Get Ready to be a Lonely Leader

My latest reading list is two titles by Alan Axelrod with the first being Gandhi, CEO and next on my list is Napoleon, CEO. The reason that I have chosen the two titles is to compare whether there are any distinct differences in leadership qualities between the two and also similarities. Gandhi and Napoleon offer such contrasting personalities where comparison between the two would be interesting. Gandhi is universally known as the compassionate and non-violent leader while Napoleon is sometimes labelled as the power hungry warlord and even to the extent of being called the anti-Christ. Perhaps, both amazing leaders are born out of circumstances to suit the turbulence of their respective era. I would imagine Gandhi barely surviving in the war-torn era of Napoleon and similarly, Napoleon would delights the British army if he choose the violent path if he is in Gandhi's shoes.

Anyway, I am now in the middle of Gandhi, CEO and one particular "lesson" in the book immediately strike a chord in me based on my actual experience of managing (trying to manage) a company. The lesson is to be firm and not popular. I must admit, it is difficult in trying to implement unpopular decisions especially if you are not the founder of the company. When you are promoted within a company and you have transformed from being one of the colleagues (us) to them (management), certain decisions can be viewed as apple-polishing, evil management trying to squeeze everything from the staff, not protecting the welfare of the staff, etc. Anyway, after reading through the lesson in Alan Axelrod's book, it has re-affirmed my commitment to do the right thing and not the popular decision. At the end of the day, we must answer to our own conscience only. I however, do not agree with Alan Axelrod's title in his lesson, i.e. "Get ready to be a lonely leader". I don't think leaders have to be lonely. If we are firm, ethical and sincere, people with the same qualities will appreciate it. Only those who fail to see the bigger picture will view our decisions with hostility and if such person cannot appreciate our qualities, we should not be losing sleep over it. As such, for me, the title of the lesson should be "Get ready to lose friends who do not share your views as long as your conscience is free. You will make other great friends on the way".

The following paragraph is extracted from the book by Alan Axelrod titled Gandhi, CEO (only words in BLUE are mine):


GET READY TO BE A LONELY LEADER

"It is a superstition and ungodly thing to believe that an act of a majority binds a minority."

- "Passive Resistance," Hindi Swaraj, 1909


Some CEOs are autocrats, others are democrats. Neither extreme is an optimal leadership policy. To impose authoritarian will on the members of an organization is to treat them as functionaries rather than as thinking human beings. Quite apart from the damage this does to individual morale, such a policy is a bad bargain for management because it fails to make full use of the company's costly human assets. Consider two workers: They are both paid the same salary; one uses 100 percent of her talent, the other 10 percent. Which worker represents the greater value for the company? The answer is self-evident, of course, yet authoritarian managers will fully sacrifice 90 percent of the value of their human capital when, by reflexively and inflexibly imposing their policies and procedures, they fail to allow an individual to use, to express, and to act on his or her uniquely valuable perspective and talent.

The democratic CEO, whose leadership is based on bending to the expressed will of the members of the organization, makes a different kind of mistake by her unquestioning assumption that the majority should prevail. Is her objective to please as many of her employees as possible? Or is it a belief that the majority is more likely to get a given issue right than the minority?

If the first answer is correct for a given CEO, we should question whether pleasing one's employees is even a valid goal for an enterprise? Is it likely to produce a profit, let alone the best possible profit? Almost certainly not. More valid goals might include creating customer satisfaction, producing a worthwhile product, and creating shareholder value. All of these-and preferably some combination of these-are more likely to contribute to productive sustainability than aiming to please the members of the organization.

Growing a productive and profitable enterprise is the surest way to create satisfaction among all the constituents of a company-especially the workers, whose ongoing livelihood depends on the ongoing success of the firm. Yet to achieve and sustain profitability, the CEO may from time to time have to make decisions that run contrary to the expressed will of the majority of his employees.

