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Risk no fudge

17 July 2019

How do you know if a leader is successful?

Stalin, the dictator who ruled the Soviet Union for 20 years until his death in 1953, was famous for winning at least 99% whenever he consulted the electorate. ‘It is not who votes that is important, it is who counts the votes,’ he is reputed to have said.

This thought springs to mind whenever the conversation turns to leadership, whether in politics or business. It is commonplace for executives from different industries to discuss the current crop of business leaders and their performance at cocktail parties. Some are widely acclaimed as good leaders – few are described as great leaders. Yet the criteria being applied are rarely clear. Simply put, just how do you know, objectively, if a leader is successful? Who chooses the measure to apply? Is it possible to be unsuccessful and a good leader?

The London Business School guru Andrew Likierman asks the question: is it possible to separate a great leader from his or her legacy? For example, Jack Welch at the American giant GE is probably the nearest we have come to a universally lauded leader in his time at the helm. After he quit, GE struggled and his successor Jeffery Immelt has had a lot of reshaping to do. The Welch legacy has since lost a lot of its lustre.

On these shores how should we judge Sir Terry Leahy? During his time at Tesco, the business was one of the most successful in the country. Tesco has struggled since he left – some say this has been worsened because the company underinvested in its home market to finance an unsuccessful push into North America.

What about Sir Martin Sorrell at WPP? In almost 30 years he has created an international advertising and marketing powerhouse. There is now a huge question mark over succession and whether the business will survive his passing. You may think the same of Rupert Murdoch’s empire.

Conversely there are business people who are terribly understated when in office, who do not actively court recognition, but who have left the companies they have led very well positioned for the future. This raises a further question: is leadership about doing the right thing, even if no one notices until years later? Or, does it only count if someone does notice, and still counts even if it does not last?

Likierman suggests that history is a very dangerous guide. Instead he comes up with a range of tools:
First, if we have to assess people we should set objectives that are clear and agreed, and then measure their performance against those objectives.

Second, ask who counts the votes. Is performance just a concern of shareholders, or should the satisfaction levels of the other stakeholders – employees, customers, suppliers – carry equal weight?

Third, find some way of assessing the counterfactuals – in other words, were there opportunities missed which could have been even more fruitful if they had been seized? What leaders fail to do can often be far more significant than what they actually do.

Finally, is the success of the business closely tied to the actions of the leader or is a rising economic tide lifting all boats?

Summarising all this Likierman says that assessing leadership comes down to deciding how well the person has performed against the agreed objectives; how well they have performed compared to relevant peers facing similar challenges and a side order assessment of how well they have handled the unforeseen opportunities.

It is perhaps invidious to choose one of the three but it is surely the case that the ability to see and seize opportunities is the most important of these, provided they do not cause chaos or excessively neglect the existing business at the same time. This is because going into the unknown involves taking risks, and the willingness and ability to do that successfully and consistently is probably what separates one person from another. Leadership is about risk not fudge.

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