Sunday, November 29, 2009

Competence-Loyalty Dichotomy: Separating Grain from Chaff

Individual survival and group living have been the two fundamental, though apparently bipolar, aspects of human living from the start of civilization. As administrative, industrial and political organizations evolved over time, teams have emerged as the basic platform of organized living. The evolution of the modern form of corporation gave a new meaning and role to teams and team leadership. From the frontline teams at work for departments to the apex leadership teams at the helm driving corporate futures, management of teams offers its own challenges and opportunities.

Leaders provide hope and aspiration for their teams and in return gain their trust and support. This relationship is not always reciprocal; in some cases leaders trust the teams more than the teams trust them while in other cases the teams trust their leaders more than the leaders trust them. Traditionally leaders across generations relied on the formal organization to achieve consensual action and leaned on the informal organization to push through specific agendas. The balance between the formal and informal organizations is levered by the leaders through their loyalists, with the attendant pros and cons. This apparently perplexing sub-optimization of the team organization needs a behavioral evaluation.

Complexity needs competence

Management of modern day organizations, whether business, administrative or political, has become a more challenging and complex task than ever, with a heavy responsibility devolving on the leaders. In today's competitive environment, the leaders are required to build cohesive, high performance leadership teams with high competency metrics to be able to discharge their onerous responsibilities. In a well- balanced leadership team all missions, domains and members should display equal competence and evoke equal confidence.

Yet, it is not unusual for leaders to be selective in the way they repose their confidence across missions, domains and members. Some members gain more confidence than others through well demonstrated loyalty. Some members gain more appreciation than others through well demonstrated performance. Loyalty is often accompanied by total compliance to the leader while competence is accompanied by a certain degree of independence. A leader as much as a team member needs to differentiate between loyalty and competence in an organizational context.

Confidants and loyalists

Both loyalty and competence have merits if they are aligned to enhancing the performance of the entity. A competent loyalist in a leadership team is someone who not only appreciates the leader’s ideas and personality but also improvises on it for better corporate performance. A competent loyalist becomes the leader’s confidant. The competent confidant wins praise from the leader and the team not merely because of his loyalty and commitment but also because of his performance and perspectives. A confidant becomes a trouble shooter, and even a successor to the leader. From Henry Kissinger of the US Government to Steve Ballmer of Microsoft Corporation, organizational history has case studies of team members who fused competence and loyalty to emerge as dominant forces of teams. A loyalist who is only marginally competent or is even incompetent, on the other hand, drags down organizational performance. Ordinary loyalists observe, act and speak as proxies for their leaders skewing the organizational balance in the process.

In the complex modern day organizations, confidants who are trouble shooters are welcome in the teams; they even signify a typically Darwinian way of leadership selection. On the other hand, team members who seek a loyalty driven role should be less than welcome; they throttle independence and objectivity, often bringing bias into managerial processes. A competent confidant has the right perspectives for the future. An ordinary loyalist however largely remains in the past.

Competent confidants boost an organization’s drive into the future while ordinary loyalists impede its ability to move with, let alone ahead of, times. A loyalist, always waiting for the leader’s cue, adopts a cautious approach that inhibits independent and proactive thinking on the part of others. A confidant who is absolutely confident of his capability as well as loyalty is, on other hand, willing to even openly differ with the leader as long as it would such challenge helps the company’s future.

Despite these factors, leaders probably tend to have more run-of-the-mill loyalists than out-of-the-box confidants in their teams. When a loyalist gets preferred for loyalty rather than competence to manage crucial missions, the very choice signifies a sub-optimal performance benchmark that weighs down the overall organizational performance. Yet, the loyalist’s compliance instincts and the leader’s dominance compulsions make for an puzzling combination. The key to the puzzle, however, lies in the leadership realpolitik that pervades organizations.

Leadership 'realpolitik'

Complex leadership and management challenges are involved in setting up and growing business corporations or administrative entities. These challenges include, among others, crafting of a vision, drafting of a strategy, creation of an organizational structure, raising of resources, establishment of facilities, assembly of inputs, opening up of partnerships and above all, high quality product delivery for the marketplace, all of which require a high level of business appreciation and functional excellence. These activities also need to be continuously fine-tuned to counter and even stay ahead of the inevitable competition. Undoubtedly therefore, superior leadership and management skills are called for on the part of not only the business leaders but also his or her leadership team.