So be it. There is nothing sacrosanct or even inherently valuable about thoughtlessly bowing to the majority. It is also a fallacy to assume that the majority is more likely than the minority to be right. The classic refutation of this belief is the historical example of the many centuries during which the majority was convinced that the world was flat.

In the end, a leader must act with the well-being of every stakeholder in mind. This may mean sometimes making unpopular decisions, and it very often requires departing from the perceived wisdom of the majority by relying instead on advice from qualified experts or on your own understanding of the issues. Leadership, it is often said, can feel very lonely. The reason for this is simple: Leadership is lonely. Done right, it comes down to the decision of a single, solitary human being. Every other attitude, belief, or policy relating to leadership is either subordinate to this truth or is an instance of self-delusion.

In summary, for me, it is important as a leader to listen to all and values their opinion. After evaluating all opinions, it is important for a leader to make decisions based on big picture. As such, a test of whether a person is ready to be a leader is his ability to see things from different perspective, from view of staff, management, stakeholders, clients, competitors, etc. It is also important to have strong belief that you are doing the right thing. Some people will label strong leaders as lack of compassion and profit-driven with staff welfare ignored but histories have shown us that even leaders as compassionate as Gandhi needs to be firm in his belief that he is doing the right thing. Whether we are doing the right thing or not, only time will tell.

p.s. I am hoping to include the review of the book by Venerable Master Hsuan Hua who is a famous Buddhist teacher and draw some leadership lessons from his writings. Even though I have only started on his book, I am sure he will agree on the need to be firm and not bow to the majority. However, it is important to differentiate the effort of a spiritual leader where it should not be profit-driven but for an enterprise, profit is a must and should not be viewed as a dirty word. Whether we choose to be a leader in a profitable enterprise or charitable organisation is entirely up to an individual and there is nothing wrong with either decision. What is wrong is if we mistake working for a profitable enterprise but trying to implement charitable decisions or working for a charitable organisation but trying to implement profitable decisions.

Good luck!

Something is wrong with the financial world!

Asian Stocks Rise Amid Optimism on China Stimulus Outlook. That is one of the title of the article in today's Bloomberg's website. The title really got me baffling. It really seems that financial markets belongs to another planet while the rest are on Earth.

Well, I am no economist or financial expert but what I find wrong with the title is that the markets are "happy" that there is now a higher possibility of China stimulus. What prompted the higher possibility of China stimulus? Weak economic data from China and we are "happy" because China has shown signs of a weakening economy?

Of course, having stimulus will definitely buoyed the markets because it means more money is available in the market but that is definitely not something to be "happy" about. If the market rises because of more stimulus, it simply means that the financial markets are really a big "gambling" table and people are just rushing to "grab" as much money before the music stops. I thought share markets were created so that people can invest in a company which has the potential for good profits in the future but lacked the capital to realise their vision in the present and hence, the need to raise capital for expansion. Now, share markets are really like a big pyramid scheme. You just get more "suckers" buying into the scheme and once the buying stops, it will just collapse and then re-start again.

The current scenario is like a company (China) who is struggling because their clients (Europe) is not buying their products as much as they used to do. So, profits are going to go down. So, the company has decided to give all their employees higher salary (stimulus) so that they are going to buy more products from their own company to offset the reduced orders from other clients. And their clients are also telling the company's staff that they are saving too much. They should spend their additional salary and buy more products to keep the company afloat. The key question is are the employees buying something which will add-value to their future earning power? It is okay for stimulus if it is for construction of a much needed transportation system, university, etc. (not construction of ego-satisfying monuments) as it will create jobs and demand for products and at the same time, the completed infrastructure will add-value to the future. It is like a company investing to upgrade for example, their IT infrastructure. What if the stimulus (extra money) only results in higher stock price valuation, higher house prices due to speculation (not due to actual demand for first-time housebuyers), increased purchase of luxury goods, etc? This is like the company staff buying all the extra T-shirts, handbags, shoes, etc. that the company produces to keep the company's profit. It doesn't sound very sustainable isn't it?

Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets

This book by Nassim Nicholas Taleb is such a wonderful book and I would rank it as one of the must read book for anyone. It explains in a very simple and easy to read manner the role of luck in life and in the stock markets. This is important because there are many books out there "teaching" us how to be successful in life and how to be a millionaire, etc. Modern marketing techniques also tend to make us feel inferior if we don't own the biggest house, the fastest car and go to the most wonderful holiday. However, merely possessing the traits of successful people, such as hardworking, good communications skill, etc. would not guarantee success. Don't get me wrong. Such traits are very important but sometimes, we need to tell ourself that we just need to try our best and the rest is out of our hands and should not feel too depressed if the reward does not seem to commensurate with the effort. Whatever will be will be.

For me, the book also communicates an important lesson that we all should bear in mind with regards to our success in life or stock markets. Are the success really attributable to our skills or is it merely luck? Are we so blinded by success that we think that we are on top of the world without realising a change of luck may undone everything that we have worked so hard for? As such, this book would serve as a good reminder to us to be cautious and not be over-confident and deluded. Again, this book is a must-read and if you read it together with Tim Harford's The Logic of Life, the insights would be even more revealing and I am sure it will make you think much more.

Some excerpts from the book which I find useful (words in blue are my personal opinion):

1) Mild success can be explainable by skills and labor. Wild success is attributable to variance. (There are two ways to look at this statement. For extraordinary success, e.g. Bill Gates, a large portion of his success is probably due to luck, i.e. at the right place at the right time, etc. Don't get me wrong. Bill Gates is a brilliant guy and I think he deserved it but so do many other guys who may be even more brilliant and hardworking than him but we know how far they are from Bill Gates. Another way to look at that statement is that if we want to achieve wild success, risk taking is a must or else you would not have the chance to encounter the super luck or the variance needed. Just be aware that for every Bill Gates, there are countless university dropouts who are barely able to feed themselves).

2) Behavioral scientists believe that one of the main reasons why people become leaders is not from what skills they seem to possess, but rather from what extremely superficial impression they make on others through hardly perceptible physical signals - what we call today "charisma", for example. The biology of the phenomenon is now well studied under the subject heading "social emotions". (Body language matters!)

3) As a derivatives trader I noticed that people do not like to insure against something abstract; the risk that merits their attention is always something vivid. (Knowing this helps especially if you need to convince clients, customers, etc. on something. Focus on something vivid which they can relate to).

4) ....... rational thinking has little, very little, to do with risk avoidance. Much of what rational thinking seems to do is rationalize one's actions by fitting some logic to them. (Think properly. Are you guilty of this?)

5) Psychologists call this overestimation of what one knew at the time of the event due to subsequent information the hindsight bias, the "I knew it all along" effect. (This reminds me to look at people's "failure" if I were in their shoes and don't be too quick to pass judgement on other's mistakes).

6) Those who were unlucky in life in spite of their skills would eventually rise. The lucky fool might have benefited from some luck in life; over the longer run he would slowly converge to the state of a less-lucky idiot. Each one would revert to his long-term properties. (So, the key is perseverance and continues to upgrade one's skills and relevancy in this fast paced and ever-changing environment).

7) The wise man listens to meaning; the fool only gets the noise.

8) ..... at any point in time, the richest traders are often the worst traders. This, I will call the cross-sectional problem:  At a given time in the market, the most successful traders are likely to be those that are best fit to the latest cycle. This does not happen too often with dentists or pianists - because these professions are more immune to randomness. (The same with engineers. If you are good, don't despair if your situation currently is not as good as you would have liked. With time, your skills would get better and your conditions will generally improve with time).

9) Psychologists recently found out that people tend to be sensitive to the presence or absence of a given stimulus rather than its magnitude. This implies that a loss is first perceived as just a loss, with further implications later. The same with profits. The agent would prefer the number of losses to be low and the number of gains to be high, rather than optimizing the total performance.

