Why a great leader does not (always) make for a great business

8th July 2011

There's a perception that  "the great leader" exists. 

Which sounds reasonable. Think of Churchill. Churchill in the 1946 election, or maybe even Sir Fred Goodwin, named European banker of the year in 2003. Or even Rupert Murdoch, in the year he bought what was then the world's most popular newspaper The News of the World, in 1969.

Great leaders can be great, when the situation is right and as long as their luck holds

Think of the Tyrannosaurus Rex, dominant predator – until the meteorite lands or the ice age comes.

There are lots of misconceptions about how people, including great leaders, make decisions. 

Among these are that people are Vulcans and can separate emotion from cognition and that decisions are based on "reality" rather than a personal perception of reality. 

In brief, the brain is complex and interlinked, emotions, automatic reflexes (like blood pressure control) and deliberate thought are connected and it is practically (in both senses) impossible to do one without affecting the others. 

We perceive the world in our own way – that is why visual illusions (like seeing depth on a flat TV screen) work.  You see them even if you know they are illusions because you can't "switch off" what your brain knows must be there, rather than what your eyes actually see. 

There's increasing interest in "cognitive bias" in decision making (Kahneman, Lovallo, and Sibony, Harvard Business Review, June 2011), but that assumes that the biases are only cognitive and that it is possible for the Great Leader to allow for the biases in others – while apparently being devoid of such bias themselves.

If you're looking for companies that are likely to weather uncertainty in future, what would be good signs?

The simple answer is cognitive diversity. 

A top team that thinks differently, approaches problems in diverse ways, has different values – "feels" that different areas are main priorities –  is a good start. 

A team that respects one another, that argues about priorities, opinions, interpretations and plans, not personalities is another.  And one that has a process for combining the competing ideas is a rare but valuable find.

Many organisations have the cleverest, most experienced people. 

But if you have a pub quiz team, do you want four Stephen Fry's?  Or do you want somebody to answer the sports questions as well as those on Greek poets?

Many organisations have a lot of relevant experience in a dominant world view; the Cabinet has an Eton view for example.

What happens if, like the HSBC risk manager, somebody else's world view is different from the rest? Is that view respected and considered, or does the maverick leave or become sidelined?

Many organisations have a charismatic leader. People like to conform, the classic example being the Bay of Pigs invasion. How many organisations – like the banks – ask afterwards, "how could those intelligent, experienced people, be so stupid?"

It's a good argument for seeking investment in companies that have a genuine team, and is one of the reasons why, "The Wisdom of Crowds" principle works. If companies can get independent, genuine opinions from enough people and combine them properly, they can make better decisions under uncertainty than any leader, however "great".

Kim Stephenson is an occupational psychologist and trained financial adviser.

His website Taming the Pound is aimed at helping people get control of their thinking about money, so they can use their money – and avoid their money using them.

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