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Faculty Viewpoints

Who needs leaders?

Decisions made by those at the top of major companies, nonprofits, and government organizations can affect millions of lives. Yale’s president and SOM’s current and future deans discuss how business schools can train leaders with the long-term perspective and sense of integrity to create durable value in their organizations.

Q: This issue raises the question, “Who needs leaders?” Where are leaders needed now?

Sharon M. Oster: I’d like to frame the question a little. It’s important to distinguish between two kinds of leaders: transformational leaders and transactional leaders. If you ask, “Where do we need leaders?” these leader-types bring very different kinds of leadership skills to an organization, and we need one or the other, and sometimes both, in very different areas. I think about transactional leadership a lot—how leaders hire people, motivate people, set up systems, set up organizations, and make resource-allocation decisions. Transformational leadership is associated with charismatic, follow-me-up-the-hill kinds of leaders. The question about leadership is, for me, not about whether you need leaders but whether the moment or the place calls for a transactional leader or a transformational leader.

Richard C. Levin: I think Sharon’s distinction is a good one, and to tie it back to the original question, I think there are clearly areas where we need some transformational leadership. That seems to be perpetually true in the political arena, but I think even in the business sector there are areas where a reshaping of the tone and the direction of some institutions will be important for the future. For instance, one thinks of financial institutions in the wake of the crisis. I think some of the criticism of Wall Street that’s been lodged by journalists and by politicians is overblown. Nonetheless, a deeper sense of social responsibility in the work of these great financial institutions could be invaluable for society. You don’t just peddle any old derivative product because you could make money off of it. You have to think about the systemic consequences. We need leaders who can look a little bit beyond the near term and think about what the long-term implications of their actions are.

Edward A. Snyder: We’ve had a lot of people at the top of the pyramid who have taken money out of the organization—they’ve taken value out. And I think now we need leaders who are going to focus on creating durable value for the organization. And that takes a longer-term perspective and a sense of integrity that I know Yale SOM has focused on for a long time.

Oster: The question of how we can teach the skills and values that people will need to create this kind of value-added leadership is a very difficult one. It’s one that all management schools really struggle with. Another framing that we think about comes from Aristotle: A leader needs logos, pathos, and ethos. You can layer that onto the issues we’re discussing. We all as educators think about the logos part, because we’re in the business of training people in skills like analytics. I think we do some with ethos—ethics and values. But we actually do very little with pathos…

Levin: The passion.

Oster: How do you get people to not only follow their own passion but to create passion in others and lead them in that way?

Levin: This leads me back to another place in the business world that needs leadership. I think this is a moment where some of the historically great corporations in the manufacturing sector also could use a vision. Obviously the motor vehicle industry, if it is going to reinvent itself and survive, is going to need outstanding leadership. The plight of General Motors and Chrysler certainly stems from an inability to think as long term as some of our international competitors have. There was an article in the Economist recently about how, in the markets in which there is direct competition, Siemens is beating the pants off GE. GE is still larger, since they are in segments that are not occupied by Siemens. Perhaps GE has been distracted by its large exposure to the financial sector.

These companies are really important to the future of the American economy. So, who needs leadership? Maybe the great manufacturing companies need inspired leadership that can think longer term. If you ask, who are the success stories? The companies that come from nowhere and succeed—and stay—are the ones that are thinking two and three moves ahead and thinking longer term.

Snyder: Competition and being successful has to be part of what makes a leader in the private sector—and I would argue in other sectors as well.

The story about Siemens and GE is a good one to stay focused on. Organizations have to compete to thrive. And right now we have a situation where, I believe, a leader also has to communicate about the nature of competition. Why is it important to compete and to succeed? There is a lot of concern among the public that competition is not a good thing. And there is, I think, legitimate concern that, in some cases, the outcomes of the competitive process don’t appear to be fair. And in some cases they’re not. But I think, for the most part, competition yields outcomes that can be defended, should be defended, and should be explained. So an important attribute of leaders going forward is to understand competition, be good at making sure that their enterprises are competitive, and then also explain it to the world.