10) ....... not to approach anything as a game to win, except, of course, if it is a game.

11) ...... extreme empiricism, competitiveness, and an absence of logical structure to one's inference can be quite explosive combination.

12) ...... an open mind is a necessity when dealing with randomness.

13) ..... survivorship bias implies that the highest performing realization will be the most visible. Why? Because the losers do not show up. (This explains why we usually think it is easy to be a successful businessman because we don't see the not so successful businessman. This is also why highly educated people usually don't make a lot of money. This is because they know the real odds of making it in business and as such, most of them ended up not trying. Maybe sometimes ignorance is bliss?)

14) Optimism, it is said, is predictive of success. Predictive? It can also be predictive of failure. Optimistic people certainly take more risks as they are overconfident about the odds; those who win show up among the rich and famous, others fail and disappear from the analyses. Sadly. (Despite this statement, I still think that optimism is good. This is especially for people like engineers, doctors, etc. Because of what we read, we generally knew the odds and therefore, we need some optimism to balance our life or else we will be paralysed to act or to try out new things. Isn't that sad?)

15) Judging an investment that comes to you requires more stringent standards than judging an investment you seek, owing to such selection bias. (Simple common sense right? If someone is selling you something, of course he/she will be bias towards making the sell rather than protecting your interest.)

16) It is obvious that the information age, by homogenizing our tastes, is causing unfairness to be even more acute - those who win capture almost all the customers (This is the new reality of the globalized world - any slight advantage over your competitor will results in disproportionate lucrative profits)

17) ...... there are routes to success that are nonrandom, but few, very few, people have the mental stamina to follow them. Those who go the extra mile are rewarded.......Most people give up before the rewards.

18) One cannot make a decision without emotion. (It is important that we realise this in management and also business. We tend to complain why some client make lousy decisions even though it is obvious. It is probably because engineers tend to look at the logical aspects and forget about the emotional aspect of the decision. To convince someone, we need to approach from both logical and emotional aspects and emotional aspects are probably more important)

19) Say you own a painting you bought for $20,000, and owing to rosy conditions in the art market, it is now worth $40,000. If you owned no painting, would you still acquire it at the current price? If you would not, then you are said to be married to your position. There is no rational reason to keep a painting you would not buy at its current market rate - only an emotional investment. Many people get married to their ideas all the way to the grave. Beliefs are said to be path dependent if the sequence of ideas is such that the first one dominates.

20) My lesson from Soros is to start every meeting at my boutique by convincing everyone that we are a bunch of idiots who know nothing and are mistake-prone, but happen to be endowed with the rare privilege of knowing it.

21) ..... research on happiness shows that those who live under a self-imposed pressure to be optimal in their enjoyment of things suffer a measure of distress.

22) We know that people of a happy disposition tend to be the satisficing kind, with a set idea of what they want in life and an ability to stop upon gaining satisfaction. (Do you know what you want in life? Do you keep on switching the goal post, e.g. you initially aim to own a big house and a nice car and with some measure of financial security for your family but upon reaching that goal, you are now dreaming of a ferrari and two house each for your children?)

23) People who get promoted to important positions usually suffer from tightness of schedules.

In summary, I have always enjoyed reading books by authors such as Malcolm Gladwell and Nassim Nicholas Taleb simply because they are always unconventional and tends to look at things from a different perspective. This makes reading their books so refreshing and it always give me renewed energy to fully enjoy work and my life. The last point (Item 23) does ring a bell for me (I am not in that important position) but sometimes, it does feel that schedules are always tight and it does affect us from being a better human being and co-worker. So, at the very least, after reading this book, I vow not to take little things too seriously and to enjoy this adventure we call life while it last.

p.s. Euro 2012 is shaping up to be quite exciting with England beating Sweden 3-2. I'll bet that if England went on to beat Ukraine and qualify for the next round, every England supporters will start believing that they are good enough to win it. Me, I am putting my money on Germany.