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Rewards for successful leadership may be as astronomical as ever, but so are the demands. “The chief executive officers in the cosmetics and fashion industry today face entirely different challenges than those of years ago,” observes Leonard A. Lauder, chairman emeritus of the Estée Lauder Cos. Inc. and the beauty industry’s master when it comes to leadership. “Today, they must wear multiple hats and be able to understand all aspects of the challenge in front of them. They’ve got to understand finance, be creative and be able to hire the most creative people in the world. They’ve got to also understand the world and the new technologies that are changing the face of business everywhere. That’s a large order.”
In the view of top thinkers both in business and academia, the increasingly slippery path of leadership for the typical ceo is looking more like a high-wire act. There’s more pressure from boards for quicker results, the lifespan of the job has shrunk, the speed of technological change has spawned competitors at a dizzying rate, globalization has widened the playing field and thanks to social media, everyone gets to be an expert critic.
“The ceo job is a lot tougher,” says Sydney Finkelstein, an associate dean for executive education and Steven Roth professor of management at the Tuck School at Dartmouth, whose latest book is entitled Why Smart Executives Fail: And What You Can Learn from Their Mistakes. “You’ve got more pressure, a tougher job being successful competitively. You have a short leash and you’re going to get fired a lot quicker.” Finkelstein estimates that the average tenure of a typical ceo “is down to something like four years. There’s a lot of pressure to produce and to produce fast,” he says.
On the upside, he notes, a ceo can make an incredible amount of money— thanks to stock-option plans—“if they make the right calls.”
Finkelstein believes that dynamic has led to greater risk taking, noting there’s little penalty for a bad call. “You don’t go lower than zero from your stock-option plan,” he says.
Clayton M. Christensen, the Kim B. Clark professor of business administration at Harvard Business School, is widely respected as an authority on disruptive innovation, a school of thought that he put forth in his award- winning 1997 book, The Innovator’s Dilemma. His latest book, which he coauthored, is How Will You Measure Your Life?
He, too, acknowledges the effect of vise-like short-term thinking. But his advice is to take the long view. Fundamental changes in the financial world have affected the duration of stock ownership and the investment of money. Compared to the Sixties, when “investors were actual shareholders because they held their stock, on average, for six years,” today’s investor holds onto a stock for 10 months, and 40 percent of shares are held by people who sell in less than a month, Christensen says.
At the same time, there are those patient investors who still hang in for the long haul, making for an extremely diverse population of owners. This presents a conundrum for the ceo when faced with a choice of strategizing for the long term or short term.
“Executives need to say, ‘I observe that you as an investor temporarily hold shares of my company and I can’t take the burden upon myself to maximize the return on your investment,’” says Christensen. “‘The reason why I can’t do that any longer is that there are actually some people who hold their shares for six years. There are some people who hold them for six minutes. If I act to maximize the return of the people who turn it over every six minutes, that goes against the needs of those who hold it for six years and vice versa. Not only am I not able to help my shareholders maximize their returns, it is actually impossible for anyone to do that because this is such a diverse group. You are responsible for maximizing the return on your capital, and I have to build a company. My objective is to build this organization for the long term.’”
In addition, the cost of capital has become so cheap that there is no longer any reason to cling to short-term thinking, Christensen points out.
Finkelstein sees no drop-off in the quality of leadership, considering the drawing power of the ceo job to attract top-notch talent. He asserts that having more risk takers is not all bad.
When it comes to what makes a leader today, Finkelstein ticks off a number of needed personality attributes, including humility and old-fashioned values. “Number one, intellectual honesty, which means facing up to the reality of the situation you’re in and not pretending otherwise,” he says. Self-awareness is important because it gives an executive a sense of how he or she makes decisions—what are the preferences and biases. A third strength is the ability to develop talent and delegate because “there’s no one who can run a business by themselves; that’s the reason why so many entrepreneurs fail—they think they can.”
Finkelstein says intellectual honesty has become more important than ever. “The world is changing so quickly you cannot afford to get wed to anything you’ve done in the past,” he says. “You’ve got to be willing to blow up what you’ve done. That’s psychologically difficult.”
Similarly, Finkelstein maintains that “vision has never been more important. With global competition in so many industries, a very fast pace of change and technologies shifting in new ways, it is essential to be able to explain what you are as a company. It provides a core to rely on, a compass that helps keep firms on track in turbulent times.”
Christensen knows what’s not needed. “If you stand up and say, ‘Look at me. For 12 quarters in a row we’ve increased our bottom line,’ that’s not leadership, that’s thumping your own chest.
“Leadership is where you can articulate a path to the future that is viable, which means it is not your opinion, but rather it is based upon what causes what and why in this circumstance today,” he asserts. “If you can articulate what’s causing things to happen, why it’s causing it to happen and what we have to do about it—that’s vision. We desperately need leadership in this way.”