[This article was adapted from a live online discussion held on May 4, 2011.]
Amy Wrzesniewski: Would you describe your own transitions to leadership? Specifically, when and how did you first realize you were in a position to lead and carry the responsibilities that came along with that? What was the experience like? And how has it influenced your approach to leadership, going forward?
Gina Rosselli Boswell: It’s been 22 years since I graduated from Yale. I started out as a consultant, and so most of that was very much a team-based environment, with like-minded people and a lot of questioning, a lot of data gathering.
But then, right around 10 years ago, I started to realize that I was really thrust into a leadership position. The signs were that I had a large group of cross-functional people—people that did not share my background. I had engineers. I had marketing people, sales people, finance people. I started seeing that there were different people who needed to be motivated towards a common goal. I also had concrete deliverables in the sense that I had a sizeable budget, I had profit and loss responsibilities. And it was becoming very apparent to me – and I suppose it should have been obvious since I was given the title and all that – that I was really the final decision-maker on allocating resources.
I had to make many of the decisions. I had to really inspire people and motivate them towards the common goal. I started noticing that people were asking me all the strategic questions, which I guess was a way of asking me what my vision was.
I have to say that it was a scary concept, moving from being an individual contributor to one who is really looked to for all the answers.
And so what did I learn from all that? I learned a few things. One is that collaboration is absolutely key. I think it was Martin Luther King who said that a genuine leader is not a searcher of consensus but a molder of consensus. I also learned that the same sort of questioning that was very important in my first 10 years was really very important as a leader. I don’t know if this has been proven with statistics, but people often filter the information, the higher that you go up in the ladder. So I wanted to make sure that my listening was really fine-tuned so that I could understand all the different risks and rewards of moving in a particular direction.
Wrzesniewski: You mention that it’s harder for bad news to flow up the hierarchy to the leader. In fact, this has been well established in psychological research and research on groups and teams and organizations. It doesn’t take much more than pulling three people together who don’t know each other, putting them in different rooms, having them work on a made-up task, and then having them try to communicate bad information about how the performance is going up this — very artificial, in this case — chain of hierarchy. Even in that kind of situation, people have a very difficult time passing along bad news or saying the difficult things that need to be said. So your intuition there is spot on, in terms of what we find in the research.
Ed De La Rosa: Like Gina, I had an evolution during my career. When I graduated from the School of Management, I was very much technically oriented. I decided when I was there that I would take every quantitative course that I could. I really liked econometrics. And so after I graduated I went to work for DRI, which at that time was an econometrics consulting firm. I got to be really good at running econometric models of various sectors of the U.S. economy. And because of that I was drafted to Wall Street. I got a job at Dean Witter, running cash flow statements for collateralized mortgage obligations, during the early wave of collateralized mortgage obligations.
Early in my career I prided myself on my technical skills. But after a period of being the technical person, which I think is very necessary at the early stages of many people’s careers, I learned and so did my colleagues that I was really good at getting new business. And so after a couple of years I moved away from my technical work and focused on getting new business and building the practice at First Interstate Capital Markets. And that requires a different perspective. You have to take the green eyeshade off and put on your best suit for lunch and mingle with executives who have a far broader set of problems: the way that their industry is affected by federal legislation or regulations or by their competitors. I learned that engaging in that kind of a dialog was necessary to convince them to trust you enough for them to hire you for new business.
After six years as on investment banker, I was driving home from work one day and I called my dad. And I said, “I know all our clients. I know all the investors that buy the securities we bring to market. I don’t think I need Dean Witter or First Interstate Bank Corp” — which is where had I moved to — “anymore. I’m going to start my own company.” And I did. When I started my company, I was a leader of only two people, like many of my colleagues here in Los Angeles who started boutique firms. We weren’t leaders in any respect. We were practitioners.
After a couple of years, the firm started to grow and I realized that I was responsible for building an institution and that I had to move away from being a practitioner. And that’s when I was really thrust into the world of leadership. It’s necessary for me to have technical skills and to understand the skills that everybody relies on to build their business units here at our company, but I play a much broader role now.
In Q8 magazine, there’s a discussion between Sharon Oster, Ted Snyder, and the president of Yale, Rick Levin, and they were talking about the difference between transformational leaders and transactional leaders. I think that they really saw something that is important for entrepreneurs. To be an entrepreneur, you have to be a transformational leader. You have started an organization to compete in an industry in a different way, in a way that other people might not have seen as possible. But once you start to build the organization, you rely on a lot of transactional leaders.
During the course of a business, one unit is going to thrive while another is in investment mode. And the one that’s thriving is often led by a transactional leader who has the illusion that they are a transformational leader, because their market is strong and they’re making all the money. And they want the compensation and authority that goes along with it. And it’s very difficult to make them realize that the person who is running the unit that requires investment is in a sense being the transformational leader now, but will be a good transactional leader in the future, and will have their turn to generate the lion’s share of the revenue. It’s very much a psychological game and a big balancing act — it taxes every capability that I have, every day of my life here at De La Rosa & Company.
