by Pawel Motyl
While I am not sure who said these words, they’ve stuck in my mind because they perfectly describe the deadly trap of the new normal. They also lead us back to a classic dilemma in managing change, one familiar to anyone who has tried to modify their company’s operational procedures, or their team’s, or even that of a group of buddies who go skiing together. People like stability, they create rituals, and they will, consciously or otherwise, favor decisions that preserve the status quo. They will look for arguments to justify rejecting a proposed change, or at the very least delaying it. Breaking that mind-set, shaking people out of their comfort zones, and initiating a process of change is one of the biggest challenges faced by business leaders. (This is examined in Chapter 7.)
If you’re now concerned at how easy it is to become a turkey, fasten your seat belt—you’re in for a bumpy ride.
3
In This Chapter, There Is No Good News...
There are, though, three extremely dangerous advisors.In 1961, Stanley Milgram, a well-known, although somewhat controversial psychologist from Yale University, was closely following the trial of senior Nazi Adolf Eichmann, who had been captured by Mossad in Argentina and flown to Jerusalem to face charges of war crimes. During his trial, Eichmann maintained a consistent line of defense and stubbornly rejected the charges, claiming that as a soldier he had to obey the orders of his superiors, who were authority figures to him. He portrayed himself as a helpless pawn on a chessboard, toyed with by vastly more powerful people than he. As a result of this, he argued, he shouldn’t even be on trial; instead, the chiefs of staff who made the decisions should be on trial. This strategy was of no help at all to Eichmann.
On December 12, 1961, he was found guilty and sentenced to death by hanging; he was executed six months later.
Eichmann’s testimony inspired Milgram to conduct a series of experiments, using some of his students, aimed at verifying just how susceptible to blind obedience humans are when they are in the grip of power and authority. In one of the better-known versions of the experiment, Milgram informed his student participants that the aim of the research they were helping with was to measure the influence of punishment on the ability to memorize. The participants’ task was to deliver that punishment (in the form of electric shocks varying from 15 to 450 volts) to the “learner,” played by an actor who was in cahoots with Milgram and knew all about the real purposes of the experiment. The switches for each successive level of current were very clearly marked—from “slight shock” for 15 volts, to “danger: severe shock” for 375 volts, and “XXX” for 450 volts. The earlier prepared responses of the “learner” were highly suggestive: at 150 volts the learner would ask to be released from the experiment; at 285 volts, they would scream in pain. When the students hesitated over switching to the next level, to an even higher voltage, the “teacher” would step in (another actor, clad in a lab coat and specially chosen for his bearing and appearance so as to command the students’ respect). The “teacher” would inform the students in a firm, confident voice that, regardless of the reactions of the “learner,” they should continue the experiment. Horrifically, up to 65 percent of the participants reached the end of the scale and subjected the actor to a potentially fatal 450-volt shock. 1
This, and further experiments by Stanley Milgram, illustrate how readily we accept the opinions and views of those we regard as experts. We assess the views of such people less critically and are generally prepared to agree with whatever they say. We can also fall into this trap if someone we are meeting for the first time is presented to us as an authority figure. In fact, numerous studies have shown that symbols unrelated to knowledge or experience can influence our perception of someone as an expert. For example, people are assessed as being more credible if they display symbols of wealth, like an expensive watch or high-end car, or are wearing a suit rather than sportswear (hence the white lab coat worn by the “teacher” in Milgram’s experiment). 2 And as absurd as it may sound, an equally influential factor is... height. Studies have also shown that taller people are perceived as more trustworthy—even in politics. 3 All this means that if someone deliberately and skillfully puts us in an authority trap, our chances of remaining objective are minimal. In the process of decision-making, somebody’s authority may turn out to be a very bad guide.
