December 30, 2008

With the current financial crisis, there have been calls around the world for more responsible leadership. But what is responsible leadership and how did leadership failures contribute to the current financial crisis? IMD Professors Robert Hooijberg, Martha Maznevski and Jack D. Wood will be among the Faculty taking part in the IMD Responsible Leadership Summit from February 1-3, 2009. They offered some insights to this question.

Professor Robert Hooijberg: Responsible leadership is about finding a balance between short and long-term demands and focusing on businesses that you understand. Some leaders got their organizations in trouble by engaging in businesses they did not understand. They got involved in these businesses because "everybody else was doing it" and it seemed highly profitable. In doing so they became primarily short-term oriented and followers rather than leaders. Now they are trying to get their house in order by refocusing their attention on the businesses they really know.

Professor Martha Maznevski: Responsible leadership needs to take into account the potential impact of decisions and actions beyond the immediate and direct consequences. It should also be about trying to increase the positive potential impact and decrease the negative. This is easier when there is low interdependence between economies, because one can better predict the impact. When there is high interdependence between economies, it's much more difficult as leaders can’t possibly comprehend all the potential impacts in other places. Until recently, leaders have not fully appreciated the implications of interdependence. They've only seen the upside without thinking about the downside. The crisis has taught us that we need to take this into account. The signals were all there before – leaders should have known that interdependence works both ways – but instead they focused just on what they could take from it.

Professor Jack D. Wood: In a nutshell, responsible leadership means that those in a position of authority take an interest in the well-being of the collective – be it their own team, organization or company – rather than thinking about their own personal gain. I extracted what might be called “Responsible Leadership Rule #1” from 20 years of experience as a military officer: never privilege yourself above those for whom you are responsible. During a week-long outdoor corporate leadership training exercise, I watched two “team leader consultants” completely lose credibility with their teams overnight. Rather than sleep outside in cold, nasty, rainy weather with their teams — and against the advice of their staff colleagues — they conveniently secured rooms for themselves in a nearby hotel. They lost not only credibility as leaders of their teams, but they lost the respect of their colleagues and further work with their client organization. A combination of such self-interest and ignorance has partly contributed to the current economic crisis. Emilio Botîn, chairman of Banco Santander, recently received the prize for “Bank of the Year” in London. In his acceptance speech, he needled the assembly of global financial elite for their short-sighted decisions in the past decades. “He distilled his wisdom into three simple lessons: One, if you don’t fully understand a product, don’t buy it. Two, if you wouldn’t buy a product for yourself, don’t sell it. And three, if you don’t know your customers very well, don’t lend them any money.”[1] Had other financial leaders followed this simple advice, the inevitable economic crisis would have been considerably less toxic.

1. Christopher Hughes, International Herald Tribune, 17 December 2008, p. 15.

During the Responsible Leadership Summit, Professor Hooijberg will lead a session with TNT CEO Peter Bakker on how one company engaged in corporate social responsibility in a way that built on the existing skills of the organization. As a result, they engaged their employees and made significant contributions to the World for Food Program.

Professor Martha Maznevski will facilitate a workshop entitled “Responsibility for People in the Workplace – Who Has the Time?”

Professor Jack D. Wood will lead a workshop called “The Role of Values”.

More information about the Responsible Leadership Summit is available  at www.imd.ch/rls.