Leadership Beyond Old Boy´s Networks

In many traditional business cultures, the main criterion for business leadership was the social background as part of the establishment. Business competence - even the ability to read financial statements - was often an afterthought. And, by the way, the social order was led by "alpha males".

Now, we see some disturbing results from this selection of leaders out of the limited pool of the "Old Boy´s Network". Some of these highly praised "leaders" wreaked havoc with their entrusted companies.

Worst examples are Arcandor (Quelle), Constantia Privatbank, Citibank, GM, and more. After the fact it seems obvious that the leadership of these companies lacked management skills, personal integrity, or both.

Now, with a much more harsher business climate, owners and boards of companies need to look out for professional management talent. And they will need to tap into leaders that often do not conform to their "tried and true" stereotypes.

For example, women in boards still amount to less than 10%, here and here. Also, many countries only recruit out of their local networks. Or, they only consider graduates from their own university. In some countries, a key to a successful career still is the affiliation with a political party.

Leadership is not defined by background, color or gender, nor by other traits per se. Leadership is a question of results. In order to tackle the tough decisions of the next years, we need strong leaders that can deliver these results together with their teams.

Therefore, we need a more open minded leader recruitment approach. The criteria must include more than a nicely polished background and blind loyalty. Keys to success include the ability to face reality, the professional experience required for the job and the integrity to serve as an example.

And most likely, the best contenders are not only found within the Old Boy´s Network or Club rooms ....

Leadership for Generations

When a stock trader was asked what his planning horizon was, he answered, "Mostly short-term, but in some cases I am trading long-term." Then he was asked "How much time is long-term for you?" His answer: "With long-term I mean 5 minutes."

Compare this thinking to Felix Montecuccoli´s. He recently presented his views at the Hayek Institute in Vienna. Mr. Montecuccoli is leading the Agriculture & Forest Association, German site. These farm & forest owners are thinking long-term as well, meaning in generations. Not surprisingly, their profit motive is of somewhat lower priority. But on top of their list are values, with which they are managing quite successfully their properties; these values, such as industriousness, creativity, private property, sustainability, long-term profitability, or family traditions have served them well so far.

Family managed enterprises do experience a renaissance, not only for farmers or traditional aristocrats (of which heritage many big land owners still are in Europe). Examples of successful family-led businesses are not only found in the German "Mittelstand", but also in many Asian family companies, see as a famous example Toyota. Even in the US, familiy businesses have survived since 1776 and before, and are a force in the USA today, article (in German).

The keys to success and here in family business are founded on seemingly simple principles. Interestingly, these principles often help the businesses to prosper and survive over the long term. And they seem to have achieved alignment between the interests of the owners and managers better than stock-owned companies.

And this mis-alignment of owners and their agents, like managers and workers (see: agency theory), is one of the core challenges of big, publicly listed companies today. Not only in cases were outright fraud is perpetuated, but also where the managers are paid big bonuses, while the owners need to take losses, see here.

Also, it seems frivolous, when experienced top executives are scolded by twenty-something analysts to not follow any long-term strategy, but to sacrifice it for short-term shareholder value. Even great minds like Peter Drucker have struggled with that problem. It is a genuine leadership issue and needs to be resolved.

Another strong value of family businesses is sustainability, not only of the firm itself, but also for society and ecology; because family leadership thinks of future(s) not only in terms of stock options, but, even more so, of the future of their children and grand-children. That means then leadership for generations.

Updated 12.02.2009