Being the Boss: The Importance of Leadership and Power

CHAPTER 1

LEADERSHIP, POWER, AND ORGANIZATIONAL STRUCTURES

LEADERSHIP AND POWER¹

Is leadership an aspect or consequence of status; is it an automatic possession of a leader in an organizational structure, whether business, political, or social? Or, is it an attribute of some people who, entirely apart from organizational position, are able to inspire, energize, and command the willing, even enthusiastic support of other human beings? Leadership is an elusive quality. When it is present, it is widely recognized. When it is absent, its absence is equally known. But one thing seems certain: leadership is the ability of one human being to stir the sentiments and influence the behavior of others. And that influence is an inherent source of power, the power to direct other people toward the achievement of a leader’s goals by transmuting those goals into the aims of everyone. But the power to direct other people is also a function of status or position, for example, as in a hierarchical organization.

Decades ago, Chester I. Barnard,² a pioneer thinker on organizational theory and practice, explored the relationship between status and power in words reflecting profound insight. In 1938, he wrote:

Men impute authority to communications from superior positions, provided they are reasonably consistent with advantages of scope and perspective that are credited to those positions. This authority is to a considerable extent independent of the personal ability of the incumbent of the position. It is often recognized that though the incumbent may be of limited personal ability his advice may be superior solely by reason of the advantage of position. This is the authority of position.

But it is obvious that some men have superior ability. Their knowledge and understanding regardless of position command respect. Men impute authority to what they say in an organization for this reason only. This is the authority of leadership. When the authority of leadership is combined with the authority of position, men who have an established connection with an organization generally will grant authority, accepting orders far outside the zone of indifference. The confidence engendered may even make compliance an inducement in itself.

Barnard’s zone of indifference refers to the acceptability of a superior’s orders to his subordinates. Orders that are acceptable fall into the zone of indifference; they do not inspire any sense of antipathy or opposition in the subordinates. But there are also orders that are neutral, as well as those that are clearly unacceptable, and that will therefore inspire opposition and disobedience. The last category is comprised of orders to which subordinates are not indifferent. Yet, when such orders are issued by one who possesses both authority of leadership and of position, they are most likely to be obeyed.

What Barnard calls the authority of leadership, as contrasted with the authority of position, was articulated further by Harry Levinson and Stuart Rosenthal in CEO-Corporate Leadership in Action.³ They wrote:

Leaders are able to use their power base and implement their strategies because they are thinkers as well as doers. When a program, product, or strategy isn’t working, they don’t throw up their hands–they figure out what has to be done, confident that their efforts can make the future better than the present. Leaders enjoy conceptualizing, projecting, fantasizing. Where others dread ambiguity, leaders are not afraid to take over a failing unit or company, embark on a risky longterm venture, or face a sea of conflicting pressures: they welcome the challenge. And they know full well that safe ventures quickly go stale and never lead to significant success.

Where does all this leave us? It should leave us with a recognition of the fact that leadership is a function of both position and the ability to lead. Perhaps more important, it should make us realize that position is, in and of itself, insufficient, especially as time passes. Authority of position can command, at least temporarily, the obedience and compliance of subordinates. But such support will prove transitory unless authority of position is accompanied by ability to lead, the ability to win the voluntary support of subordinates. When authority of position and authority of leadership are wedded in a leader, then compliance may not have to be imposed from above through harsh disciplinary punishment that inspires fear. Rather, compliance will arise from the self-discipline of subordinates who want to follow their leader.

IS LEADERSHIP DIVISIBLE?

Some currently popular buzzwords among organizational gurus are decentralization, horizontal structures, consensual decision making, and globalization. Ability in creating and working with such organizational structures is promoted as the touchstone of executive leadership and success in the 90s and the years beyond. Perhaps the best illustration of the point is from an article in Fortune:⁴

Forget your old, tired ideas about leadership. The most successful corporation of the 1990s will be something called a learning organization, a consummately adaptive enterprise with workers freed to think for themselves, to identify problems and opportunities, and to go after them. In such an organization, the leader will ensure that everyone has the resources and power to make swift day-to-day decisions. Faced with challenges we can only guess at now, he or she will set the overall direction for the enterprise, after listening to a thousand voices from within the company and without. In this sense, the leader will have to be the best learner of them all. You’d better begin practicing now–only six months until the 1990s are upon us. [Italics added.]

