“Greed is Good”
It isn’t too far-fetched to imagine Gordon Gekko’s famous dialogue being repeated in board rooms of large corporations across the world. But this prevalence and normalization of greed begs the question, why has it become such a strong influence in organizations today? What is the relationship between leadership and the level of greed in an organization?
When centuries of introspection, discourse, and research has helped us distinguish between effective and ineffective leadership, why is it that top leaders continue to make the same mistakes? Does the process of dissociating greed with leadership require new ways to look at leadership itself? Let us attempt to answer these questions.
The history and the corporate manifestation of greed
For well over a millennia, philosophers, religious leaders, and scholars have studied and deliberated on the ethics, or lack of, of greed. Plato, Buddha, Confucius, Lao-Tzu, and countless others who have shaped the modern-day philosophy of ethics and justice have focused on understanding greed. The interesting aspect is that despite belonging to different times, all these thought leaders have shown a remarkable concurrence to similar ideas. Long-standing wisdom clearly defines what it means to be an ethical and effective leader and how one cannot be the latter without the formal. The moral imperatives of what constitutes leadership are clear, regardless of the lens of geography, academics, or spirituality.
Things began to complicate when we entered the era of the modern corporate structure. Before we dive into the specifics of how greed permeates the business world and what we can do about it, it is vital to understand some concepts and recent developments.
It is undeniable that business values and leadership have a high degree of interest in understanding ethics and greed. How else do you explain the over 70,000 books on leadership integrity or more than 90 percent of the organizations using the word ‘integrity’ while listing their values? Particularly over the last decade, there has been an increasing focus on corporate responsibility, sustainability, diversity and inclusion, social purpose, and sustainable growth. Thus, there is a real trend to focus on real-world issues and crises.
Another aspect is that the limitation of greed has been codified into law, almost in all countries. The ethics of leadership and businesses have been of great interest to governments, and they have tried to regulate poor business integrity practices by creating laws and legislation. Most prominent examples would be environmental protection laws, minimum wage limitations, restrictions on insider trading, and anti-trust laws. However, despite these laws and regulations, there are innumerable examples of derailed leaders and organizations that have put greed before everything else. Scandals that uncover unethical business practices have only grown in frequency. Examples of self-enrichment, flouting regulations, compromising customer privacy, improper financial governance, and anti-trust practices regularly make the headlines. Why do we keep seeing examples of greed that go against the wisdom and knowledge of over a thousand years?
Macro trends that incentivize greed in the business world
Macro Trend #1: Short-termism
The average stock holding time has gone down from eight years to eight months from 1960 to 2016. That partly explains the intense focus on quarterly results as opposed to long-term goals, otherwise known as short-termism. Activist investors have been pushing companies and CEOs to achieve better quarterly results, and as a result, the compensation for CEOs has been directly connected to the share price. This direct incentive for company leaders to increase the share price has made practices like share buyback a common practice. This hyper-focus on quarterly results also made significant changes to how CEOs are hired. Only leaders who guarantee results, by any means possible, are appointed to the role of the CEO.
Short-termism has led to the establishment and popularization of the ‘Celebrity CEO’ – a charismatic, often-narcissistic, larger-than-life figure who pitches themselves as the only solution to challenges. Such leaders focus almost entirely on money over the short-term, disregarding nearly every other success metric. It is now that board members and promoters are realizing that incentivizing the leader with higher pay to increase profits might not always be the best for the organization. This prioritization of shareholders over stakeholders is now beginning to make its presence felt.
Key indicators of short-termism
Organizations that embrace short-termism often hire more charismatic and narcissistic people to lead. The problem is that such leaders rarely accept responsibility for failures, are quick to take more than their fair share of credit, and simply refuse to listen to feedback or learn from experience. When charismatic leaders take over struggling companies, they often hide an inability to reflect, feel entitled to leadership positions, and expect special perks and treatment (they usually get it too!)
How do we identify such leaders?
We can detect the traits of a narcissistic leader both before and after the hiring process. There are ample studies, including the Hogan Development Survey, which list the qualities and traits when overused by leaders gets them into trouble. Our ‘Dark Side’ survey classifies boldness, mischievousness, colorfulness, and imagination into the ‘charisma cluster.’ When not checked, these tendencies are perceived by others as arrogance, and they force leaders to be in a perpetually competitive or confrontational mode. What is equally interesting is that these dark tendencies have a multiplicative impact on the organization.
Where does greed fit in with short-termism and leadership?
Charismatic and narcissistic leaders are inherently self-focused, and they believe that only they have the unique solutions to all problems. Their larger-than-life image also comes with a price tag. Consider these real-life examples; the CEO of a large corporation received USD 800,000 for offering personal financial advice to himself, another got half a billion USD for personal travel allowance, and a third got home security worth USD 1.2 million. What does this reflect, if not greed?
The problem becomes more complex when people who assume these roles garner support from varied stakeholders. It is important to remember that most board members and directors are former CEOs and they have consciously allowed such practices to become the norm. Corporate governance has fully bought into the celebrity CEO narrative, and there is hardly anyone who speaks truth to power.
