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Cool CEO Doctor - May 21st, 2007

Yale professor and leadership guru to top execs, Jeff Sonnenfeld offers his bottom line on how to triumph over career tragedy, the upside of failure, and Barney Frank’s new gripe du jour—executive pay.

When a company hits the skids of scandal or a top executive is pilloried in the press for backdating options (or worse), chances are Jeffrey Sonnenfeld will be on TV the next day diagnosing the problem and providing a prescription for the leader or company to get back on track. His words of wisdom—a combination of Chicken Soup for the Corporate Soul and hard research about the war bunker called the corner office—has been shedding light on executive behavior, good and bad, for years.

Senior associate dean for executive programs at Yale University’s School of Management, Sonnenfeld founded The Chief Executive Leadership Institute, which focuses on CEO management and corporate governance—hot topics for business types and, increasingly, the general public. With the “I Spy” tactics of Hewlett-Packard’s board, the platinum parachute of Home Depot’s Robert Nardelli, and Steve Jobs’s options blowup, there is no shortage of fodder for Sonnenfeld to address.

While his latest book, Firing Back: How Great Leaders Rebound After Career Disasters, might not garner a mention in Oprah’s Book Club, it is required reading for corporate bigwigs—and those who want to be. A promotional blurb for the book describes it as “a potent five-step strategy for rescuing and restoring your career and reputation after a devastating professional setback.” Now who, exec or middle manager, couldn’t use a little help of that kind? We caught up with Sonnenfeld to get his take on today’s corporate minefield.

Home Depot’s Bob Nardelli just packed up his tools and “resigned” from the company. Should he have? Or should he have, to put it in your own words, fired back?
Throughout his career Nardelli has shown a profound failure to learn from failure. Instead of getting to the end of the road at Home Depot, having to quit, he should have listened to negative feedback from his lieutenants and the board along the way. Nardelli has been enraged ever since Jack Welch didn’t give him the nod to run General Electric after Welch retired. Nardelli couldn’t get over it even after taking the job at HD. He went to war with the culture he inherited. This is a classic example of someone who fell into a quicksand of failure rather than do the right things to extricate himself. Any executive—middle manager or top dog—needs to look back and conduct a postmortem on why he failed. Nardelli was right to leave. Forget firing back in this case. But he can still learn about his weaknesses if he can overcome his demons. What does he do now? Henry Ford, Ross Perot, David Neeleman—they built great businesses on the ashes of failure. Can Nardelli?

Congressman Barney Frank wants stockholders to have a bigger say in CEO compensation. Is Barney on the money here?
Shareholders should have a bigger say in CEO compensation, but it’s a tough negotiation when hiring packages are being put together by a compensation committee. One solution is to grant CEOs shorter-term hiring packages. Stockholders would get a chance to vote on renewals. No doubt about it, the signing bonuses for top executives have really gotten carried away.

There’s pay for ego and there’s pay for performance. Has the former gotten out of hand?
Clearly. Nell Minnow of The Corporate Library calls it pay for pulse—CEOs getting ridiculous sums for just showing up. But there are plenty of CEOs who perform for much less and with less grandiosity along the way. Why? Because they love their work. Mike Eskew of UPS makes about $2 million to run the world’s largest transportation company. You don’t see him hiring huge platoons of PR officers with gigantic self-promotion campaigns like Carly Fiorina did. David Neeleman of JetBlue just does a great job and never seeks publicity. Jim Donald, CEO of Starbucks, practically runs from it, and Reuben Mark of Colgate-Palmolive really does avoid it at all costs. Mark’s performance has been extraordinary, but he has received a paltry fraction of what Welch made. Too often these days executive pay is being equated with grandiosity and not performance. That’s a troubling trend.

Doesn’t hubris factor into any executive’s success? Doesn’t the belief that you can accomplish what others can’t make a great leader?
It’s important to have a larger-than-life persona. You can call it hubris or heroic attitude. When you look through CEOs’ lives, career, and schooling, they are never one of the group, one of the guys. They are either leaders of a group, or straddling lots of different groups, but they aren’t just one of the team players. Hubris doesn’t have to be a bad thing. If you can keep it from being about personal grandiosity and channel it toward institutional greatness, it’s a good thing. Some CEOs lose sight of that as they start to blur the identity of the company with their own.

What’s one thing that people in business should learn, especially those with the ambition to run a company?
They should not be afraid to talk about failure. I used to teach a career course at Harvard Business School back in the early ’80s, and I read some 2,000 term papers. What amazed me were the searing memories of setbacks in the students’ business or school career. They didn’t have a healthy desire to learn from them. So many times in a success-absorbed society we run from the specter of failure for fear that it’s a disease and we’ll catch it. Always take a look at the experiences and trials that didn’t work out.

