Monthly Archives: April 2013

Leadership by competitive advantage

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“Everyone is tested by life,but only a few extract strength and wisdom from their most trying
experiences. They’re the ones we call leaders.”

Warren G. Bennis and Robert J. Thomas

The above quote from the Harvard Business Review Sep 2002 article leads me to call the ‘wisdom’ as a competitive advantage.

Let me bring in a few other classical reference frames from religious texts.

Quoted from Sanskrit Hindu literature “God’s songs’ circa 1st century AD: Whenever the balance is broken, restoring force springs forth.

Story of Gideon from the Bible, circa BC 1100 : ‘Gideon rises from the ranks and file of Israelites and takes charge as their leader. He and his modest motley band of warriors annihilate 120,000 enemies in no time.

To use a principle from finance, perfect competition marks a certain stasis and results in very low returns. Incentives for doing business disappear, until – this one is important – someone comes up with a competitive advantage in terms of technology or cost savings. The competitive advantage sets up a monopolistic condition that generates what is termed as ‘abnormal profits’, which are what people actually want!

I am trying to draw a parallel for the above phenomenon in sociology: whenever stasis becomes too boring or protracted, abnormal things happen and challenge the status quo. New balances will be restored in hitherto unimaginable ways. However, significant changes will have happened in the process. The protagonists in leading such changes have an intellectual competitive advantage.

I think this is becoming way too serious matter! Let me leave the theorizing here. Actually I am trying to simply say that leaders emerge from most unexpected quarters with novel ways of solving vexing issues. These leaders emerge in every situation, big or small.

Leadership and money

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http://m.theglobeandmail.com/globe-investor/investor-community/trading-shots/why-marissa-mayer-yahoos-59-million-ceo-is-worth-it/article11347927/?service=mobile

Globe and Mail reports huge earnings for S&P 500 CEOs, the average is in the vicinity of $10 million per annum. Larissa Meyer, until a couple of years ago worth only a million a year is laying claim to close to $60 million this year.

Is this food for thought?

Earlier this year I confronted a question in graduate business school classroom. ‘Why is there a proliferation of leadership literature in google searches in recent years?’

Neither the students nor the elderly professor mentioned astronomical bonus earnings of CEOs as a possible lure. The standard business school version is that leadership is not only about creating shareholder wealth. In reality, though, that is the paramount question.

I remember President Obama taking up issue with Wall Street for what he thought were excessive bonuses in 2009 when the US and global economies were struggling to recover from the Lehman Brothers collapse.

http://www.nytimes.com/2009/01/30/business/30obama.html?_r=0

The companies were giving away $20 billion in bonuses at that time! Unconscionable? Well, in the light of economic theories that we learn, I think not! Why do I think so? It is the theory of why picking up a hypothetical $100 bill from the road is not advisable! Paradoxical as it might seem, this theory is the core of corporate finance theory that in a mature market there are no arbitrage or free money opportunities. It is well night impossible to find free money, so the question of picking up $100 doesn’t even arise!

However, free money, or ‘abnormal profit’ as it is called, is available when a company enters a monopolistic regime with a competitive advantage either in innovation or in cost savings. The CEOs and business leaders are supposed to be bringing in this cutting edge and the compensation for generating such a competitive advantage has to be really super high, don’t you think?

In other words, there is no super company that churns out profits unless someone is paid super bonuses as sufficient incentive to innovate.

The bottom line is, the leader creates wealth for the shareholders and takes away a sizeable chunk for himself or herself. Everyone is happy. Only the outsiders who are neither the shareholders nor the CEOs themselves will complain. Unfortunately, Obama is in that group.

A million dollars or a lifetime of vacation?

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Well, the question was popped at me in an impromptu speaking contest that I lost.

I said vacation was far more meaningful if I can have all the experiences that I valued. There is no point in obsessing over accumulation of wealth. The actual question should be what experiences we want in life and then script those experiences! And, surprisingly the experiences that we cherish to have are either cheap or even free!

Bill Gates says he doesn’t have the need for all his wealth, Tim Ferris has written a wonderful book ‘4-day work week’ with this theme.

Bible succinctly puts this idea forward.

Then he said, “Beware! Guard against every kind of greed. Life is not measured by how much you own.” (Luke 12:15 NLT)

However I lost to other guys who argued for money. I think I was too out-of-the-box.

When I mentioned this topic to an accomplished humorous speaker, he said: “What if I can have both?”