Gerard Seijts is an Associate Professor at the Richard Ivey School of Business, The University of Western Ontario, and is the Executive Director, Ian O. Ihnatowycz Institute for Leadership
Recent books and articles have analyzed the causes of the global financial and economic crisis of 2007 - 2009. Yet little attention has been paid to the quality of leadership in organizations that were at the epicenter of the storm, were victims of it, avoided it or even prospered from it. In the summer of 2009 a multi-disciplinary group of faculty from the Richard Ivey School of Business decided to look at the leadership dimensions of the crisis. We were interested in four questions:
- What went wrong with leadership that contributed to the 2007 - 2009 financial and economic crisis and the devastation to people, organizations and national economies that followed it?
- Was this problem with leadership confined to the few organizations at the epicenter of the financial meltdown or did this crisis reveal more broadly based problems with leadership in both private and public sectors?
- What can we learn from those organizations and leaders who anticipated the crisis and avoided it completely, or who coped well throughout the last couple of years and are therefore in good shape to benefit from the recovery?
- What more do we need to do, or do differently, to prepare the current generation of leaders to deal with the kinds of challenges that we have seen organizations face in the last couple of years and for those - as yet unknown - that they will face in the future?
We started by writing a working paper that laid out our preliminary views. We then engaged more than 300 business, public sector and not-for-profit leaders in small and large groups, as individuals and collectives, to get their reaction to this paper and, more generally, to discuss the role that organizational leadership played before, during and after the crisis. These leaders dug deeply into their own experiences, their personal involvement in leadership roles, their inside knowledge and their opinions. They provided insights into leadership at those companies that performed poorly during this crisis and those that thrived. The discussions were rich, diverse and wide-ranging. In some sessions the primary emphasis was on leadership character; in others the emergent topic of interest was executive compensation and, more generally, rewards in financial sector companies; in others the focus was on issues such as organizational risk culture, the social responsibility of leaders or control mechanisms.
We examined leadership not just in the financial sector but also in many other public and private sector organizations that were affected by the crisis. In a sense, we were putting leadership on trial. Our aim in doing this was not to identify and assign blame. Rather, we examined leadership during this critical period in recent history to learn what we could, and use the learning to improve the practice of leadership today and the development of next generation leaders.
As we analyzed the role of leadership in the crisis we were faced with over-arching question: "Would better leadership have made a difference?" Our answer is unequivocal: "Yes!" We recognize that many people could argue it is unfair to criticize leaders whose decisions were based on their knowledge of the situation at the time and which only eventually, with the aid of hindsight, proved bad. We respect this view but we disagree with it. The failures were not universal. Some business and public sector leaders predicted better than others the bursting of the housing bubble and financial markets turmoil, positioned their organizations to avoid problems, and coped with them skillfully. Their organizations were not badly damaged by the crisis and some even prospered. Some governments and regulatory agencies' control and monitoring systems were superior to those in the U.S., the U.K., Ireland, Spain, Iceland and other countries that had to bail out their banks and other industries. Our evidence supports the conclusion that these companies, these agencies, these governments and these countries had better leadership.
Our research indicated leadership failures of three types. First, there were failures of competence, especially in the areas of environmental analysis, risk management, and the creation of organizational structures, culture, systems and processes to identify, manage and control risk. Second, there were failures of character demonstrated in the values, absence of virtues and personality traits of some in leadership positions. And third, there were failures in the commitment to good leadership - the commitment to do the real, gritty, hard work of leadership that is involved in the governance of large and complex organizations while, at the same time, both accepting and living up to their responsibilities to the communities and societies within which they operated.
By contrast, there were many leadership successes - organizations whose leaders saw what was coming, who led their organizations in ways that avoided the dangers, and in some cases took advantage of the opportunities that were created in the aftermath of the crisis. The fact that there were really good leaders, who steered their organizations clear of many of the excesses and poor practices that got others into trouble, has tended to be ignored in the popular media. Good leadership mattered then and good leadership will matter in the future.
In our report Leadership on Trial: A Manifesto for Leadership Development, we are presenting our conclusions about what good leadership involves in the form of a public statement of principles - a manifesto that addresses what good leaders do, who they are, and how they can be developed in organizations. We believe that these principles apply to leadership in diverse contexts, during booms and busts, in calm and in crisis and across a broad swath of industries.
We do not accept that the excesses, misjudgments and inactions of the last few years are inevitable and must somehow be repeated. But we recognize they could, and likely will be, unless concerted action is taken to learn and apply the lessons from the crisis. In addition to legislative and regulatory change now well underway, we require improved management education, better leadership development within organizations, and better training and development of regulators and policy-makers. We also need politicians who are able to climb above immediate electoral concerns and take the long view - the leadership view. Cynics say this will never happen. Skeptics say it's unlikely. We say there is no alternative that makes sense for our future economic prosperity and social well-being.
Copies of the report can be purchased through /research/leadership/research/books-and-reports.htm.