The foregoing paragraph is remarkable, especially the italicized words about listening to a thousand voices. One senses that the reporter’s rhetoric outran reason, for it almost sounds as though this new-style leader is one who best knows how to follow a multitude. And what is the marvelous, osmosis-like process that transmutes the thousand voices into the leader’s vision? Further, how does the multitude–the thousand voices–recognize that the leader’s vision, as announced by him, is their own?

An opposite view was expressed by Robert N. McMurry in a Harvard Business Review article late in 1973.⁵

The most important and unyielding necessity of organizational life is not better communications, human relations, or employee participation, but power. I define power as the capacity to modify the conduct of other employees in a desired manner, together with the capacity to avoid having one’s own behavior modified in undesired ways by other employees. Executives must have power because, unfortunately, many employees resent discipline; to these employees, work is something to be avoided. In their value systems, happiness is the ultimate goal. For the organization to be made productive, such persons must be subjected to discipline.

Without power there can be no authority; without authority, there can be no discipline; without discipline, there can be difficulty in maintaining order, system, and productivity. An executive without power is, therefore, all too often a figurehead–or worse, headless. The higher an executive is in his management hierarchy, the greater his need for power. This is because power tends to weaken as it is disseminated downward.

McMurry’s language is extreme, even rigid. He was clearly aware that this was the case, because he went on to list eight strategies for chief executives . . . who possess little or no equity in a business . . . ,⁶ thereby assuming that substantial equity in the hands of the chief executive automatically conferred power and authority. For those lacking the power and authority of ownership, however, he proposed (1) taking all steps he can to ensure that he is personally compatible with superiors; (2) obtaining an employment contract; (3) obtaining from superiors a clear, concise, and unambiguous statement in writing of his duties, responsibilities, reporting relationships, and scope of authority; (4) taking exceptional care to find subordinates who combine technical competence with reliability, dependability and loyalty; (5) as a useful defensive device, selecting a compliant board of directors; (6) establishing alliances, with superiors, peers, and subordinates; (7) recognizing the power of the purse, as a lever controlling subordinates; and (8) understanding the critical importance of clear and credible channels of communication upward from all levels of his personnel and downward from him to them. He amplified his eight points by suggesting, in addition to formal channels of communication, direct contact with the work force and periodic reports to it, solicitation of anonymous questions and expressions of dissatisfaction, work councils, opinion polls, interviews, and community surveys. Yet he seemed not to perceive any inherent conflict between the rigidity of his initial statement of view and his eighth point.⁷ And his fifth point about selecting a compliant board of directors, while long descriptive of the relationships between chief executives and boards, is out of touch with reality in recent years, especially as directors have become increasingly exposed to personal liability for failures to fulfill their duty of care to shareholders.

Dumaine and McMurry are poles apart. The former sees leadership as diffuse, as a function of some sort of organizational osmosis through which the chief executive (the leader) discovers and articulates the mission and culture of the organization. Presumably, the consequence will be profitability and success in the marketplace. McMurry has a rather Machiavellian view of the organization and the leader’s role in it. He sees a traditional hierarchical, authoritarian, top-down structure, led by a leader who, in the language of the street, is always conscious of covering his rear.

These opposed views are straw men. In my view, neither is correct, for the truth lies somewhere in between. If leaders are to be successful, then they must be able to lead. But free, effective communication with and among subordinates in the organization is a key to successful leadership. Effective communication yields understanding, which encourages agreement with and acceptance of even unpleasant decisions. And I think that is the acid test of leadership: that subordinates are willing to support unpleasant and even painful decisions.