Wrzesniewski: There’s a lot of wisdom in what both of you have to say about your experiences. And it sounds like things like being a good listener, asking questions as opposed to answering them, motivating others, thinking hard about the psychology that is underlying what it is that people are saying or the direction that they’re moving in, are at the crux of what both of you have to say about this.
We have a question for Gina from our audience: What do you do as a leader when consensus is obviously headed in the wrong direction?
Boswell: It actually happens more frequently than you might think. And what we do in those cases, and it’s not perfect, is that wherever people are heading in their thinking, it usually has some underlying assumptions. So what we start to do is pull some of the facts forward and make sure that those underlying assumptions are aligned.
Certainly there’s going to be some self-interest, and in every company, depending on how politically charged it is, there might be some hidden agendas which are driving it in a particular way. But you can’t ignore the facts that are driving a group of people.
You have to have as a leader, I think, empathy for people who are coming from a very different direction in the group, but then ask, where can we find common ground here? Where are the assumptions all aligned in leading us to a particular direction? And what would you have to think to be able to go in a completely opposite direction? It is one of the more challenging instances, because you need to get the respect of people so that, if it doesn’t go exactly their way, you get them on board after the meeting.
Wrzesniewski: I have to say, as a professor of organizational behavior, it warms my heart to hear you say the things you did about the importance of this. And, in fact, in my own experience, we often find that it takes some time and getting more and more organizational experience and management and leadership experience for students to realize just how difficult some of these group-process, decision-making, change-management functions are.
I have a question from a listener for Ed: What would you say are the three lessons learned in starting a boutique investment bank?
De La Rosa: Well, the first lesson is just the amount of sheer determination, willpower, and intestinal fortitude it takes to keep your focus when your money is running out, when you don’t have any customers, when the market’s going the wrong way. When I started the company in June of 1989, I had some money saved up and that was the money I invested in the company. But the economy was starting to deteriorate a little bit. I did a handful of workouts for some projects that I financed six, seven years prior to that. But then pretty soon those dried up and we had to find something else to do. And our money ran out. I mean, literally, our money ran out. I remember shaving one day and looking at myself in the mirror and thinking “All right, what are you made of? How are you going to make this happen?”
I decided right then and there I was either going to go bankrupt or I was going to be successful, but I wasn’t going to hedge my bets and quit and go back and take my prior job. I was in the same industry that I’d been in for seven years, so I knew that my market would accept me. And sure enough, the business started to trickle in shortly thereafter. And we never looked back. That’s number one.
The second one is, don’t assume that the recipe for success that worked before is going to be the recipe going forward. Because we’re in the securities industry, we’re subject to the whims of the market. In 2007, we didn’t have any exposure to the subprime mortgage market, so we survived that quite handily. But in the fall of 2010, we assumed that the fixed-income trading strategy that we had successfully employed for the 10 years leading up to then was going to continue to be successful. The lion’s share of our profits were coming from fixed-income. And the market turned, I would say, in November of 2010. Our firm and other firms in our industry were not quick enough to react. And so we suffered losses from November through the end of February in a very quick and painful fashion. We would come into the office every day and look at our trading position and talk to our traders, and it’s amazing how long it took for people with advanced degrees, who scored well on the GMAT and SAT tests, to realize that the old models couldn’t be relied upon again. We eventually changed our approach, and that worked out well for us.
The third lesson is that sometimes doing the thing that everybody else is not doing turns out to be the right thing. In January of 2008, as the world was falling apart and our Wall Street competitors were suffering under their exposure to the derivatives market and the subprime mortgage market, we didn’t suffer from any of that. But our competitors pulled a lot of capital and people out of trading in fixed-income securities. So we put more capital in. We took profits that we had taken out of the company and put it back in, thinking that there would be an opportunity to make money for the one firm that was still willing to bid on blocks of bonds when Fidelity wanted to sell and Dreyfuss wanted to sell, and then sell them to new investors. Our firm prospered tremendously because of that. It was as if we were playing a football game and at halftime the other team went home. It was a judgment call. We had to go against the grain on that call. But it turned out to be the right thing to do.
Wrzesniewski: I’d like you both to tell a story about a leadership lesson — perhaps a big challenge you’ve faced thus far as a leader, something that stands out as being particularly salient and vivid to you along the path. Do any particular lessons come to mind?