In Obedience to Authority, Milgram commented on the results of his experiments:
Stark authority was pitted against the subjects’ [participants’] strongest moral imperatives against hurting others, and, with the subjects’ [participants’] ears ringing with the screams of the victims, authority won more often than not. The extreme willingness of adults to go to almost any lengths on the command of an authority constitutes the chief finding of the study and the fact most urgently demanding explanation. 4
We can see this danger everywhere in the world around us. In its mildest form, we see it in the actors chosen to appear in adverts (thanks to a range of consumer research, we know that a tall, graying man in a lab coat, with a blue shirt underneath, will be perceived as more credible in, say, an advert for painkillers, than someone from the emo youth subculture sporting eyebrow rings and a torn leather jacket, even if in reality they know more about a given pharmaceutical—being, for example, a pharmacy student—than the actor). In its more brutal form, organized crime groups, based on strict hierarchies and numerous rituals, unconsciously take advantage of a similar mechanism to reinforce the subservience of their inferiors.
In the business world, the authority trap is known as... charismatic leadership.
Charisma is difficult to define. We most often hear it described as that “something” in a person that moves and inspires others, but historically, it was defined a little more precisely, admittedly, though, in the New Testament, where the charismatic gifts of the Holy Spirit—including prophecy, miracles, and healing—are described. Over time, great rulers, or religious or military leaders, began to be described as charismatic, gifted with great authority and the associated glow of success. Thus evolved the modern definition of charisma as particular personality traits that enable the person in possession of them to acquire unquestioned authority and influence over others.
Charisma in this sense entered the corporate world at the beginning of the 1990s, when it became one of the most sought-after features in candidates for high-level positions in an organization. In addition to being quizzed about their formal qualifications, job skills, and accumulated experience, candidates had to show how convincing they were when speaking, how effective their verbal and nonverbal communication was, and how they handled pressure. Recruiters were looking for strong, distinct personalities with the ability to rouse a crowd.
Over time, though, it became clear that not all these charismatic CEOs were leading their companies to success—and in many cases they were the direct catalyst for spectacular disasters. The fundamental problem was that others were placing blind trust in the charismatic leader and uncritically, and unquestioningly, following their chosen course. This meant that the need for internal discussion in an organization gradually disappeared, and when the chairperson eventually made a bad decision, there was no one around who knew how to rescue them and the company from the consequences of that decision. When we’re in thrall to charisma, we don’t challenge the decision-makers or the integrity of their decisions. We probably should.
Shareholders in the French company Vivendi learned this the hard way when the unusually charismatic Jean-Marie Messier was at the helm. In 1996, Messier was appointed chairman of Compagnie Générale des Eaux (CGE), a company founded in 1853 following a decree by Napoleon III. CGE supplied water to the city of Lyon and in 1860 won the concessions to supply water to Paris; in the following decades, it consistently expanded its operations in this sector. In the 1980s, it invested in public services, energy, and public transport. Messier, though, had an entirely different vision, and he decided to transform CGE into... a global media group.
He succeeded in inspiring the owners of CGE and convincing them of the wisdom of this innovative decision, and, in 1998, CGE changed its name to Vivendi and began selling the companies that had hitherto comprised its core activities. At the same time, it went on a massive shopping spree, buying up, among others, Maroc Telecom and the Havas Media Agency, and merging with Pathé, a leading French film production company. Events really took a revolutionary turn in December 2000, when Messier announced a merger with cable television channel Canal+ and the simultaneous takeover of the Canadian Seagram Company, which owned Universal Studios, among other assets, at the time. Messier had even greater ambitions, and he was willing to spend the company’s money like there was no tomorrow to achieve them. After launching numerous takeovers, Vivendi Universal, as it was now called, was around €37.1 billion in debt—with no plan in place to rapidly generate profits from its acquisitions. On top of all this came the bursting of the dot-com bubble and stock market crash of 2001. This led to a major slump in Vivendi’s share price on the Paris stock exchange (from almost €150 in 2000 to €10 two and a half years later) and the sacking of Messier in 2002. Vivendi’s annual losses peaked at €23.3 billion, which was at the time the largest financial loss ever recorded by a French company, and the business fought for a long time to get back on track. Jean-Marie Messier found he couldn’t just walk away from the mess he’d made; he was taken to court and charged with fraud and share price manipulation. Vivendi Universal is a classic example of how dangerous a charismatic leader can be when he chooses an inappropriate strategy and manages to persuade his entourage to blindly follow him.
