota. In a large number of experiments, Vohs and her colleagues show that participants primed with the idea of money--for instance, by seeing a dollar bill on a screen saver or constructing sentences with money-related concepts as one of the words--are less likely to ask for help with a task, less likely to offer help to others, and to sit farther away from compatriots in the study. Money, simply put, makes people behave more independently and, of course, engages their competitive spirit. Meanwhile, numerous other studies show that people with economics training and more likely to defect in prisoner's dilemma games, to take more resources for themselves in ultimatum games, to give less to charity--you get the picture.

A strong organizational culture can and does overcome these tendencies to treat everything, including employee and customer well-being, as a cost to be minimized. Companies that build cultures that value employees and customers--such as Southwest Airlines, kidney dialysis company DaVita, clothing retailer The Men's Wearhouse, and others--instill throughout the organization a sense of balance between doing well and doing good. And as much research shows, it is possible to create organizations where everyone wins and there is a virtuous, rather than a vicious, cycle.

But as many commentators on business training including Rakesh Khurana of Harvard Business School and the late Sumantra Ghoshal of London Business School have noted, we are long way from instilling these ideas in our current or future organizational leaders. Maybe that's why research shows that both undergraduate and graduate business students cheat more than students in other majors.

Leaders need a broader perspective. They ought to be able to see what others see--and maybe think before they mouth off. They need to understand social psychology, not just economics, if they are going to make sound decisions. And mostly, they need to complete the largely unfinished professionalization of management project, understanding that in professions, client well-being and protection are responsibilities to be taken seriously, not obligations to be shirked or bemoaned.

By Jeffrey Pfeffer

 |  March 18, 2009; 12:36 PM ET
Category:  Economic crisis Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
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This is not an accident. This is the result of the philosophy and values of business taught for decades at the most prestigious business schools in the nation, a deadly mix of Milton Friedman, Ayn Rand, and Peter Kropotkin.

Posted by: bfieldk | March 18, 2009 1:47 PM
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really good article on leadership. It was a lesson hard learned for at least one or two major pharmaceutical companies. They too had to be taught that the world isn't just shareholders who want the product to get to market faster and cheaper, but that there are patients at the end of the manufacturing line who deserve a quality product and that the lower level employees need management support to build quality into that product from start to finish.

Posted by: clives | March 18, 2009 1:41 PM
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