Boswell: The particular challenge that I had, had to do with this Machiavellian question of whether it’s better to be feared or loved. Being a very collaborative person, I thought that leaders should be liked. Leaders should be loved. I came into an organization — this is many years ago, now — where I was leading a group and someone who I was leading thought that they should have had my job. And I can’t tell you what I went through. I tried really, really hard to earn his respect, to earn his allegiance. He was a super-bright person, a key team member, and I needed to have his insights and rely on his wisdom. No matter what I did, it wasn’t going to work, because this person thought that structurally he should have been the leader. And the lesson was, when you realize that you cannot get somebody on board, you should just move on, and shift them to another location. You need to realize that somebody has maxed on their emotional commitment to you as a leader.
That was a hard lesson to learn. I always knew, philosophically, that leadership wasn’t a popularity contest. But it was hard for me to swallow that I could not get somebody on board because of this bit of distrust, this feeling of, “That should have been mine.” There was a resentment that was just bigger than me.
De La Rosa: I think my biggest challenge happened in January of 2008. As I described a few minutes ago, as the world was falling apart, our partners decided to put more capital into the firm to take advantage of an opportunity that we thought was brewing. And there was a group of partners that didn’t want to do it. The firm had been clicking along and I thought the partnership and the leadership was in a good position up until that time. Eventually that group left the partnership and sought security at another institution.
Shoring up the firm and making sure that the ship was pointed in the right direction thereafter took two years — two years of updating our firm’s mission, of updating the business plans for the various units, of developing and refining our risk model. That was a huge challenge. And we got through it. And I learned that I didn’t have to do it all, that I had other officers in the firm that I could rely on to execute that recovery. And in the end, those people grew in stature, both within the firm and in my eyes. The firm has emerged from that stronger and, I think, better managed. And people feel more empowered because they stepped up and they made a big contribution when it was a critical time for the firm.
Wrzesniewski: That speaks to this issue of the importance of developing people who are coming up behind you in the organization, so that they have opportunities to see what it is that they’re capable of and begin to lead significant parts of the strategy of the organization.
I have a question for both of you from our audience. How do you lead differently, how do you come up with an approach that is effective, when you lead people for whom you have indirect or no authority? For both of you, you have to reach back in your careers a bit, into previous positions that you’ve been in, I imagine.
Boswell: I actually don’t have to reach that far back, because I think in every organization now, unless you are the CEO or the chairman of the board, you have to enlist other functional areas or people that are your peers in order to get everything done. So, yes, I do it today. I definitely did it a lot before. This is the real definition of a leader: when there is no line of authority, how do you get people to do what you want them to do. And there’s a couple of things that I’ve found helpful. It’s not really leading differently — I actually think there are a lot of commonalities with when you do have lines of authority. It has to do with respect, competence, knowledge. People want to follow leaders who have a well-informed point of view, a vision that is compelling and that can bring them along.
One insight that I’ve used is, how do you help somebody with the challenges that they face? Let’s say, for example, that I need somebody in a far-flung part of the world to spend all their money in advertising on this particular product launch. Now, I don’t necessarily have direct authority over that, although I can in certain instances pull a trump card and escalate it. But no one really wants to do that. It’s time-consuming. It’s not fun.
What I try to do is get at what issues they are as leaders being challenged with. What is this person’s real motivation? And whatever they’re being challenged with, I want to be able to help them with that. I’ll say, well, this person really needs two points of growth on the top line. And I start to build my business case for why I think they should pursue a particular course, so that it’s win-win for them. If I can figure that out, it’s usually quite easy to get them on board. It’s not always perfect, but, by and large, I just need to help them solve their problems.
Wrzesniewski: It couldn’t have been said better by a professor of negotiation. We teach about coming to integrative agreements as opposed to win-lose distributive ones. And how about you, Ed? How would you answer this question of leading without authority?
De La Rosa: Well, I’m sort of in a different position. I took my family to Africa a few years ago, and while I was there I realized I had one thing in common with all the dictators there—I’ve been in power for 22 years and there was no way that subordinates were going to be able to unseat me without my consent.
But that being said, I do have something that I think is pertinent to the question. I started the company 22 years ago, and now we’re a sizeable, thriving institution, and we have partners and people have capital in the firm. And we have a lot of young, great people. One of the difficulties I’ve had is making the younger people at the firm believe that one day they’ll run the firm. And so, a year ago, I said, “You know, I think we need to start thinking about succession planning. I think we need to start thinking about the day that there’s another president, and I’m just the chairman of the board.” I looked around the room, and my partners dropped their salad forks on their plates and stared down at their papers and everybody was stunned.
I firmly believe that, for entrepreneurs, finding ways to make people believe that they’ll have more authority is really important. To make the younger people in the organization, where all of the energy and creativity lies, realize that their time is coming.
Wrzesniewski: Ed and Gina, I’m paying attention to the time, and our hour is up. So I want to thank you both for your insights, your candor, the stories that you’ve shared today. This has been a great conversation and I’ve enjoyed it very much. And I’d also like to thank those of you listening in for the high-quality questions that you’ve sent along for our panelists to consider today.