Lead the Way

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George Washington. Winston Churchill. Jeffrey Skilling. Don't laugh. Until the past year, many management consultants, executives and business journalists lionized Enron's former CEO as a paragon of leadership similar to our first president or Britain's WWII icon.

Today, Skilling is more often compared to Ivan Boesky or Charles Ponzi, and investors, creditors and politicians are screaming for his head. But management experts say the vociferous anger over Enron, Tyco and other corporate implosions masks a subtler yet more serious concern. Simply put, does this series of scandals indicate that corporate America--both small businesses and large corporations--has forgotten how to define and discover outstanding leaders? More broadly, have Americans in general lost sight of the qualities that make up the finest leaders?

of parents want their children to become CEOs.

Source: Harris Interactive

Answering this question will help determine the fate of the small and large business worlds, which have lost the trust of many Americans. Discovering answers is not an impossible task; in fact, some management experts believe the scandals and economic downturn have provided a rare opportunity for America to redefine its views on leadership.

Turning on the Charm
Many executives believe businesses' current problems can be linked to one fatal flaw: the idea that charismatic leaders are best able to manage companies from Fortune 500 firms to mom-and-pop stores. Rakesh Khurana, an assistant professor at Harvard Business School who researches corporate leadership, believes Americans have always had a soft spot for charismatic leaders, a consequence of our founding ideology as a nation of rugged individuals. And he does not deny that charisma is a vital component of some leaders' personas, especially in professions like politics where public speaking is important.

A whopping
of all adults believe that most top company managers are paid more than they deserve.

Source: Harris Interactive

"The aftermath of September 11 has shown that a president still has to be able to rally people," says Daniel Pink, author of Free Agent Nation (Warner Books) and former speechwriter for Al Gore. Pink notes that though President Bush is not considered a polished public speaker, many people nonetheless looked to him to deliver rousing oratory in the wake of the terrorist attacks.

Though charisma can be important, over the past decade too many businesses have sought out ultra-charismatic "superstar" leaders to the exclusion of other types of personalities. In fact, the rate at which U.S. companies replace their top leaders has skyrocketed since 1990, as firms search for supposed miracle workers from outside their organizations. In the early 1980s, several self-promoting saviors did rescue companies--Lee Iacocca at Chrysler, for example--and their successes led corporate boards and family businesses to overrate charisma. What's more Khurana says, some boards believed charismatic leaders were better-equipped to communicate the company's vision to impatient investors and the increasingly voracious business media. Meanwhile, small and large companies began relying on executive search firms, a change that made it harder for leaders to advance from within companies.

Yet many leadership experts believe these supposed superstars often deliver poor leadership and weak long-term results. In a study of 1,435 companies' performance over four decades for Good to Great (HarperBusiness), author Jim Collins found none of the firms that did best changed leadership frequently or relied on charismatic saviors. Anecdotal evidence supports Collins' research. Michael Armstrong arrived as AT&T's chief executive in 1997 and quickly nabbed the covers of many business magazines before leaving his post in 2002. But despite making several high-profile acquisitions, Armstrong failed to improve AT&T's financial results during his tenure as CEO. At Enron and Tyco, charismatic leaders were able to use employees' reverence to amass enormous amounts of power, which they used primarily to enrich themselves.

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This article was originally published in the March 2003 print edition of Entrepreneur with the headline: Lead the Way.

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