Blog

Back on April 2, our fellow, Michael Wright, CEO of Intercepting Horizons, provided us with a general overview of AI, which you can view here.

Michael is a values-driven leader and innovator who is passionate about leveraging technological convergences to shape future business landscapes.

He is the author of two books, The Exponential Era and The New Business Normal, both on management and technology.

Many thanks to Loren Swanson, one of our regular participants, for recording it.

Bad actors make a mess of capitalism.  Deepfake creators are taking advantage of AI capabilities available in the market to scam companies.

In particular, AI programs can now imitate actual voice patterns of individuals to create phony, over the phone instructions to companies to do something for a supposed customer.

Banks and financial service companies are among the first to be targeted.  Companies providing voice activated access to personal accounts could expose depositors to theft.

OpenAI has showcased technology that can re-create a human voice from a 15-second audio clip.  But, thoughtfully, OpenAI said it would not put the technology on the market until it has more information on potential misuse.

Bad actors could also use AI to generate fake driver’s licenses to set up online accounts.

Could it be that we really do need “morals” in capitalism to protect the common good, that self-interested, short-term money profiteering is an unreliable road leading to increasing the wealth of nations?

One hears, more and more, in cautious, somewhat reluctant, but worried tones, people coming around to say out loud what worries them – there are no leaders anymore.

Some seven or so years ago, one of the smartest executives in our network, a European, told me with definitive certainty: “Everyone knows we are living at the end of an age, that a new age is coming.  But no one knows what the next age will bring, so everyone does today only what they did yesterday.”

In my inbox a few days ago, the consulting firm McKinsey & Company sent tips on leadership from one of their reports of 9 years ago.  It was titled Decoding Leadership: What Really Matters, written by Claudio Feser, Fernanda Mayol and Ramesh Srinivasan.

Based on a survey of 81 organizations operating in Asia, Europe, Latin America and North America, in agriculture, consulting, energy, government, insurance, mining and real estate and sized from 7,500 to 300,000 employees, they reported that “the secret to developing effective leaders is to encourage four types of behaviors.”

They wrote:

Earlier McKinsey research has consistently shown that good leadership is a critical part of organizational health, which is an important driver of shareholder returns.

A big, unresolved issue is what sort of leadership behavior organizations should encourage.  Is leadership so contextual that it defies standard definitions or development approaches?  Should companies now concentrate their efforts on priorities such as role modeling, making decisions quickly, defining visions and shaping leaders who are good at adapting?  Should they stress the virtues of enthusiastic communication?  In the absence of any academic or practitioner consensus on the answers, leadership-development programs address an extraordinary range of issues, which may help explain why only 43 percent of CEOs are confident that their training investments will bear fruit.

Our most recent research, however, suggests that a small subset of leadership skills closely correlates with leadership success, particularly among frontline leaders.  Using our own practical experience and searching the relevant academic literature, we came up with a comprehensive list of 20 distinct leadership traits.  Next, we surveyed 189,000 people in 81 diverse organizations around the world to assess how frequently certain kinds of leadership behavior are applied within their organizations.  Finally, we divided the sample into organizations whose leadership performance was strong (the top quartile of leadership effectiveness as measured by McKinsey’s Organizational Health Index) and those that were weak (bottom quartile).

What we found was that leaders in organizations with high-quality leadership teams typically displayed 4 of the 20 possible types of behavior.  These 4, indeed, explained 89 percent of the variance between strong and weak organizations in terms of leadership effectiveness.

The 20 possible types of leadership behaviors included in the survey were:

-Be supportive.
-Champion desired change.
-Clarify objectives, rewards and consequences.
-Communicate prolifically and enthusiastically.
-Develop others.
-Develop and share a collective mission.
-Differentiate among followers.
-Facilitate group collaboration.
-Foster mutual respect.
-Give praise.
-Keep group organized and on task.
-Make quality decisions.
-Motivate and bring out best in others.
-Offer a critical perspective.
-Operate with strong results orientation.
-Recover positively from failures.
-Remain composed and confident in uncertainty.
-Role model organizational values.
-Seek different perspectives.
-Solve problems effectively.

The 4 optimal leadership behaviors were:

• Solving problems effectively.  The process that precedes decision-making is problem solving, when information is gathered, analyzed and considered.  This is deceptively difficult to get right, yet it is a key input into decision-making for major issues (such as M&A), as well as daily ones (such as how to handle a team dispute).

