Strategic leadership in business is about so much more than guiding the team through a storm of market conditions. Over my career, I worked with construction companies going through many types of storms. Successful leaders share a common trait that is illustrated by dusting off an example from classical literature.
MacWhirr’s Dilemma
In 1902, Joseph Conrad, renowned as one of the great novelists of English prose, published the short novel “Typhoon.” Conrad often wrote seafaring novels that centered on the trials of the human spirit. In “Typhoon,” two hundred Chinese laborers were returning home after working in various tropical countries for several years. As the ship set out to cross the South China Sea, the barometric pressure dropped, rapidly signaling bad weather ahead. The first mate implored the captain to sail around the storm. However, the determined captain was worried about arriving late and incurring additional coal costs:
But suppose I went swinging off three hundred miles out of my course and came in two days late, and they asked me: “ ’Where have you been all that time, Captain?’ What could I say to that? ‘Went around to dodge the bad weather,’ I would say. ‘It must’ve been dam’ bad,’ they would say. ‘Don’t know,’ I would have to say; ‘I’ve dodged clear of it.’[1]
The typhoon they sailed straight into was worse than feared:
His first irresistible notion was that the whole China Sea had climbed on the bridge. Then, more sanely, concluded himself gone overboard. All the time he was being tossed, flung, and rolled in great volumes of water, he kept on repeating mentally, with the utmost precipitation, the words: ‘My God! My God! My God! My God!’ “[2]
Capt. MacWhirr heroically persevered and somehow, steered the damaged shipped into port. Below deck, bedlam erupted when chests containing the laborers’ hard-earned silver coins had smashed open, mixing everyone’s savings. “You couldn’t tell one man’s dollars from another’s, he said, and if you asked each man how much money he brought on board he was afraid they would lie, and he would find himself a long way short. I think he was right there.”[3]
MacWhirr’s dilemma was to determine how to distribute the coins to avoid mayhem. In the end, he chose to distribute the coins equally – at which point, the book ended with the observation, “I think he had not done badly for such a stupid man…”
(For an economist’s solution to MacWhirr’s dilemma, keep on reading.)
Leadership and Heroes
In business, we have all known leaders that are heroically willing to push through danger to “get the job done.” We also have known leaders that would have steered around the typhoon and come in safely, but also “late and overbudget”. And, we all have known leaders who chose to “distribute the coins equally” when there may have been a more insightful solution.
So, how do we decide the types of leaders we need for our organizations? Even though the literature on the subject is voluminous, here are a few thoughts:
- Review your firm’s strategy (where you are going) and your firm’s performance (where you are). A disconnect between the two can indicate unrealistic expectations that may stem from a leadership shortfall.
- Assess how the culture within the company affects strategy and performance. I have recently worked with companies that have difficult cultures that will not support their strategic goals. Changing company culture is difficult. In the absence of leadership, people will listen to anyone who steps up with an opinion. Culture can be changed only from the top-down.
- Firms in the construction industry need different types of leaders: the senior project manager that can turn around a troubled project; the steady project manager that has a long-term record of successful projects; the insightful engineering manager who can lead teams through good and bad times by reassuring them, being honest with them and by looking out for their individual well-being. The wrong type of leader in the wrong position can adversely affect the culture and, in turn, the strategic goals.
Different types of leaders are also needed at different times. Nitin Nohria, former dean of Harvard Business School, has devoted much of his career to understanding what makes a great leader. About 20 years ago he conducted a study with Anthony Mayo to evaluate the defining characteristics of 1,000 outstanding American business leaders throughout the 20th century.[4] Nohria and Mayo were surprised that great leaders were less defined by enduring traits than by an ability to adapt to opportunities that arose from reading the zeitgeist – the mood and cultural climate of the day.[5]
They proposed that the zeitgeist is driven by six factors: global events, government intervention, labor relations, demographics, social mores and technology. The project reviewed how these factors evolved over the decades of the 20th century. For example, the type of company leader that excelled in an era of strong government intervention in the 1910s (the era of trust busting, tariff legislation and expanded taxation) struggled in the 1920s (an era of laissez-faire regulation, tax cuts and a rapidly growing stock market). By the 1980s, leaders had to deal with deregulation of the banking, airline, telecom, and energy industries while the 1990s was an era for rapidly evolving technologies and disruptive business models.