The downside of cultivating such a culture cannot be overstated. Greed begets greed, and once it becomes a part of the values and culture of an organization, it can accelerate the downward spiral. Research has found that the multiplier effect of charismatic, narcissistic leaders on employees is:
- Lower individual performance
- Lower job satisfaction and engagement
- Higher intention to leave
- More counterproductive work behavior
- Emotional exhaustion
Macro Trend #2: Trend chasing
Think of the terms situational leadership, transformational leadership, global leadership, boundless bravery, coherence confidence, agile leadership, digital leadership, and leadership grit. If they all seem to be referring to similar ideas and concepts, then why are they applied only to narrow and specific situations? Why is it that they change their name and form to reappear every once in a while?
While these terms and concepts surely ignite research on leadership, at their core, they are simply repackaged every few years to sell consultancy services and tools. This has created a culture of ‘trend chasing,’ and large organizations are particularly addicted to the new and latest trends in the market. There is a rather simple explanation for this; one, it captures attention, and two, it appeals to the charismatic narcissist leadership that wants to be portrayed as the best and cutting edge, whether it is productive for the organization or not.
This has led to the creation of a USD 360 billion leadership training industry, 900+ TED talks on leadership, 9000+ leadership videos on LinkedIn, and, as stated above, more than 70,000 books on leadership on Amazon alone. Beyond this, it has fragmented the talent and leadership development agenda, wherein it has become almost impossible to determine the RoI of leadership training investment. A Fortune study says that only seven percent of organizations agree that they are building effective leaders. McKinsey concurs; they found that only 11 percent of the 500 surveyed companies think that their leadership development programs achieve the desired results.
The confusion caused by trend-chasing has tainted our approach, and we continue to apply the same leadership models and frameworks on a set of leaders who require drastically different support. Much of leadership training today is usually driven by external factors, whereas it should be focusing on the individual, their strengths, and values. The end result is that we have severely underprepared leaders taking on massively significant roles, under the false impression that they have been equipped with the best tools and knowledge when in reality, they don’t know much about leadership.
What does effective leadership look like?
It would be beneficial to study what makes an effective leader from different perspectives, as opposed to limiting ourselves to a single school of thought. All these perspectives are backed by data and have decades of studies to support them:
#1 Leadership: What employees want and expect
The people who are led by leaders have four key expectations:
- Integrity: trustworthiness, the humility to be vulnerable and admit mistakes, self-aware of their impact on others
- Inspiring: not in a flashy/motivational guru way, but as someone who upholds egalitarian values, has a strong drive, and focus on the teams’ success
- Competence: good business and judgment, being a hands-on team player, willing to admit and learn from mistakes, driven to win, and ensuring the right processes
- Vision: the ability to articulate the purpose and work towards long-term goals, focus on a higher, non-selfish purpose, the greater good, going beyond the day-to-day work
#2 Fred Luthans’ findings
Fred studied managers for two years using an intensive array of research, which included following them with a clipboard to note their exact actions. He identified two distinct kinds of leaders:
- Emergent leaders: the leaders who got rapid pay raises and promotions; usually also the ones who spend time to network and promote themselves
- Effective leaders: the leaders who built high performing teams can work with their team side-by-side, and might not be as well known
The challenge, as identified by Luthans, is that the overlap between these two kinds of leaders was a mere 10 percent. He said that organizations tend to hire and promote emergent leaders over effective ones simply because they were known better and stood out.
#3 Jim Collins research
Jim studied underperforming companies followed by high performance for several years. He boiled down the difference to the kind of CEO the company had and set up two essential qualities that leaders need to succeed:
- Compelling modesty: the ability to be humble and express humility
- Unwavering resolve: a drive for organizational success; they are infected with an incurable need to produce results
#4 Robert Hogan’s studies
Robert Hogan’s evolutionary approach says that people are living in groups – and will always do so. In such a setting, three of their core needs must be met; namely, getting along, getting ahead, and making meaning. The role of a leader is to enable all these three needs. This perspective says that the reason and purpose of leadership is to enable groups to be effective together and ensure their competitive success by working together towards a common goal for a higher purpose.
Key indicators of effective leaders
- Acknowledge their mistakes and limitations
- Spotlight other’s contributions
- Listen to and learn from others
- Do not feel entitled
- Have egalitarian values
- Know the business, drive clarity
- Visionary; convey a higher purpose
These leadership qualities have a multiplier effect on teams in the following ways:
- Higher performing leadership teams
- Greater strategic flexibility, more collaboration, a culture of willingness to admit mistakes
- Higher engagement
- Lower turnover and absenteeism
- Higher productivity
- Higher customer satisfaction ratings
- Fewer counterproductive behavior
- Greed and leadership: Final thoughts
- Greed is bad and ethical leadership is good; this is not new knowledge but bears repetition and remembrance
- Short-termism and trend-chasing are at best distractions, and at worst, they lead us to pick the wrong leader
- Greed begets greed; and, that is a leadership and organizational problem
- There is consensus on components of effective and ethical leadership
- A leader’s impact multiplies across the organization, for better or worse
Key take-away for HR
Finally, how can HR leaders and professionals stem the tide of corporate greed and unethical behavior by safeguarding the organization against such leadership and decisions? Here’s how:
- Follow the science, which converges neatly if you define leadership as a resource for the team company
- Selection is prediction; use relevant measures that help make valid predictions
- Charisma in an interview is attractive and predicts charisma later, but it does not guarantee business results
- Evaluate leaders based on the team and organization outcome holistically, not share price or financial alone
(This article is based on the session “EngageTech: Greed, Leading, and the Led” by Scott Gregory, CEO, Hogan Assessment Systems, held on 4-August-2021 at TechHR India).