You mention that too many of us are addicted to success. Why should everyone—even middle managers—be students of failure?
Because we all experience it. Unlike chief executives, who have the resources to buy their way out of it or cover it up for longer, we need to overcome it so we can move on with our careers. People who were let go before the holidays are being invited to social gatherings and coworker parties. A lot of them withdraw from going because they wear the stigma of failure. That only makes it harder to bounce back. If you keep yourself out of the mainstream after being fired or downsized, people start to think that you are untouchable or a little damaged. The more you show you’re bigger than life’s adversity, the more people relax around you and can help you.

In terms of leadership, what propels a person up the ladder into the corner office: rugged individualism or the ability to collaborate and cooperate with fellow employees? Aren’t people skills as important as raw technical skills?
You need a balance of the two. In cultures that are too people-centric, a maverick—someone who challenges the status quo—is punished and popularity is rewarded. Cultures that thrive on pure rugged individualism—like The Apprentice, where everyone is out to sabotage everyone else—can be very destructive to employees and company goals. A leader is willing to be unpopular on occasion but doesn’t go out of his way to be abusive to employees. Anne Mulcahy of Xerox is a good model. She is tough but persuasive, and disarmingly candid, talking freely about her failures and missteps—and how to correct them. Whatever town or village you go to, there’s usually a monument in the town square or local park. It’s not a monument to a committee, but to a rugged individual.

Is Sarbanes-Oxley causing CEOs to be risk-averse? Are they playing it too safe?
A larger issue that has CEOs worried is not the bugaboo of regulation—most of it is deserved and needed—but the short-termism that was with us before the regulation that makes it so hard for a company making longer-term investments. Take Harrah’s, for example, which wants to make some enormous investments in technology and real estate. They want to do it in the private sector, out of the public market, because they won’t have short-term thinkers questioning their every move.

Yale professor Irving Janis blamed many of the bad decisions made by U.S. presidents on groupthink, which Janis coined. Better decisions were made when the presidents had advisers who were contentious. Does that apply to boards of directors?
Most decidedly so. Some of the fixes are still not quite adequate. They do it to say “we now have a token governance person on the board”—and that person gets typecast. The governance execs are there to do a perfunctory wave of the wand, and if they have the audacity to ask about other business issues, they are looked upon as out of order. Board members should take turns playing devil’s advocate. They should also spend some time hanging around the business. I had information about senior management at Home Depot, for instance, that the board of directors should have been hearing. But it was being filtered from them.

Your research shows that about 40 percent of failed CEOs disappear from the work force. Why so? Are many of them just not cut out to run a company?
They don’t confront failure properly. They go off to the ski slope in Vail, take calls from repentant board directors, and wait—like a government in exile—for their call back to service. That doesn’t happen. Any executive who takes himself out of the mainstream is going to be forgotten. By contrast, when Jamie Dimon was pushed out of Citigroup by CEO Sandy Weill, he kept himself in the game. He wasn’t embarrassed. He recognized that’s what happens in business and, unlike Nardelli, didn’t become hostile. In fact, he did some rethinking and had lunch with Weill to talk it all through, to see where he might have gone wrong at Citigroup. He also stayed in touch with everyone in the financial community, talking about new opportunities that might be on the horizon. Dimon waited for the right opportunity to return to work and resuscitated troubled BankOne of Chicago. Five years later, he merged BankOne with JPMorgan Chase to become one of he most widely admired and feared financiers of the world. It’s about as thrilling a comeback as an executive can have.

The standard line from disgraced politicians or embattled execs is: “If I had it to do over again, I wouldn’t change a thing.” What does that say about the leader?
It’s a protective ruse, so that a leader is not burdened by enormous regret. It helps us move on with life. PR advisers tell their clients, “Take your loss, move on, and don’t revisit.” But no, you really should. You can look back and do some very useful postmortems. So many times after corporate scandals, companies are reluctant to do the postmortem—and are in danger of repeating the mistake. When you look at the postmortems of Worldcom, Enron, and the shuttle disasters, you find the lesson is there right in front of you: All of the knowledge to prevent the disaster was inside. There wasn’t some great external expert they forgot to consult. Instead, they created systems that suppressed important feedback, so that dissent was confused with disloyalty. If you’re a CEO or any level manager, don’t freeze out the maverick. ^
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