Lee Iacocca made some succinct and pertinent remarks in Talking Straight. In his words:⁸

The big fuss about consensus management is another issue that boils down to a lot of noise about not much. The consensus advocates are great admirers of the Japanese management style. Consensus is what Japan is famous for. Well, I know the Japanese fairly well: They still remember Douglas MacArthur with respect and they still bow down to the Emperor. In my dealings with them they talk a lot about consensus, but there’s always one guy behind the scenes who ends up making the tough decisions. . . .

Another thing that a lot of management experts advocate importing from the Far East is that the boss should be one of the boys. Democratic as that philosophy may sound, I don’t think it’s very practical. If the boss lets his hair down too much, he ends up like Rodney Dangerfield. No respect. . . .

And yet, the boss can’t be aloof either. A lot of the guys in the Fortune 500 seem to feel it’s beneath their station even to talk to their own work force. . . .

Leadership resides in and emanates from the individual. Effective communication and wise decisions, proved by subsequent experience, buttress and validate authority born originally from position. If a committee is successful, it is most likely because a member of the group became its leader by virtue of ability to persuade, to convince, and hence to lead the others in the group. The notion is unproven that organizational structures that diffuse the role of the leader by creating multiple committees to seek organizational goals and consensus, are inherently and necessarily more effective than other ones.

LEADERSHIP, CHANGES IN THE ECONOMIC ENVIRONMENT, AND THE EXERCISE OF EXECUTIVE POWER

The point becomes clearer when one considers changes in the economic environment. In the context of change, a chief executive’s leadership quality is most sorely tested, because then difficult decisions must be made. And the choice is difficult between sitting still, hoping a satisfactory prior status quo will reassert itself, or opting for painful actions. It is also true that painful decisions do not generally emerge from committee deliberations, because some committee members may be the unhappy victims who suffer pain. Alternatively, a committee may be made up of members who will not be personally affected by a painful decision that it makes. In fact, that may be the raison d’être underlying the composition of the committee. When that is the case, it may also be true that the chief executive is using the committee as a stalking horse, a screen to cover his own decision. If that is the intent, I suspect the organization will not be fooled. Attempts to diffuse responsibility and make it a group matter are ultimately unsuccessful when confronted with the harsh realities of an adverse economic environment.

Under conditions of prosperity and good profitability, the hard, unpleasant decisions associated with economic adversity, such as layoffs and organizational restructuring can be avoided and ignored. The chief executive can choose, given satisfactory profits, not to press for maximum profitability. In a prosperous economic climate, large staffs and committees seeking consensus are affordable and coexist easily with organizational diffusion of decision making and responsibility. It is then easy to conclude that profitability is the result of such an organizational structure and method of governance, rather than the reverse.

Under adverse economic conditions, when the survival of the organization is in doubt, hard, painful decisions must be made. But such decisions are typically evaded under consensual governmental structures. They are generally made by and under executive authority and are not consensual. The New York Times printed a relevant story by Edwin McDowell.⁹

Just as the normally clubby book publishing industry was wondering last week why Robert L. Bernstein was departing as chairman of Random House, the news came that Robert G. Diforio, the chief executive of New American Library, had been informed that his contract would not be renewed.

What is going on in our industry? said one dismayed senior executive at Random House. Publishing companies depend on morale. These are not cement companies.

Perhaps not. But throughout the industry, which had its toughest summer in many a year, concerns about mounting costs and sagging profits have enhanced the anxiety about the bottom line, moving morale to a distant second place in priorities.

Book publishing is hardly the only industry to conduct periodic purges and wholesale dismissals, nor is it the only industry in which morale is important. But publishing prides itself on promoting and protecting the written word and, by extension, exemplifying the values that are implied in so sacred a trust. When change is deemed necessary, however, those ideals are often brushed aside.