• Operating with a strong results orientation.  Leadership is about not only developing and communicating a vision and setting objectives, but also following through to achieve results. Leaders with a strong results orientation tend to emphasize the importance of efficiency and productivity and to prioritize the highest-value work.

• Seeking different perspectives.  This trait is conspicuous in managers who monitor trends affecting organizations, grasp changes in the environment, encourage employees to contribute ideas that could improve performance, accurately differentiate between important and unimportant issues and give the appropriate weight to stakeholder concerns.  Leaders who do well on this dimension typically base their decisions on sound analysis and avoid the many biases to which decisions are prone.

• Supporting others.  Leaders who are supportive understand and sense how other people feel. By showing authenticity and a sincere interest in those around them, they build trust and inspire and help colleagues to overcome challenges.  They intervene in group work to promote organizational efficiency, allaying unwarranted fears about external threats and preventing the energy of employees from dissipating into internal conflict.

The researchers concluded that:

We’re not saying that the centuries-old debate about what distinguishes great leaders is over or that context is unimportant.  Experience shows that different business situations often require different styles of leadership.  We do believe, however, that our research points to a kind of core leadership behavior that will be relevant to most companies today, notably on the front line.  For organizations investing in the development of their future leaders, prioritizing these four areas is a good place to start.

What is startling to me and connected to the growing perception that we have no leaders is that the 20 behaviors associated with leadership did not include any core values or orientation to stakeholders.

To me, these 20 behaviors resonate with “teaming,” with “conversations,” with everyone at the table and no one responsible for anything in particular.

Only “operating with a strong results orientation” smacks of leadership gumption.

What the McKinsey researchers looked at was management, not leadership.  Management is team-centered.  Leadership is values centered and so purpose driven.

Managers perform.  Leaders deliver.  Managers process.  Leaders have courage and take risks. Managers are often substitutable, one for another and expendable.  Leaders are hard to find.

We were warned about mistaking management for leadership by Chester Bernard in 1938 (The Functions of the Executive) and again by Philip Selznick in 1957 (Leadership in Administration).

Maybe it was no accident, but something more systemic, which has bedeviled Boeing and destroyed its capacity for leadership in the manufacture of aircraft.

A while back, I ran across a story about the law of unintended consequences.  Cause and effect is how life happens.  Is not that why with business and finance, we think of forecasting, making judgments about risks, following the science and creating new products, taking due care, of assuming fiduciary responsibilities, of bringing stakeholder concerns into our decision-making?

This story turned on the consequences of farmers in India giving their cattle the anti-inflammatory drug diclofenac.  When vultures fed on dead cattle having been so treated, the vultures suffered kidney failure and died within weeks.  From the 1990s to the early 2000s, some 90% of Indian vultures died.

Other scavengers took their place: feral dogs and rats, which carried rabies.  But more impactful were the rotting carcasses full of pathogens, which spread to drinking water.  People died.  A study concluded that in districts with vulture suitable habitats, the loss of vultures caused some 500,000 human deaths more than in districts that were less suitable for vultures.

The Economist captured these causal connections in this graphic:

Boeing, maker of airplanes, has paid $160 million to Alaska Air Group to compensate that customer for lost profits following the midair blowout of a door plug on a Boeing plane sold to that company.  The accident and subsequent forced grounding of Alaska Air’s jets had a negative impact on Alaska Air’s income.  Alaska Air said it expects more compensation from Boeing in the future.

Now that’s a great way to make a profit: sell your customers poor quality products and then compensate them for the inconvenience.  What was Boeing thinking?  What went wrong?  We get an answer from a recent interview by Chrisopher Rufo with a Boeing employee.  In short, Boeing’s corporate culture and its values drove it to acting stupidly, not taking care of stakeholders and in so doing, failing at capitalism 101.

Christopher Rufo: In general terms, what is happening at Boeing?

Insider: At its core, we have a marginalization of the people who build stuff, the people who really work on these planes.

So, right now, we have an executive council running the company that is all outsiders.  The current CEO is a General Electric guy, as is the CFO, whom he brought in.  And we have a completely new HR leader, with no background at Boeing.  The head of our commercial-airplanes unit in Seattle, who was fired last week, was one of the last engineers in the executive council.