The majority of charismatic leaders possess strong, distinct personalities, extreme self-confidence, above-average ambition, and frequently an inflated ego. Jean-Marie Messier was no exception. Though he usually shortened his name to “J2M,” those around him began to call him “J6M,” which stood for “Jean-Marie Messier, Moi-Même, Maître du Monde” (Jean-Marie Messier, myself, master of the world). 5
Excessive ambition can blind us to the reality of a situation and render us more likely to make poor, frequently irrational decisions. Look at Groupon, which in 2010 epitomized masterly use of new technologies and social media. Founded in 2009 by Andrew Mason, Groupon was a breakthrough concept for Internet purchasing, connecting large groups of customers interested in exceptionally generous discounts with retailers ready to offer them. For the sellers, being on Groupon brought a number of benefits: a sudden jump in sales volumes, warehouse clearance, and, of course, the ability to promote new enterprises or services, as many consumers attracted by, for example, good prices at their local dentist or hairdressing salon, became repeat customers. Mason’s concept worked, and Groupon very quickly became one of the icons of the Internet, like Facebook or YouTube, demonstrating that on the Web, there’s nothing more valuable than a good idea. In the fall of 2010, Groupon received an exceptionally generous offer: Google expressed an interest in buying the company for the dizzying sum of close to $6 billion. It seemed an attractive offer for a company that had hit peak growth and was battling with more and more competitors. However, Mason unequivocally rejected the offer, stating that he planned to float the company on the stock market. He kept his word. On November 4, 2011, Groupon debuted on the stock market, with the share price jumping 31 percent on the first day of trading and bringing massive profits to investors dazzled by Andrew Mason’s amazing ideas and vision.
Remember the old filmmaker’s trick?
“One year later.”
In November 2012, Groupon shares stood at $2.50, and the company was valued at $2.7 billion, less than half the amount offered by Google. In his annual rankings, Herb Greenberg of CNBC rated Andrew Mason “Worst CEO of 2012.” On February 28, 2013, the board and shareholders came to the same conclusion and dismissed the company founder from his post. In leaving, Mason displayed a great deal of honesty and a sense of humor, and in a farewell letter to employees, he wrote:
After four and a half intense and wonderful years as CEO of Groupon, I’ve decided that I’d like to spend more time with my family. Just kidding—I was fired today. If you’re wondering why... you haven’t been paying attention. [... ] As CEO, I am accountable. 6
Eric Lefkofsky, who had collaborated closely with Mason, was made CEO after Mason’s departure. He admitted that Mason’s rejection of the Google offer was rooted in a firm conviction that the company could still grow considerably and that its value was several times that offered by the giant from Mountain View.
An equally interesting story unfolded with another corporate giant, this time the one headquartered in Redmond. Between 2000 and 2014, Microsoft shareholders were not exactly happy campers. Though Steve Ballmer, their charismatic head of the business was something of a media darling (just check out the videos on YouTube), he was attracting significantly fewer accolades for his efforts to increase the value of the company he’d been leading since January 2000. Microsoft shares had been at their peak at the time—a single share was worth nearly $60—and the market capitalization stood at over $500 billion. While the prospects for continued growth were positive, instead there followed an almost unbroken fall in the share value, worsened by the economic crises in 2001 and 2008. At the end of 2012, Microsoft shares were going for $26 each, giving a market cap of $300 billion, which itself was a recovery from the historic low of three years earlier, when Microsoft was valued by the markets at barely $160 billion. From the point of view of investors, the picture was even more depressing when Microsoft was compared with the other giants of new technologies. Between 2000 and 2012 (when Microsoft shares halved in value), the share price of Oracle almost doubled, rising from $17 to $32, Google went from $108 to over $400, and Apple shares increased from $25 to... $530.
