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The High Cost of Executive Bullying

As former IBM CEO Louis Gerstner once said, "People should fear the competition, not their bosses." Too many leaders confuse openness with weakness. But there’s a difference between strong-minded and bull-headed.

Dimon backed up the executives despite pressure from analysts, investors and his board, according to Gillian Tett in her book Fool’s Gold. As a result, JPMorgan Chase came through the financial system meltdown in far better shape than other large U.S. banks.

Unfortunately, there are many more examples of leaders who ignored bad news or contrary opinions in the run-up to the financial crisis and suffered the consequences. Think of Stan O’Neal at Merrill Lynch, who was known for quashing debate and firing people whose views ran counter to his own (Merrill Lynch was taken over by Bank of America); Jimmy Cayne, whose detachment and dictatorial behavior contributed to the downfall of Bear Stearns; Richard Syron, who repeatedly rejected internal warnings that Freddie Mac was buying bad loans and denied responsibility when the housing market collapsed; or Joe Cassano, the head of AIG Financial Products, who presided over the business in credit default swaps that drove the firm into a colossal government bailout and damaged its reputation.

A similar situation unfolded recently at MF Global Holdings, where chairman and CEO Jon Corzine directed the firm to make substantial investments in European sovereign debt. Chief risk officer Michael Roseman warned repeatedly about such risky exposure, but Corzine and the board that hired him ignored the warnings. According to the Wall Street Journal, Corzine even hinted that he might leave the company if the board didn’t trust his judgment. Instead, MF Global informed Roseman in January 2011 that he would be replaced. The company bet even more heavily on European debt — and filed for bankruptcy in October after suffering devastating losses.

Why are so many leaders unwilling (or unable) to heed messengers who have the best interest of the company at heart? It’s likely that they tend to view relying on others, expressing doubt or admitting inadequacies as indications of weakness — and weakness is not an option.

These highly competitive people have a strong desire to win, and winning even short-term victories intensifies that desire. All too often, however, it also intensifies self-reliance and suspicion of alternative perspectives. After all, “strong-mindedness” is what got them there in the first place. But when strong-mindedness hardens into close-mindedness, the result is isolation. Most of the people who have risen to the top have been rewarded for knowing, not asking.

Author Jonah Lehrer has reached a similar conclusion. In a Wall Street Journal article about “the power paradox” Lehrer wrote that when leaders rise to power, they change from being “polite, honest and outgoing, [to] become impulsive, reckless and rude.” He added, “Instead of analyzing the strength of the argument, those with authority focus on whether or not the argument confirms what they already believe. If it doesn’t, then the facts are conveniently ignored.”

Under pressure from the investment community and the board to achieve remarkable results in 18 months — or even a single quarter — CEOs become fearful. They instinctively take control, shutting out input from others. But that is the opposite of what they need to do.

At NetApp, perennially one of Fortune’s “Best Companies to Work For,” senior leaders demand interaction and debate. The rule is “If you have something to say, say it. The only unacceptable thing is to leave a meeting and then talk about what you heard in the meeting,” according to Vice Chairman Tom Mendoza. “If people think there’s a top six to ten people who will make all the decisions, that gives them the right to shut down. I believe we have to give them enough information so they will go home and think about it.”
As a result, ideas percolate up at NetApp. “Basically the concept is that we work for them. We invert the pyramid,” added Chairman and CEO Dan Warmenhoven.

When someone approaches Marty Nesbitt, president and CEO of The Parking Spot, with an idea, he says, “We talk about it right there. Maybe I don’t understand it but if that person thinks the idea could make us more money or solve a problem, then we ought to explore it. As long as people are enthusiastic and committed to an idea, I allow them to keep working on it until they convince me.”


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