Oster: I think “explaining it to the world” is increasing in importance. Think about these last couple of years. In the midst of the financial crisis, when Lloyd Blankfein said to a reporter that he was “doing God’s work” in allocating capital, that was an expression that all of us in business schools completely understood. And yet I read the quote and thought, “Oh, my goodness. That was really not a good way to put it.” And it is clear that he lapsed in his ability to explain to the world what was good about investment banks, what was useful about the capital-allocation function.

People read more into every statement. They are expecting more now. And so a leader has to filter what she is saying—not to be political but to think about how to say things in a way that can impassion people and make your case to people.

Levin: We started on the question of where leadership is needed. But one of the things you’re bringing out is what people need from leadership. And clearly in this media age of instantaneous information everywhere, people crave information from their leaders. They thirst for it, perhaps, in ways that were not true a couple of decades ago.

One of the things that has been, oddly, one of my successes in recent years was the very systematic and comprehensive and clear explanations that the provost and I gave about the financial crisis and how it affected the university in a sequence of letters over a period of about a year. We took the whole community through our thinking as it evolved, in a very transparent and very detailed way. People really appreciated that degree of disclosure and candor and the fact that we were taking them seriously, rather than sending out a PR communication that would just gloss over the reality with empty slogans. I think that made people feel that, “Well, I may not like them having to cut the budget by $350 million, but these folks seem to know what they’re doing, and they’re explaining it.” And that, I think, helped a great deal.

Oster: Language matters. One of the things I tell my nonprofit students is that if they’re selling business ideas within a social service agency or a museum or other nonprofit, they should be sensitive to and respectful of the language of their institution. I think using business ideas in these organizations is great, but it’s important to think about how you explain them to people in ways that, again, respect language. So “price discrimination” in the social-service world is called “value-service pricing.” It’s not any different from price discrimination, but it’s sure not called “price discrimination.”

Levin: Here we call it “need-based financial aid.”

Oster: Right. I think it shows respect for somebody else to use their language. It’s like speaking a little Chinese when you go to China. Leaders need to take the question of what their constituents want seriously.

Snyder: It’s also incumbent on us as educators to explain what all this means for our students, who are just starting out in their careers. They’re not going to be at the top of the organization, but I think they can develop leadership behaviors right from the beginning. I fundamentally believe that being at a great university gives you an ability to develop those behaviors because academic values are important to leadership. If you’re around a great university and people who think critically, you can start to ask questions in much better ways: Why do you think your idea is right? What will prove you wrong? What data are necessary?

Whether you work in a nonprofit setting or a private-sector setting, that questioning turns out to be an unbelievably valuable behavior to take into a job. When younger people are really good at those kinds of behaviors, they end up being the leaders, because they start adding value. Sometimes you hear about people who see around corners. I never believe in that. But what happens is that people start to understand a company’s strategy, and then they build in feedback mechanisms to see if the strategy actually works, and they react more quickly. They’re just more aware of what’s going on.

The best leaders are not the people who always have the best idea. They’re the people who start to think critically and listen and leverage better. It doesn’t necessarily matter whose idea it is if you’re adding value to the best idea. And that’s a leadership role anybody can take on.

Oster: Years ago I interviewed Laura Tyson about board service and the question of what an academic brings to a corporate board. She talked about the questioning ability. On the boards she’s on, she’s not afraid to ask questions and she’s not afraid to push analytical points to try to get answers. That’s consistent with my experience on boards, as well. That is a good behavior for a leader to model.

Q: Do you see business leadership as being synonymous with leadership? Is it a subset? And how big a piece of the university’s mission is training students to go out into the world of business?

Levin: Business leadership is clearly just a subset of leadership, and society needs leaders in many spheres of activity. Yale has for centuries been self-consciously interested in educating people for leadership roles in society. The founding mission was to educate people for the church and civil society, and not so much for commerce. In fact, the people who went into commerce and became the backbone of American economic development were typically not college educated. Yale’s taken this mission and expanded it to all the professions. And a distinctive mark of our professional schools is that we’re educating people for leadership in every one of the professions we serve—whether engineering or public health or law or medicine. We’re looking to educate people not just to get employment, but to be leaders in those fields.