A follow-up story in the New York Times announced that S. I. New-house, Jr., had hired Alberto Vitale, chief executive of Bantam, Double-day Dell, to replace Robert L. Bernstein as chief executive of Random House. The story described the qualities of Mr. Vitale that apparently made him attractive to Mr. Newhouse:¹⁰

Alberto Vitale’s eight lieutenants at Bantam Doubleday Dell refer to the 55-year-old chief executive as The General for his leadership in bringing financial discipline to the publishing company where he has served as a senior officer for 14 years.

The nickname might have appealed to S. I. Newhouse Jr., who hired Mr. Vitale away from Bantam to become the chief executive of Random House, the publishing house owned by the Newhouse family. Even insiders at Random House say the company has more hands than jobs and that it may take a battlefield commander’s tactical skill to make the company more profitable without sacrificing too many of the infantry. . . .

Every one of the 1,400 employees here has plenty of work to do. Mr. Vitale said yesterday of Bantam which is part of Bertelsmann A.G. of West Germany. If that isn’t true at Random House now, I won’t tolerate it for very long.

Another illustration involves Donald E. Petersen’s retirement as CEO of Ford and his replacement by Harold Red Poling. That succession was described in the Wall Street Journal.¹¹

After a decade of leadership by a corporate philosopher, Ford Motor Co. is about to turn the wheel over to a bulldog with a balance sheet. . . .

Mr. Poling is well-suited to face tough times. Within a week of taking over as head of Ford’s North American automotive operations in 1980, when Ford was incurring record losses in the U.S. Mr. Poling canceled an important engine program. He then cut white-collar employment and permanently closed an assembly plant.

We really threw him into the furnace, recalls Phillip Caldwell, Ford’s chairman at the time and now a Ford director and senior managing director at Shearson Lehman Hutton. He was the strong hand to get [the operations] under control. By the time Mr. Poling left five years later, the unit had record profits.

Mr. Poling had similar turnaround success as head of Ford’s European operations in the late 1970s. There was no single heroic act, says Robert A. Lutz, now president. It was just blocking and tackling, done with energy and drive and dynamism–and not being overly concerned if some people didn’t like your decisions.

A further illustration is provided by the early retirement of R. Gordon McGovern as chief executive of the Campbell Soup Company. In the New York Times, Claudia H. Deutsch reported:¹²

The chief executive of the Campbell Soup Company said yesterday that he would take early retirement. His responsibilities were quickly divided between two top executives of the company, and its stock jumped on the news.

. . . , the stock is rising on hopes that the new regime will do something about Campbell’s weak returns and about the company’s unwillingness to use more debt. This company has to be more aggressively managed, said Pavlos M. Alexandrakis, an analyst at Argus Research.

Mr. McGovern’s would-be heirs clearly agree. What you are going to see right out of the box is a much tighter bottom-line orientation and more focused, tighter business strategies, Mr. Baum said in an interview yesterday afternoon. Mr. Harper added, Our immediate priorities are to keep our momentum going in the U.S. while achieving overall profitability worldwide.

Mr. McGovern has always stated those as his priorities, too. Many who know him, however, say he simply did not have the stomach to pursue that profitability, and that his job had, in fact, become an ordeal for him. I know that many people think the Dorrance family forced Gordon to resign but it didn’t, said a person who spends a good deal of time with the Dorrances. The truth is, he was really burned out. . . .

. . . Campbell insiders said he was strong-armed by the board into agreeing to a restructuring last summer that will involve closing four plants domestically and five overseas.

His demeanor has certainly not been wonderful since August, said one longtime associate, who requested anonymity. He used to be a feisty guy who enjoyed jousting with the press and colleagues. Toward the end he didn’t seem to enjoy anything very much.

People on Wall Street had the same impression. McGovern was being forced to do things he just did not want to do, said John M. McMillin, an analyst with Prudential-Bache Securities Inc. Laying off people and closing plants just isn’t as much fun as growing the top line.

