It Seemed Like a Good Idea at the Time

In Stumbling on Happiness, psychologist Daniel Gilbert wryly observes that “psychologists…take a vow, promising that, at some point in their professional lives they will publish a book, a chapter, or at least an article that contains this sentence: ‘The human being is the only animal that…’ We are allowed to finish the sentence any way we like, but it has to start with those eight words.”  Noting several refuted hypotheses (e.g. uses tools or language), he goes on to say that “it is for good reason that most psychologists put off completing The Sentence for as long as they can, hoping that if they wait long enough, they just might die in time to avoid being publicly humiliated by a monkey.”  Psychologists aren't the only social scientists who run the risk of premature generalization, as this post will prove.

Lately I’ve been reading several books that lie along the border of psychology and economics – Daniel Kahneman’s Thinking Fast and Slow, Dan Ariely’s Predictably Irrational, Nicholas Nassim Taleb’s Fooled By Randomness, all of which provide a lot of evidence that our abilities to predict the future, and even to act rationally in the present, are a lot poorer than we imagine.  Yet this never prevents stock market “experts” and management theorists from making a killing by confidently labeling businesses and their leaders successful or promising, flawed or doomed.  The danger with all these judgments, of course, comes when you make them before the fat lady has sung – because contrary to F. Scott Fitzgerald, there are plenty of second acts in American lives, and often Act II turns the expectations of Act I on their heads.

Take Charismatic Leadership in Organizations, by Jay A. Conger and Rabindra N. Kanungo, published in 1998.   Chapter 7, “The Shadow Side of Charisma,” begins, “Although we have emphasized throughout this volume the positive face of charismatic leadership, it has at times produced disastrous outcomes for both followers and organizations.”  True enough.  In fact, only three years later, Jim Collins’s Good to Great swung the pendulum of popular thinking decisively against charisma, showing that in the 10 “great” companies he and his investigators had found, one common factor was leaders who were “quiet, humble, modest, reserved, shy, gracious, mild-mannered, understated…and so forth.”  Collins also noted that “in two thirds of the comparison cases, we noted the presence of a gargantuan personal ego that contributed to the demise or continued mediocrity of the company.”

Unfortunately, as the old newsreels used to say, “Time Marches On.”  With time,  Collins’s list of  great companies has come under severe scrutiny; by 2006, the average GtoG company was not in the Fortune Top 200.

Likewise, Conger and Kanungo went on to describe “positive” and “negative” charismatic leaders.  One of their key definitions was that “The negative charismatic leaders point their efforts toward achieving the goal of self-aggrandizement, whereas the positive charismatic leaders develop self-discipline to endure the personal risk or cost of benefitting others.”    Negative charismatic leaders create “goals that are largely self-serving,” and do not accurately estimate resources, support, or the larger (market) environment.  Finally, only the most positive leaders “recognize their own ‘organizational mortality,”’ and prepare properly for a succession of leadership.

In the abstract, all these points are well taken.  However Conger and Kanungo were betrayed by the need to concretize the principles with examples.  Here they run into the problem recognized by Einstein (and, oddly, attributed to Yogi Berra by over 10% of those who quote it): “In theory, theory and practice are the same. In practice, they are not.”

The Internet, or course, gives a reader an unfair leg up on published writers, because any one of us can bring the discussion up to date with a few clicks.   After noting one case of a premature death notice, which I will discuss momentarily, I began to look up other examples to see how the leader and/or company fared after Conger and Kanungo’s judgment.

One such example was Lucent ‘s Henry Schacht, described as a charismatic but instrumental leader who was highly successful in planning for and mentoring a successor.  During Schacht’s brief tenure as head of the newly formed technology company, he named his successor immediately, and “assumed the principal role of teaching and coaching, helping [his designated successor, Rich] McGinn and his team to be more effective in building the senior team’s collective identity.” Starting with his accession in October 1997, McGinn then built his team with a further succession in mind.

But life, and markets, are what happens when you’re busy making other plans.  Exactly three years later, McGinn was fired by the board, and Schacht returned in an effort to save the sinking company.  Lucent’s stock, which had hit a high of $103 a share a few months after McGinn’s succession, was now trading at $27.  Two Octobers later it was a penny stock, at 55 cents a share, and had admitted a $125 million accounting error and several other dubious accounting and sales practices. It was later acquired by the French firm Alcatel. (Sources: NY Times, 2/28/1998; CNET News, October 23, 2000; CFO.com December 18, 2002; Kiplinger’s, May 2003). 

On the opposite side of the coin, Conger and Kanungo singled out one CEO above all as a model of the negative charismatic leader. They labeled this CEO both charismatic and narcissistic, a “particularly potent and dangerous” combination. They cite another author as saying the man “has a tendency to surround himself with people who, though talented, aren’t likely to question his vision.”  Like other narcissistic leaders (John deLorean and Lee Iacocca are mentioned), he often claimed credit for others’ ideas.   This person’s “visions became increasingly a reflection of personal obsessions rather than what the marketplace was seeking.”  After an initial success, his company’s market shares collapsed, and he blundered into expensive failure after expensive failure because he “could not defy the laws of the marketplace or ignore the dictates of the business he was in, no matter how passionately he viewed himself as being above such dictates.”

This paragon of egomania and market-blindness?  One “Steven” Jobs as the authors called him, who had just returned to Apple as interim CEO and who had nearly 15 years of unparalleled marketing and creative success ahead of him.  (A few weeks before his death, Apple had a market capitalization larger than Google and Microsoft combined, and the quarter that began with his death was Apple’s best ever.  Close the books on Mr. Jobs’s career, with a pretty positive balance sheet.)

This is not to say that Messrs. Conger and Kanungo are unusual in their inability to judge the future by the past. They’re just like the rest of us, this writer included.  But their story, like so many others, shows the common tendency to persuade ourselves that our theory can account for all contingencies (what Daniel Kahneman calls the WYSIATI or “what you see is all there is” fallacy), and of assuming that past performance is a guarantee of future results.