In August 2013, Ballmer announced that he would step down within twelve months. On February 4, 2014, he was replaced by Satya Nadella, the former executive vice president, who had been with the company for twenty-two years. After Ballmer’s successor was announced, the share price of the Redmond giant spiked, and the new CEO met the expectations of investors to a large extent: over the following three years, the share price doubled, adding a further $300 billion to the company’s value. Importantly, Nadella’s actions, regardless of the financial successes, rekindled the company’s somewhat forgotten spirit of innovation.
Charismatic leadership can also lead to far more serious troubles. One of the most convincing business leaders in the last couple of decades was the head of Enron, Jeffrey Skilling, a graduate of Harvard Business School. Rakesh Khurana, a professor at Harvard Business School who conducted a detailed analysis of Enron’s management culture in an article published in the Harvard Business Review, wrote:
One former Enron executive has described the upper managerial ranks of the company as a “yes-man culture.” CFO Andrew Fastow [... ] was so enamored of Skilling that he reportedly named one of his children after him and hired the architect who designed the CEO’s Houston mansion to design his house. 7
Skilling possessed extraordinary inner energy and an ability to convince others that his ideas were good ones. For example, he persuaded the board of directors to—are you ready for this?—abandon the requirement to adhere to the internal code of ethics for the most senior managers. He was equally effective at persuading the auditors to take a more creative perspective when reviewing the company’s financial statements. It all ended in the resounding collapse of Enron in 2001, with Jeffrey Skilling being sentenced to fourteen years in prison. Andrew Fastow spent more than five years behind bars, until his release in 2011.
Rule #3
The more you admire someone, the more critically you should examine their opinions.
The more exciting somebody’s vision seems, the more closely you should test its foundations in reality.
Charismatic leadership has one more major drawback. Even if a company is currently being led by an apparently infallible leader who only makes correc
t, and ethical, decisions, a surprising trap is being set for the future: succession. Many firms have failed simply because, having enjoyed the benefits of a great leader, they were unable to find another, equally great leader to take their place. It is incredibly difficult to replace a truly charismatic person, as Apple found out following the death of Steve Jobs.
The second bad advisor is connected to a phenomenon as old as the world: conformity.
At many business training sessions and conferences, you will hear an apocryphal story in which the protagonists are some monkeys, bananas, and exceptionally nasty researchers: In the 1960s, an experiment is rumored to have been conducted in which a ladder was placed in a laboratory cage with bananas dangling temptingly from the top. Several monkeys were released into the cage and, predictably, threw themselves onto the ladder, fighting for the prize. But when the fastest monkey reached out for its reward, it, and all the other monkeys, instead received an unpleasant surprise. You see, as it reached for the fruit, it set off a sprinkler system that caused icy water to rain down across the whole cage, meaning that all the monkeys were punished, not just the one that achieved the goal. The monkeys soon learned that going on the ladder and reaching for the bananas was a bad idea, and so they sat idly on the floor of the cage. Then the scientists did something interesting. They took one of the passive monkeys out of the cage and introduced a new individual. The newbie, of course, set off enthusiastically up the ladder, somewhat surprised that its companions were sitting around and not trying to eat the bananas. The reaction of the remaining monkeys was, again, fairly predictable: when the newcomer got on the ladder, they all jumped on him and aggressively chased him away from the fruit, while not trying to reach for it themselves. The newcomer didn’t understand the cause for their aggressive behavior but did learn that it was not a wise move to get on the ladder. The researchers kept changing the monkeys in the cage, removing those from the initial group and replacing them with new individuals; each time, the same situation occurred, with the animal that went for the prize being attacked. The surprising finding is that the exact same thing happened even when none of the original monkeys were left in the cage, only monkeys that had never experienced the cold shower. It seems that the lesson learned—not to get on the ladder—had become an imperative and influenced the behavior of the monkeys toward new individuals. They attacked every new monkey that tried to get on the ladder, despite not knowing why they were doing so.