Now we are in an environment where the pace of change continues to accelerate on many levels:
- A technological and artificial intelligence revolution
- A biological revolution
- A generational demographic transformation around the world
- An energy transformation that is at odds with an energy crisis
- Geopolitical upheaval: the Russian invasion of Ukraine, tension between the U.S. and China, and the North Korean threat
- A political crisis for democracy in the U.S.
- A pandemic that seems to be evolving into an endemic
- A global food shortage
- Global supply chain disruptions combined with trade wars
- A potential global economic recession
In today’s environment, think of AECOM exiting business operations in Russia eleven days after the Russian invasion of Ukraine in February 2022 (and incurring a $40 million to $50 million pre-tax charge). Think of BP announcing an exit of Russian operations just four days after the invasion (and incurring a potential $25.5 billion pre-tax accounting charge). These announcements were soon followed by the exit of numerous other companies. As Nohria recently said, “If you can’t read the business landscape, you risk leading your organization in the wrong direction or choosing the wrong successors.”[6]
Leadership and Culture
I first read a perspective on Capt. MacWhirr’s leadership style in a commentary by John Kay in the Financial Times.[7] Kay stated that if MacWhirr had followed proper procedures, he would have been known as the captain who brought his ship in late. He posits that if Margaret Thatcher had deterred Argentina from invading the Falklands instead of dispatching a naval task force with two aircraft carriers to remove Argentine forces after they landed, she may have been remembered as an unsuccessful one-term prime minister. Kay concludes by saying that “We crave heroes. So we admire ambulance drivers more than traffic police, business visionaries more than competent managers and creative financiers more than advocates of sound money.”
What if MacWhirr Had Been an Economist?
And now we are back to MacWhirr’s dilemma after he sailed his badly whipped ship into port while laborers were rioting over spilled coins. Is there a better approach than the unimaginative Capt. MacWhirr’s solution to equally distribute the coins?
Many years ago, Gene Mumy came up with a better solution using economic game
theory:[8]
Where:
ri = the amount received by the ith individual
ci = the amount claimed by the ith individual
A = the total amount of money
α = penalty for lying
In case your understanding of equations is a bit rusty, the solution is based on changing the culture in the ship by two key assumptions:
- Question the assumption that everyone will lie.
- Provide a disincentive for lying (i.e., change the culture).
The solution is to penalize everyone (on a percentage basis) for total claims that exceed the actual sum – with the captain keeping the penalties.
Charles Darwin and Typhoons
Charles Darwin once said, “It is not the strongest, nor the most intelligent, that will survive, but those most responsive to change.” Leadership today is about having the ability to sense new opportunities in a different era. Rapid change in virtually all key drivers of business requires the ability to quickly identify opportunities and to manage shifting cost structures. Executive direction is also about the ability to mold the organization with the right kind of leaders in the right positions at the right time. If you cannot read the business outlook, you will likely pilot your ship into the center of a typhoon.
Notes
- Conrad, J. (1902). Typhoon. United Kingdom: Doubleday, Page 64. ↑
- Ibid., p. 80. Illustration, p. 127. ↑
- Ibid., p. 203. ↑
- Mayo, Anthony J. and Nitin Nohria. “Zeitgeist Leadership” in Harvard Business Review. October 2005. ↑
- Nohria, Nitin. “As the World Shifts, So Should Leaders” in Harvard Business Review. July-August 2022. ↑
- Ibid. ↑
- Kay, John. “No one remembers a cautious captain of industry” in The Financial Times Limited, 2 January 2008. ↑
- Mumy, Gene E. “A Superior Solution to Captain MacWhirr’s Problem: An Illustration of Information Problems and Entitlement Structures” in The Journal of Political Economy, Vol. 89, No. 5 (Oct., 1981), pp. 1039-1043. This solution was also cited in John Kay’s article. ↑