Subsequent events have confirmed the opinions expressed. McGovern was succeeded by David W. Johnson as CEO of Campbell. By February 15, 1991, The Wall Street Journal reported that Johnson had overturned the company’s paternalistic culture.¹³ Two back-to-back quarters of record earnings resulted, and the company’s stock rose dramatically to a yearlong high of $68.125–a higher level than when it was a takeover target. Alix M. Freedman, author of the Journal report, summed up the situation by noting that Campbell Soup had been transformed into a downsized outfit that is run strictly for the bottom line.¹⁴

A final illustration should suffice. It involves the McDonnell Douglas Corporation, a major producer of military and commercial craft. Despite a booming business for commercial airliners and a major position as a supplier of military aircraft, the company has been only sporadically profitable in the 24 years since the merger of McDonnell Aircraft and Douglas (in 1967).¹⁵ Yet Boeing, the leading manufacturer of commercial aircraft and also a major producer of military aircraft, has been consistently profitable.

According to a New York Times report, the major reasons for McDonnell Douglas’s poor results is a lack of leadership. A sweeping internal reorganization of the Douglas division in 1989 required most executives to change jobs and sought to improve quality and productivity by pushing more responsibility and authority down to production workers. . . . Its major effect seems to have been to confuse, demoralize, and divide all levels of the division’s employees. The Times report continued:¹⁶

Industry executives, analysts and some Douglas employees say the problem is a longstanding inability on the part of the division’s management and its corporate headquarters in St. Louis to keep sufficiently tight control over costs, to meet schedules and to motivate a work force that has long had a reputation for being undisciplined. The problems became especially severe over the past several years as orders for commercial jets poured in at twice the pace the company could produce the planes and the work force nearly doubled in size.

The lack of leadership, which includes the failure to recognize the difference between participative and permissive management, is the biggest problem facing Douglas Aircraft, said Col. Kenneth Tollefson, the top United States Air Force representative at Douglas, in an unusually frank interview published several months ago in Douglas’s employee newspaper.

CONSENSUS AND THE EXERCISE OF EXECUTIVE POWER

Howard S. Gitlow, in Planning for Quality, Productivity and Competitive Position, discusses the implications of consensus decision making. While his discussion has particular reference to quality-control teams, his observations have much wider applicability. He notes:¹⁷

Consensus decision-making requires that: (1) all team members have a chance to voice their point of view with respect to the problem discussed, (2) the team must find a solution to the problem that meets the needs of all team members and is acceptable to all team members, (3) enough time is allocated to discussion of the problem so team members have a chance to buy in to a decision, (4) team members commit to follow through with the decision in a consistent manner outside of the meeting, (5) all data relevant to the problem have been made available to all team members, (6) voting is not done in an attempt to resolve the problem, and (7) the problem is important enough to require the support of all team members. A team that does not consider these seven issues will not be able to use consensus decision-making to solve a problem.

Although a single vote in which a majority opinion becomes ruling is not done, multivoting is one method used to achieve consensus. In multivoting a series of votes is taken successively, with the proposal or action receiving the least votes being dropped from consideration.

The time-consuming nature of this procedure, plus the possibility of deadlock and indecision, cause it to collapse in a context of change and crisis. At such times, the inherent need for decisiveness is most likely to bring about leadership that manifests itself through the exercise of executive power. It would be wrong to assume or to conclude that the exercise of such power will be obvious. It will not necessarily manifest itself in an overt and naked display of authoritarian decision making or implementation by unilateral executive fiat with the threat of punishment in the case of noncompliance. Organizational life is not so simple. As suggested earlier, the exercise of power may be cloaked and subtle. It may operate through organizational structures and processes having a surface semblance to participatory decision making and consensus building. But one must look carefully beneath the surface of style and form to grasp the fundamental forces at work. And, to repeat, these forces are often those reflecting power and its exercise.

EXECUTIVE POWER AND ORGANIZATIONAL STRUCTURES

Chester I. Barnard’s insight into and articulation of authority of position revealed a significant relationship between authority, that is, executive power, and organizational structure, because position, as he uses the term, refers to status in an organizational structure. In that context, it is logical to conclude that the traditional