The danger of a rush of power to the head; There are numerous perils when business leaders allow autocratic tendencies to take over

October 7, 2013 4:14 pm

The danger of a rush of power to the head

By Andrew Hill

There are numerous perils when business leaders allow autocratic tendencies to take over

Silvio Berlusconi and Jack Ma do not have much in common. The 77-year-old Italian politician is at the end of his leadership path; at 49, the Chinese founder of ecommerce group Alibaba may be barely halfway along it. Yet both have tested, or are testing, the limits of autocracy. One has determinedly clung to power over nearly 20 years in Italian politics; the other is trying to embed control of Alibaba through a core “partnership” of shareholding senior executives after the Chinese company’s public listing. My message to Mr Ma: be careful what you wish for.Leaders who go to extraordinary lengths to stay at the pinnacle of business or political life face two big pitfalls. First, they can back themselves into a corner of narcissism and self-delusion; second, the very power and authority they think will create a virtuous circle of success can ultimately undermine their performance. Mr Berlusconi fell into both traps, making Narcissus look like a model of self-abnegation, while the electoral performance of the political party he founded was at best middling. The vicious circularity of power finally came back to bite him last week, when a party split forced the enfeebled leader to back away from a coalition-threatening ultimatum.

The same thing can happen when power goes to the head of driven business leaders, as a new report into behavioural risk by MWM, the executive search consultancy, describes: “Having reached the top of the ladder . . . there is a growing risk that over time the very attributes that have been the foundations for their achievements can turn into destructive tendencies.” The study, based on anonymised interviews with 80 executives, non-executives and board chairs, cites some familiar historical examples of self-destructive bosses, from Enron’s Jeff Skilling to Fred Goodwin of Royal Bank of Scotland. “It’s hard not to start believing your own PR and concluding that you walk on water,” one CEO told MWM.

But the path to self-delusion starts well below board level. Everyone has dormant autocratic tendencies, but the real problems begin when you get a formal leadership role, according to a paper in this month’s Academy of Management Journal titled “When Power Makes Others Speechless”. The authors found that giving an individual a sense of power and a title – in one of the experiments, a nametag labelled “Leader” was enough – cowed other team members. The over-bearing chief dominated group discussion. Performance suffered. If you have ever attended a meeting led by your boss, you may recognise this effect.

Sometimes we need dominant leaders – in a crisis, say – but otherwise the implications are grave. One (admittedly tentative) possibility, the paper says, is that “the very act of promoting someone could cause the performance of that person’s team to suffer”.

How can companies offset this? They could foster and maintain a flat structure and an egalitarian culture. But as Jeffrey Pfeffer wrote in his 2010 book Power : “All organisations create hierarchies and the very existence of hierarchy means that there will be competition for who occupies higher-status positions.”

Another antidote would be to institutionalise open communication. The AMJ paper found that a team’s performance improved substantially when its leader was reminded that individuals’ contributions could be “critical in reaching a good decision”. Leigh Plunkett Tost of the University of Michigan, one of the authors, told me companies should be seeking to create a culture of “facilitative leadership”. She suggests they should kick the habit of selecting leaders mainly for their functional expertise, and look to promote more people on their ability to encourage collective endeavour.

Certainly, companies ought to formalise dissent, not suppress it. At the very least, they should ensure corporate leaders cannot insulate themselves from serious challenge – as Mr Ma and his colleagues are trying to do by enshrining their control over the Alibaba board.

Alibaba is not alone. Other technology group founders such as Google’s have achieved the same outcome through dual-class share structures, though Twitter, thankfully, has asked for no such protection in its planned public offering. It is tough to pull a narcissistic leader off his pedestal – as Mr Berlusconi’s political foes can attest. Even tougher when he has been handed the materials to build a wall around his plinth.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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