The headquarters in Arlington is empty.  Nobody lives there.  It is an empty executive suite.  The CEO lives in New Hampshire.  The CFO lives in Connecticut.  The head of HR lives in Orlando. We just instituted a policy that everyone has to come into work five days a week – except the executive council, which can use the private jets to travel to meetings.  And that is the story: it is a company that is under caretakers.  It is not under owners.  And it is not under people who love airplanes.

In this business, the workforce knows if you love the thing you are building or if it’s just another set of assets to you.  At some point, you cannot recover with process what you have lost with love.  And I think that is probably the most important story of all.  There is no visible center of the company and people are wondering what they are connected to.

Rufo: If they have lost the love of building airplanes, what is the love, if any, that they bring to the job?

Insider: Status games rule every boardroom in the country.  The DEI narrative is a very real thing and at Boeing, DEI got tied to the status game.  It is the thing you embrace if you want to get ahead.  It became a means to power.

The radicalization of HR doesn’t hurt tech businesses like it hurts manufacturing businesses.

Service means you are spending the extra time to understand what’s really happening in the factory and in your supply chain.  There should be some honor in understanding that we inherited something beautiful and good and worth loving.

Boeing’s outgoing CEO, David Calhoun, for his leadership in 2023, received from the company $33 million in compensation, mostly from awards of stock and not company cash – only $1.4 million in salary.  But as discipline for the door plug blowout on a 737 MAX jet this past January, for 2024, Calhoun and other senior executives will get 22% less in shares of Boeing stock than originally proposed.  Calhoun also gave up a cash bonus for 2023 in the amount of $2.8 million.

Even with such reduced compensation, Calhoun is not hurting financially, but the company surely is.

On March 22, Boeing’s biggest U.S. customers took their frustrations with poor company performance to the company’s board of directors.  The airline executives wanted Boeing’s board to take personal responsibility for quality control.  They wanted to express concern over the fuselage failure of an Alaska Airlines 737 MAX aircraft and production problems in the manufacture of airplanes.

Boeing’s CEO, David Calhoun, had apologized for Boeing’s mistakes and said that the company is working with customers and regulators to address their concerns.  Calhoun had come to Boeing to improve the company’s prospects after fatal crashes of two 737 MAX aircraft in 2018 and 2019.  Previously, he had worked at General Electric and Blackstone.

On March 25, Calhoun said he will leave his position as CEO at the end of the year.  Boeing also announced that the head of its commercial aircraft business will leave the company immediately and its board chair won’t stand for re-election.  An outsider will take over as chair and lead the search for a new CEO.

Secondly, the U.S. federal government and 15 states have gone to court to allege that Apple designs products to discourage consumers from integrating into their iPhones service features of competitors, which encourages consumers to pay more for cell phone use.  U.S. officials have already brought antitrust actions against Amazon, Google and Meta platforms to bring more market discipline to bear on the ability of those companies to make a profit.

Thirdly, a coalition of 41 states and the City of Washington, D.C. have filed lawsuits against Meta for intentionally selling products having addictive features that harm young users of Facebook and Instagram.  Teen users of the apps report that they feel addicted, knowing that “what they are seeing is bad for their mental health, but feel unable to stop themselves.”

The lawsuit uses documents which were part of a series of 2021 articles on Facebook in the Wall Street Journal.  ESG corporate stakeholder responsibility anyone?

Blackrock, Vanguard and State Street are reportedly on track to own half the shares of all American companies within 15 years.  How’s that for a concentration of power in a few hands?  According to Harvard Law Professor John Coates, private equity and index funds are concentrating wealth and power.

Lord Acton once said, “And remember, where you have a concentration of power in a few hands, all too frequently, men with the mentality of gangsters get control.  History has proven that.”

Fourth, when people have power, they can misuse it.  Bill Ackman, a billionaire hedge fund manager, has found that on Facebook, imposters have placed more than 90 different ads pretending to be him touting stock investments.  Other wealthy investors have also been impersonated.  The ads lure their marks into joining WhatsApp groups to get stock tips.

When complaints were filed, Facebook replied that the ads don’t go against its standards.
The Federal Trade Commission reported that imposter scam losses rose between 2019 and 2023 to $2.7 billion.

Social media platform X (formerly Twitter) blocked searches about the singer, Taylor Swift, after explicit, digitally fabricated fakes of her proliferated on the site.

As Lord Acton also said: “Power tends to corrupt and absolute power corrupts absolutely.”

Social media empowers people.  Having money empowers people.  What, then, keeps them from abusing their power: free markets?  The law?  Morality?  Fear of the Lord?