Sunday, February 8, 2009

The CEO Feedback Loop and Corporate Governance

Posted by Jeff Lipshaw

Once again, I marvel at the lessons available to us from John Thain's odyssey through Merrill Lynch.  (I guess I'll be off his Christmas Card list.  Oh well.)  Today's discussion in the New York Times business section is an exemplar of what I call the "CEO Feedback Loop," which in turn is a particular variant of the "Authority Feedback Loop" which in turn is made intractable by the "Learning/Leadership Paradox."  Consider this a bookend post to yesterday's screed on sufficient reason.  The problem with cor51wz0nx9nvl_bo2204203200_pisitbsticporate governance theories, and leadership generally, is that there is no algorithmic solution to any of these (paradoxes being, as they are, structurally resistant to algorithmic models).  I'm left with the view that the only way out is what cognitive theorist Mark Turner calls conceptual blending, but with an empathetic kicker.  In management consulting jargon, those are "learning organizations."  Peter Senge described them back in the 1990s (in his book The Fifth Discipline) as "Organizations where people continually expand their capacity to create the results they truly desire, where new and expansive patterns of thinking are nurtured, where collective aspiration is set free, and where people are continually learning to learn together."

Here's the Authority Feedback Loop issue.  Assuming you've become the leader as a result of your good judgment (the causal direction being "good judgment yields leadership").  This, of course, itself can be unpeeled to the observation that there seemed to be a correlation between good results and the timing of those results being on your watch.  Hence, your good judgment caused the results, hence you have acceded to a position of leadership, like CEO, law school dean, or Scoutmaster.  Now, it seems to me, empirically speaking, we observe the feedback loop take effect in the form a tendency to see the causation link within the correlation to be blurred, if not reversed.  That is, the thought process goes from "I'm the leader because I have made good judgments" to "I make good judgments because I'm the leader."  Thus, it's far easier to rationalize decisions like "let's spend a million dollars on my office furniture" or "let's give me a bonus for completing this deal which I'm already paid for in my salary and incentives."

It's easy to be cynical (and funny) about this, but the Feedback Loop has a serious genesis in the Learning/Leadership Paradox.  I saw this just a week ago at a meeting we organized on our street in Cambridge.  We had several incidents of muggings and break-ins, and a few of us (no doubt inspired by President Obama's history) decided to do a little community organizing.  We managed to get the attention of a city councilperson who is a neighbor, the police commander, and the city community development department.  Seventy people showed up at a meeting.  But when it came to who was willing to be on a steering committee to do the follow-up work, only a few hands went up.  That is to say, there's a lot of inertia in the world, and there are leaders who step up and change things.  But how long does it take for the Loop to set in?  (See Robert Penn Warren's All the King's Men for a fictional account.)  One remains effective as a leader, I contend, and out of the Feedback Loop, if one remains a learner.  Being a leader and a learner is a paradox, however, because leaders have to be, in W's infamous coinage, "deciders."  Being a decider invites the Loop.

Personally, I'd toss all the governance standards in favor of the one infallible predictor of a leader being able to manage, within herself, the Learning/Leadership Paradox.  Unfortunately, I still don't know what the one infallible predictor is. The present punch line of my thinking on judgment is that managing the paradox requires some effort at the mental construction of possible worlds, but as seen from other points of view.  In short, empathetic conceptual blending...  Stay tuned.

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