That said, there is a dimension of realpolitik beyond the textbook definition of leadership and management that governs corporate or administrative leadership. Realpolitik has its origins in politics or diplomacy which dictates formulation of policies and actions based primarily on practical considerations, rather than ideological notions. The term realpolitik, however, also pejoratively implies politics that are power-centric, and not necessarily principle-centric and which are often Machiavellian. Managing organizations requires not only leadership skills but realpolitik attributes to be able to remain at the helm, satisfying multiple internal and external stakeholder pulls and pressures. Leaders being also careerists as anyone else need loyalists to be in control of the corporate ship cruising in the choppy business waters.

Loyalist – joker in the pack?

The ordinary loyalist is very much like a joker in a pack of cards (no pun intended). Those who know card games understand that the joker card plays an extremely beneficial (and occasionally harmful) role in a card game. A joker card can substitute for any card of any rank, symbol or color and hence affords tremendous flexibility in forming winning sequences and sets. The holder of a joker card surprises the rest by forcing a quicker win than is usually anticipated. While in a game of cards serving of joker cards is a matter of chance, in an organizational setting the evolution of loyalist in a team is a matter of historical inheritance as much as it is a designer act.

A study of corporations that have seen dramatic failures, from Enron to Lehman, points out that unbridled power of the corporate leaders has been a root cause of corporate collapse. Such failure comes with circumvention of processes through motivated management of leadership teams. A chief financial officer or a chief business officer in some cases and a chief technical officer or a chief marketing officer in other cases have enabled the typically dominant corporate leaders embark on wildly adventurous paths. Castle-in-the-air concepts of virtual energy trading and bubble-beyond-reality of sub-prime lending are reflective of how confidants of corporate leaders could hijack organizations and distort economies. The leader’s loyalist provides a total malleability to the leadership fiber to the detriment of organizational solidity.

Loyalty tips the balance

Typically a leadership team varies in size depending on whether the company is functionally organized or divisionally managed and whether it is regional or global in its presence. The multiplicity of views in large teams can at times be highly vexatious and energy-consuming for corporate leaders. The leader can exercise positional power only to a limited extent to achieve convergence. Realpolitik comes in handy to develop paradigms based on quick conclusions rather than lengthy deliberations, even if the later were to be beneficial in the long term.

Heads of corporate functions are particularly helpful for the corporate leaders in drawing business realignments. That is because they have the capability to shape future plans, allocate resources, recruit manpower and control certain shared services. The strengths of individual business operations can be skillfully undermined by the realpolitik of shared services with a fa├žade of corporate optimization. Loyalists can be divisive too. The loyalist can launch frontal attacks on inconvenient members at the behest of his leader, fracturing the leadership team into multiple fractions. The leader finds it easy to implement his plans with a divided house despite a fractured mandate. In all of the scenarios discussed above, the leaders stay on but the businesses stagnate.

Loyalty to the leader or passion for the company

The excessive emphasis on a singular leader as the driver of corporate growth is in enigmatic contrast with the elaborate mechanisms put in place for board oversight and corporate governance. The increasingly enormous influence the leader has come to wield on corporate affairs has led to the spawning of the loyalty culture to the detriment of commitment to the company. Genuine leaders must overcome the temptation to seek loyalty for him from his team members and instead encourage his team members to develop passion for the company. Visionary leaders recognize that it is the institutions that are perpetual and leadership achievements constitute but mere chapters in unending histories of enterprises.

The competence-loyalty dichotomy disappears when it is realized by the leader and the team members that the leadership interests are best served only when the corporate interests are best served. Team members who have ample loyalty for the leader but little passion for the business are a liability while members who are independent of the leader but passionate about the company are an asset. Passion for business emanates from an innate desire to achieve self-actualization while loyalty for leader comes from a comforting instinct to promote mutual aggrandizement. Once the hypothesis that institutions are larger than even the individuals who establish or grow them is accepted the competence-loyalty debate gets settled irrevocably in favor of the former.