Oster: We think that training leaders in these different areas has a lot in common. That is, you need the ability to ask good questions, the ability to gather data, to form hypotheses—whether it’s about social services or semiconductors. The other parts of leadership are understanding the importance of thinking about the long term, not the immediate term; of thinking about others, not only yourself; of thinking about values, not only brains. Those are qualities we expect leaders to bring to all enterprises and endeavors that they engage in.

Snyder: What is unique about the MBA is that it really focuses on developing people who understand organizations and how an individual leverages an organization, how she or he works in a team setting, while acting with integrity. That’s one big component of the mba. The other is competition and markets. If a person really gets those two core competencies, they’re going to be very successful in a lot of different settings.

Levin: The education for leadership is more self-conscious in business school than it is in many other professions. I think that’s true.

Snyder: Something else I find interesting here is that there’s an anti-​business sentiment in society, but there is also a pro-innovation sentiment. But when I think about what business leaders can do well, one key skill is to take innovation and bring it to market. You really need to understand organizations and you really need to understand competition to do that. So, to my mind, it doesn’t make sense to be pro-innovation but anti-business, because business leadership is one of the necessary factors to make innovation work.

Q: Is there a particular challenge for a business leader in trying to excel on the competition side and then also trying to add value to the organization without the kind of self-interested behavior that you were talking about before?

Snyder: This goes back to, really, one of the essentials of the human race. We are essentially a mix of cooperation and competition. That’s the way that we’ve developed as social beings. And we have succeeded in dominating the earth by figuring out how to cooperate in certain settings, but also by competing. So there is tension, but a good business leader has to know how to do both things. It’s a little bit like rallying your own clan well, but knowing that there are other clans out there that you’re competing against.

Q: Both Yale University and the Yale School of Management have an ethic of leadership in service to society in their missions. How much of a difference does the educational experience make in producing better leaders who can improve society?

Snyder: Huge difference.

Levin: Yes, a big difference.

Snyder: In my experience, when MBAs start out, they have wonderfully diverse objectives about what they want to do, but, in the vernacular, their ideas are a little bit goofy. And, two years later, they’re a lot sharper. And if the faculty and the alumni and the students are doing their work well, two years later the students are ready to go.

Oster: I agree with that. When we teach the MBAs, we are getting them at a formative moment for leadership skills. It’s a moment when things can come together for them, when some of their inchoate ideas about how the world works and what they want to be and who they are actually gel and connect with concrete aspirations, not just vague thoughts and vague dreams. It is a key time.

Levin: I think the observation you’re making could be said about most forms of professional education. People entering medical school want to care for people, they want to save the world, they want to cure cancer. It takes them four years of medical school to sort out: What is it that I really want to do? Do I want a research-intensive residency or am I really going to devote my life to patient care?

It’s interesting to me that one of the hallmarks of the Yale Law School is that it’s less like that, and it’s more like undergraduate education, in the sense that it’s really advanced liberal education. Of course you’re going to learn law, and you can write a brief when you’ve finished, and you can be engaged as a lawyer in just about any type of legal practice. But I think a lot of Yale Law School students leave here still not knowing quite what they want to do. Don’t get me wrong. I’m not trying to say there’s anything wrong with our law school. I think our law school is special and unique in that particular way it has of continuing to open people up instead of narrowing them down or focusing them in.

Snyder: I think what you’re saying about the Law School is that those ambitions are very lofty and the aspirations are yet growing. And I think it’s important to keep that dynamic going.

But I really like what Sharon said. At the business school level, you want to take students with ideas that are inchoate—much better word than “goofy”—and you want that sharpening to happen. But at the same time, you don’t want to give up that aspirational dynamic, either.

Oster: A part of growing as a person is to make that professional transition—and still remain a little goofy in your ideals. Some of the greatest leaders have a little bit of naiveté, which turns out to be a kind of passionate zeal that lets them do something extraordinary.

Interview conducted and edited by Jonathan T.F. Weisberg

Department: Faculty Viewpoints