FORTUNE MAGAZINE Leadership 2008
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Meet your new leader

How the fallout from the financial crisis could breed a new type of corporate leader.

By Jennifer Reingold, senior writer
Last Updated: November 14, 2008: 8:01 AM ET

When a star CEO leaves
Here's a look at what happened when nine famous business leaders left their empires.
10 new gurus you should know 10 new gurus you should know 10 new gurus you should know
You've heard of Peter Drucker, Jim Collins, and C.K. Prahalad. Here we introduce the next generation of management experts who are changing the way business gets done.
Former General Electric CEO Jack Welch epitomized the Visionary leader of the 1980s.
Home Depot CEO Frank Blake took a steep pay cut and is exploring nonmonetary ways to motivate workers - both traits of a Lifeguard leader.
Are you the right leader for the future?
The financial meltdown could usher in a new type of manager someone who's calm, can manage risk and anticipates trouble.
1. Your head of research and development comes to your office, visibly nervous, and starts explaining a problem with a new product that you quickly realize you don't understand even the basics of. You:
a) Listen and then tell him to make the decision he thinks is best.
b) Nod and murmur as though you understand the problem, then make a decision based on his cues.

c) Admit you don't understand the problem and bring in another executive to help you work through it.

d) Make a note to yourself to study up on the company's R&D operations.

(Fortune Magazine) -- "CDOs squared? What the hell were we thinking? These things were way too complicated!" J.P. Morgan Chase CEO Jamie Dimon exclaimed at a Harvard Business School summit in mid-October.

It's not the kind of thing you expect to hear from a captain of finance. And it came shortly before Alan Greenspan publicly admitted, head hung low, that he was in a state of "shocked disbelief" at the collapse of his meticulously crafted economy.

Remember when business leaders were supposed to be omnipotent? When admitting ignorance was grounds for board action?

Not anymore. Top CEOs now proclaim cluelessness with the fervor of a 12-stepper. That's disturbing, but it's also liberating, say leadership experts and historians, who see in this period of financial chaos the potential for something positive: a long overdue change in the type of corporate leadership that we value as a society.

"A crisis is a terrible thing to waste," says Jim Collins, author of Good to Great.

Gone is the Lone Ranger with his loyal Tontos. A more workable alternative, in an environment of increased regulation, diffuse power, and stagnant stock prices: the Lifeguard. That doesn't mean that power suits will be replaced by wetsuits and CEOs will get a lot more attractive. Rather, it's a leadership approach better suited to this interconnected, ever more turbulent world.

Unlike the Lone Ranger, the Lifeguard is comfortable not knowing what's about to happen. Scanning the horizon, he can anticipate a coming shift - what leadership experts call "hearing weak signals." He can work with a team and with rules set by others. And he isn't in it just for the money.

Harvard Business School professor Rakesh Khurana sees the current period as the start of a fourth era in modern corporate leadership.

The first was defined by Builders, company founders like John D. Rockefeller and Benjamin F. Goodrich. They were followed, beginning in the 1920s and lasting through the 1970s, by what former Fortune editor William H. Whyte termed the Organization Man. Symbolized by Alfred P. Sloan of General Motors (GM, Fortune 500) and Charlie Wilson of General Electric (GE, Fortune 500), this leader was the relatively anonymous "man in the gray flannel suit," who, Khurana says, saw his charge as "ensuring the continuity of the firm."

In the early 1980s, leadership became defined by a focus on the individual, a celebrity worshiped by business magazines like ours. The Visionary CEO - think Lee Iacocca or Jack Welch - personified a corporation. The twin goals that defined earlier eras (helping both stakeholders and shareholders; building a business for the long term) were refined to one simpler one: that, as economist Milton Friedman declared, "the social responsibility of business is to increase profits."

Compensation became tied - primarily through the use of stock options - to ever more dramatic moves, such as mergers, acquisitions, or other gambles. The stock price was widely accepted as a real-time CEO report card, the numerical proof of success, even as most stocks were on the rise.

