The way we incentivise leaders is dead wrong.
In a growth obsessed world, we fawn over leaders who maximise profits in the shortest possible time frame, those who achieve exponential growth against expectations.
But what if this form of leadership doesn’t help in the long term? What if we need leaders who are more tortoise than hare?
In a 2012 study by Dr. Natalia Lorinkova, Matthew J. Pearsall and Henry P. Sims, the benefits of two leadership styles were compared. Here’s the summary:
“Teams led by a directive leader initially outperform those led by an empowering leader. However, despite lower early performance, teams led by an empowering leader experienced higher performance improvement over time because of higher levels of team-learning, coordination, empowerment and mental model development.”
In other words, if you want short term performance, tell people what to do. If you want long term performance, build them up to do it themselves.
This is hardly a controversial idea. We have all probably worked under leaders in both categories.
If this is common sense, then why aren’t leaders incentivised with the right time frame in mind? As Lorinkova et al’s study shows, we need leaders to build and to empower, and this requires a long term vision.
Here’s one way it could work. Rather than rewarding them during their tenure, imagine if we rewarded them after their tenure – after they left. After all, the success of a leader should be measured over decades, not over months.
For each of the three sectors – private, public and non profit – it might take a significant mindset shift.
In Leaders Eat Last, Simon Sinek compares the leadership tenure of two CEOs – Jack Welch of General Electric and James Sinegal of Costco. Their leadership styles could hardly have been different. Every year, Welch would fire the worst performing 10% of his managers. By comparison, Sinegal would refuse to pass on the costs of bad economic times to his employees, at one point being criticised by analysts as being “too benevolent”. These leaders were the epitome of directive versus empowering leaders.
By taking a long term view of the two stocks over decades, a pattern emerges. GE’s wild and erratic ride is characterised by an exponential rise, which coincides with Welch’s tenure of leadership from 1981 to 2001. But the drop in stock afterwards is incredible. By comparison, Costco’s builds over several decades.
The lesson is very simple. Two polar opposite leadership styles result in two very different outcomes. And yet, both leaders are incentivised the same way.
Imagine if CEOs were given bonuses according to agreed outcomes, not during, but after their tenure? Rather than giving bonuses based upon yearly profit targets, imagine a set of targets that had to be reached after they left?
How would that change the way in which leaders act?
In the public sector, leaders are expected to enact policies with almost immediate results.
In Australia, where there have been seven Prime Ministers in ten years, Prime Ministers who have been in power for just a few weeks are often asked: what kind of impact are you having on the country? They might do well to answer – “Mate, I’ve only just gotten here…”
Regardless of your political perspective, there is no doubt that major reforms decades ago are still benefiting the country’s economy today: the floating of the dollar, cutting of tariffs and quotas, tax reform, and opening up trade with Asia.
How could we incentivise political leaders, by rewarding them for long term thinking, not during office, but after?
In the non profit sector, charities are expected to deliver results almost instantaneously. Donors give grants with extraordinarily short time frames – often around the 12 month mark. This means that within 12 months, the charity is expected to hire staff, do a needs assessment, gather opinions of stakeholders, formulate some kind of response, deliver some kind of program, and then evaluate it!
This attitude fundamentally disregards the notion that listening is a form of action. In fact, many charities working internationally would be better served if they simply listened more. But for this to happen, we need to encourage them to think with a longer term vision.
When a donor expects results on a shoestring budget, in an unrealistic time frame, it only encourages one type of work – short term, symptomatic relief.
This line of logic has huge implications for leaders of charities. Their success is measured by outputs that are delivered during their tenure as a leader.
I think this idea is just plain wrong.
In my experience, I founded OIC Cambodia in 2013, after spending a year in Cambodia and discovering that there were no Cambodian speech therapists in the whole country. I then worked on establishing the charity, building up the team, and perhaps most importantly, overseeing the strategic exit of the whole organisation.
After two and a half years at the helm, I then began the transition of leadership to a local Cambodian leader. This was achieved at the four year mark.
This means that the time period from conception to leadership handover, being run primarily by Cambodian people, took four years.
As a leader, I don’t want to be judged for what happened when I was in charge. What’s far more important is what happened after I left the leadership position.
People often ask me – what is the single thing you are most proud of as the former leader of OIC Cambodia? Was it the number of children your organisation helped to go to school? Was it a partnership signed with the government? Was it a successful fundraising campaign?
The true answer is none of these things. It was being able to walk away.
We need to incentivise leaders in the private, public and non profit sectors to think about what happens after their tenure as leaders ends. The impact of great leadership is enduring, not fleeting. Let’s make sure we reward leaders to think with a longer term vision.