Leadership Failure

Author: Rudi Plettinx, Director of CCL Europe and Roderick Millar, Editor of IEDP.info

First Published: February 2008

Undeniably, the juiciest business story of the year so far has been the calamitous events surrounding Société Générale’s (SocGen), now very ex-trader Jerome Kerviel’s ability to run up a trading loss in excess of €5 billion. But was it simply that the systems and controls didn’t work ? Week by week as more facts and theories have emerged, each new revelation clearly points not to a failure of control but a failure of leadership.

IEDP asked Rudi Plettinx, Managing Director of the European operations of the Center for Creative Leadership what crises like SocGen’s could teach us about how we run our organisations.

IEDP : What’s the story here ?

RP : The first thing to get clear is that this isn’t a story about SocGen, it’s much bigger than that. And it isn’t confined to the financial services industry either. Basically, it’s about how we manage and lead, or rather don’t management and lead our businesses in the 21st Century.

IEDP : Explain that.

RP : My view is that today, there is far too much of a disconnect between those at the very top of our businesses and the rest. As this story seems to illustrate so well, there is a vacuum between top managers and the rest. If you look back at similar stories over the years (Sumitomo, Barings, Daiwa, Allied Irish, Bank of Montreal), you’ll find that subsequent investigations blamed the failures on bad management. Take away the world management and replace it with “leadership.”

IEDP : What do you mean by a “failure of leadership?”

RP : Several things.

First, look at today’s big business model and compare it with 40 or 50 years ago. In the 1960s and early 1970s most businesses were led by engineers, bankers and chemists. They all has one thing in common – they knew stuff! They had become leaders by accident. Employees worked for them because the boss knew what he was doing. Today, those in top management often have only the slightest idea of what their employees are up to. Now most of business is so complex that we rely on people with finely honed, niche skills. Let me give you an example, just a few weeks ago the CEO of a major finance house boasted to me that his traders were, ‘so clever they create complex financial instruments that none of the top managers can understand.’ See, that would scare me!

Second, is the culture, the climate, of the organisation. Jerome Kerviel has made it clear in interviews that all he wanted to do was be a big success, make lots of money for his bosses and earn a big bonus. If that is the only culture there is, and if that is all he was judged by, then all the controls in the world won’t stop it going wrong.  When you have a culture based on profit and little else you’re in trouble from day one.

Third, Kerviel’s bosses quickly distanced themselves from him. There was not the merest hint of support. Then, as it became clear that others may have been involved – and even that there had been three suicides in recent years caused by apparent stress to succeed – the leadership moved further away. The message is clear, ‘we’re cutting you loose, we don’t want to even begin to understand your problems.’ By doing that they have de facto told the rest of the firm, we don’t want to understand anyone else’s problems either. They live in their bubble, disconnected from the rest.

IEDP : So you’re saying there are three elements at play here that add up to a failure of leadership ?

RP : Exactly. One, an inability to understand what your employees are doing, because of the complexity of the process or service; two the creation and reverence of a culture based on pure profit; third a total lack of leadership support for the people.

IEDP : So, is there a solution for these huge, complex organisations. Is there a leadership model they can follow ?

RP : Of course there is ! What’s needed is to reconnect senior managers with the people in the business. And I don’t mean some HR initiative either, no matter how well intentioned. Come to think of it, I bet there are a lot of those happening right now!

What I mean is a real connection that pierces the bubble, implodes the vacuum and puts the organisation together again. And yes, I think that’s called leadership. But it MUST come from the leadership and be maintained by them day after day. As I stressed earlier, DON’T give this to Human Resources; this is not for them.

IEDP : Explain a little more about how this works ?

RP : We don’t want people playing at this, we want real commitment. Take our three issues as examples. 

One, senior management MUST spend real time with those that make the money, generate the ideas, meet the customers. The new power elite, the traders, IT engineers and biochemists have to be able to talk openly with those at the top. I should point out that smart companies have done this (do, do this) forever as part of their leadership culture.

Two, there’s more to a business than profit at any price. These recent events show that this model is not only bad, it’s very expensive too! Change the model, change the culture, be more profitable, long-term.

Three, take responsibility. Real leaders (at all levels) don’t run away. In the complex world of big business, a blame culture is just as poisonous as a profit above anything culture. It doesn’t have to be like that. Talk, support, take responsibility, that’s real leadership and a lot of our big business needs it today.

IEDP : And if they don’t take Rudi Plettinx’s advice ?

RP : There’ll be another SocGen and another and another.  But it doesn’t have to be that way. And, as I’ve pointed out, if you have poor leadership and a culture based on profit, you will pay the price in the end. Far better a well-led, open culture where effective leadership is the only control you really need.