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Michael Useem
Scholar

Michael Useem

Michael Useem is Professor of Management and Director of the Center for Leadership and Change Management at the Wharton School of the University of Pennsylvania.

Surviving the Good Times

The financial firms that stumbled or imploded during the crisis of the past year are due for a leadership remake, and those now in charge should be ready for it.

They ought to be prepared because we know that few experiences better concentrate the mind than looking into the abyss, or plunging into it. Witnessing what poor leadership has wrought - consider the bankruptcy of Lehman Brothers last September and the federal bailout of AIG in the days that followed - has served as potent reminder that flawed decisions at the top can be catastrophic.

In the case of Lehman, reports suggest, top executives had decided to stay deeply in the sub-prime housing market in the face of ample warning from mid-level managers that icebergs lay dead ahead. In the case of AIG, former employees report, the head of its financial products division had decided to remain in the business of insuring packages of such mortgage products long after warnings emerged from below that it too had entered hazardous waters.

Forewarned, the executive errors were unforced - though they were not unexpected. We know from research and experience that high times can generate bad decisions, as hubris anesthetizes our ability to appraise future risk, particularly that of low-probability high-consequence events.

With extraordinary growth and success in the several years running up to 2008, it is not surprising the leaders and directors of Lehman and AIG executives may have opted to ignore the gathering clouds that those on the ground had seen.

If we tend to predictably suffer from over-confidence when things are going well, company executives and directors can do something about it. They can require a culture of caution, a mindset of continuous improvement that focuses on ferreting out problems rather resting on laurels.

Leadership is a learned capacity - including the ability to make good and timely decisions and to take appropriate risks while avoiding over-confidence. If we learn more indelibly from failure than success, the first two cases for a leadership remake would be to study the flawed decisions leading up to Lehman's collapse and AIG's default in 2008.

By Michael Useem

 |  September 15, 2009; 11:51 AM ET
Category:  Economic crisis Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
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Useem predicates his conclusion with "If we learn more indelibly from failure than success,..."

But 'if' is the biggest two-letter word I know;) Unfortunately, this particular 'if' is a big one. Too many people today, not just in "leadership positions", have set aside the wisdom of Ben Franklin's Poor Richard's Almanack, where he said:

"fools learn from their own mistakes, wise men by others".

Posted by: Syllogizer | September 15, 2009 1:58 PM
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