Competencies make conglomerates

Companies with a progressive and confident leader and a large number of competent confidants have quickly evolved as successful conglomerates and eventually became leading industrial houses. High performance teams are an asset to the company even though individual business leaders appear to challenge corporate hegemony. Capable business leaders aggressively perform but also openly demand space for performance. They are conscious of their domain and business expertise and view their performance as a vehicle to position them as the future leaders. In a conglomerate or a diversified business, business leaders compete, rather than collaborate, to establish their credentials. Left uncontrolled, the leadership battles can be self-consuming.

In such organizations, conflicting aspirations compete for scarce resources, different businesses shape up at different points of value curve and burning desires lead to organizational bushfires. The corporate leadership teams in such organizations are bound to be in constant turbulence. In a conglomerate corporation, the confidant typically emerges from the businesses preferred by the corporate leader or select corporate functions close to the corporate leader. The deft leader in such situations chooses a performance driver and an opinion maker from the leadership team to harmonize the multiple directions of a conglomerate. Many conglomerates have failed to utilize their diversified positioning and cash resources objectively due to the failure to nurture competent confidants across the spectrum. There is no reason why only Tata Motors, Tata Consultancy Services and Tata Steel should be the flagship companies of the Tata Group when with the right harmony between the group leader and business confidants, the Group would have been a leader in various other segments like power and chemicals.

Confidence with competence

Indian business families have discovered to their advantage that the concept of having loyalists is detrimental to the professionalization and growth of family businesses. Gone are the days when trusted family lieutenants bereft of academic qualifications or business experience dominated the boards or management teams simply because of significant native wisdom and unflinching loyalty towards the family. The fast forward growth of Indian family businesses can be traced to the downplaying of the loyalist culture.

When family businesses have gone through this positive metamorphosis, it is paradoxical that professional organizations, should succumb to the loyalist culture. A dependence on loyalty as a proxy to leadership is corrosive in that it weakens the resolve of the leadership team to debate issues objectively and professionally. The loyalist culture is also debilitative as it enhances non-formal authority and misaligns formal and informal organizational structures. The leaders who find the loyalty culture to be expedient initially often find their own leadership authority weakened eventually.

A virtuous leadership team is one which is open, transparent and collaborative in discussing vision, goals and strategies, in making resource allocations and in measuring and rewarding performance. While individual businesses, domains and members of a leadership team need to be competitive, the dynamics should be balanced by self-regulation. Similarly while teams need to be integrated and aligned with the leadership, the mechanics should be supported by adequate autonomy provided by the leader.

A corporate leader and his team have tremendous strategic responsibilities towards the company and all its stakeholders. A corporate leader who expresses open confidence in the team, sans the loyalists would reinforce the corporate performance through collaborative competition. Individual members can support this process by acquiring cross-functional and cross-business skills which could help them contribute equally in strategic deliberations. A completely integrated and aligned leadership team with high competency metrics will be truly inspirational for a company or an industrial house, and its stakeholders.

Posted by Dr CB Rao on November 29, 2009

1 comment:

Narayanan said...

Bravo ! This is not a topic that is discussed as often as it should be and is likely to be the soft underbelly of boardrooms across the corporate landscape. Be it the "Brownie" of the FEMA fame on the aftermath of Katrina or Sarah Palin's dependence on cronies to get the job done, valuing loyalty over competence has more often than not led to disastrous end games.

Ideally, CEOs will have the luxury of a consiglieri they could lean on, an organizational position popularized by the American mafia that combines competence and loyalty in one attractive package. However, in the real world, competence and loyalty do not co-exist harmoniously and come with trade-offs that is easier said than done. Competent personnel with an unwavering commitment to organizational progress are generally thought to be less loyal (since the costs of being so are high). Loyalty to the master by definition demands a compromise on competence.As Upton Sinclair is said to have famously observed "it is difficult to get a man to understand something if his salary depends on his not understanding it"...presumably he had a strong loyalist in mind when he so quipped !