"We took the complex nature of leadership," says management thinker C.K. Prahalad, "and converted it into a single metric by basing compensation on the stock price."

The faults of visionary leaders were first brought to light during the Enron era and the dot-com crash. There were a few calls for change - Collins, with his "Level Five" leader, and Khurana, who showed that "charismatic" CEOs didn't boost performance in the long term. But the visionary persevered, his gambler's instincts honed and rewarded in a lightly regulated, winner-take-all environment.

Stanley O'Neal took over as CEO of Merrill Lynch in 2002 with the express mission of catching up with the more aggressive trading firms. He bet - and ultimately lost - his nearly century-old firm on subprime and outsized leverage (and when the bet went bad took a $160 million severance package on the way out the door).

While visionary leaders talked about teamwork, they believed they could control their firms' destiny by themselves, citing any attempts to regulate their businesses as hostile and anticompetitive.

This leadership approach has failed. According to a recent study from Harvard's Center for Public Leadership, confidence in business leaders saw a more dramatic decline than that for any group, including politicians or the media.

But in the void left by the visionaries, a new model is emerging. Collins thinks that legislative, not executive, skills are now ascendant - that top CEOs will be those who are able to create the conditions for things to get done rather than hand down orders (as Hank Paulson learned, what worked at Goldman Sachs didn't fly in Congress).

David Gergen, the political expert and director of the CPL at Harvard, agrees. "The CEO of the future is going to have to be someone who deals well with government," he says. The truth is, these days a CEO cannot fully control his destiny in a world of competing entities, ranging from regulatory agencies to angry shareholders, from consumers to foreign powers.

The ability to look beyond the short term to the horizon and inspire employees is another must, given what looks like a prolonged economic slump. Xerox (XRX, Fortune 500)'s Anne Mulcahy, for example, has brought the company back from the brink by rallying her employees around the challenge itself rather than throwing money at them. At Home Depot (HD, Fortune 500), CEO Frank Blake accepted an annual pay package worth one-quarter of his predecessor's, and he is also finding creative nonmonetary ways to motivate employees, including giving merit awards for great customer service and assigning store workers more decision-making power.

This new breed will have to be comfortable admitting what they don't understand and asking for help. Collins has analyzed leaders in tough spots throughout history, including John F. Kennedy during the Cuban missile crisis. He found that Kennedy had an extraordinary "questions-to-statements" ratio, which reflected his comfort expressing what he didn't know.

Finally, these Lifeguard leaders will need the courage to tear up the plan in case of a sudden squall, as Wachovia CEO Robert Steel did when he quickly sold out to Wells Fargo (WFC, Fortune 500), or Banco Santander's Emilio Botn has done by snapping up rivals on the cheap. "I'm shocked about people watching the train come down the tracks, and they are still worried about the strategic plan," said Dimon at the Harvard summit.

Already, says James Reda, founder of an eponymous pay consultancy, there are signs that boards may be reconsidering what they look for in a CEO. "This is an inflection point," he says. One Fortune 100 director told him recently that "the day of the $10 million CEO is over." It may indeed be the end of an era. As Collins puts it, "This will be a time of spectacular opportunity for the right leaders." Lifeguards, man your stations.  To top of page

Company Price Change % Change
Ford Motor Co 8.29 0.05 0.61%
Advanced Micro Devic... 54.59 0.70 1.30%
Cisco Systems Inc 47.49 -2.44 -4.89%
General Electric Co 13.00 -0.16 -1.22%
Kraft Heinz Co 27.84 -2.20 -7.32%
Data as of 2:44pm ET
Index Last Change % Change
Dow 32,627.97 -234.33 -0.71%
Nasdaq 13,215.24 99.07 0.76%
S&P 500 3,913.10 -2.36 -0.06%
Treasuries 1.73 0.00 0.12%
Data as of 6:29am ET
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