Is This Leadership Style Wrecking Your Investments?
May 16th 2012 12:27PM
Updated May 16th 2012 4:28PM
When I first started reading Susan Cain's Quiet: The Power of Introverts in a World That Can't Stop Talking, I expected a much-overdue defense of those for whom still waters run deep. Just because some people are quiet doesn't mean they aren't smart and lack positive contributions, after all.
What I didn't expect were thought-provoking data points about our society's skewed, and possibly very wrong, view of what "good management" is and even how our marketplace functions at large.
Confident and competent aren't necessarily the same thing
Today's idealized "superstar CEO" certainly fits into Cain's contention that our society has championed what she calls "a culture of personality" for about a century now. Many modern CEOs and other high-ranking individuals are confident, larger-than-life individuals who seem to have no problem with the spotlight that's frequently thrown on them; they seem to have a quick and ready answer for everything.
These are the people who end up on the cover of major financial publications; they sometimes become Time's "Person of the Year." These are the people who were probably voted "Most Likely to Succeed" in high school. But are they really most likely to succeed? Cain throws some doubts on the idea that the most extroverted are always the best leaders. There's a big difference between "confident" and "competent."
Cain pointed to Harvard Business School, which "prides itself on its ability to identify and train some of the most prominent business and political leaders of its time," which a friend of hers (and Harvard Business School graduate) called the "Spiritual Capital of Extroversion."
Well-known graduates include President George W. Bush, mayors and U.S. treasury secretaries, and CEOs and other leaders of companies like Goldman Sachs (NYS: GS) -- even Enron's infamous Jeffrey Skilling. Cain reports that between 2004 and 2006, a sizable 20% of the top three executives at Fortune 500 companies were, in fact, Harvard Business School alumni.
Cain described some interesting ways in which these future leaders are trained, for example, "to act confidently and make decisions in the face of incomplete information," a trait that would come far more easily to extroverts, who thrive on social outwardness and interaction.
However, it's easy to see why "talk first, think later (or not at all)" could be a bit of a problem when it comes to truly good leadership.
Some of the tips Harvard Business School students shared with Cain included things like, "Speak with conviction. Even if you believe something only 55%, say it as if you believe it 100%." Could this type of mind-set present problems in leadership? You can bet your bottom dollar.
When this "eccentricity" excels
Despite the perception that extroverted types make the best, action-oriented, dynamic, can-do leaders, Cain points out some very well known CEOs and corporate leaders with introverted traits, including Microsoft (NAS: MSFT) founder Bill Gates, Schwab's (NAS: SCHW) Charles Schwab, and Sara Lee's (NYS: SLE) Brenda Barnes.
She also cited Jim Collins' Good to Great, which pointed out that many of the highest performing companies were run by chief executives who "were known not for their flash or charisma but for extreme humility coupled with intense professional will." He offered the story of Kimberly-Clark's (NYS: KMB) quiet, unassuming Darwin Smith, who described his management style to a Wall Street Journal reporter as "eccentric." He also humbly said of his career, "I never stopped trying to be qualified for the job."
Apparently "eccentric" worked out just fine, since Smith's 20 years at the helm allowed Kimberly-Clark to stack up stock returns that were four times higher than the market average.
Here's another interesting piece of data Cain identified for us to ponder. Brigham Young's Bradley Agle took a look at 128 major companies and discovered that the CEOs who were considered "charismatic" by their executive teams drew larger paychecks but did not deliver better business performance.
Poking holes in the ideal
Introverts aren't antisocial, but they often prefer thinking before talking or taking other actions. The "extroverted ideal" that Cain tackles in the book could also be applied to investment style.
All the screaming that goes on on the floor of the New York Stock Exchange pretty much shouts "extroversion." Many traders trade in and out of stocks before they can possibly completely think through their decisions. We all know speculation is rampant in the marketplace, and that it can be very damaging to the long-term investment horizon.
As an investor, I'd rather not rely on corporate leaders who are saying things that they only half believe as if they're speaking with 100% conviction. As an investor, I prefer to count to 10 before buying or selling a stock when everyone else is frantically taking action instead of truly contemplating whether the stock move is warranted.
Cult of personality: Don't drink that Kool-Aid
Cain explained to NPR that her goal in writing the book was not to cast extroverts in a bad light, but rather to question the "extrovert ideal."
Of course it takes all kinds in leadership, workplaces, the marketplace, and management teams. We all probably need to work on tempering our own personality types by trying to develop strengths, even if they don't come naturally to us. Some of us could try more public speaking and clearly vocalizing our ideas. Some of us could try more quiet reflection before taking action.
Regardless, we investors need to remember not to confuse personality with performance, or taking decisive action with doing the right thing. "Cult of Personality" overload could wreck our investment returns.
Speaking of returns, take a few quiet moments to download and read our report, "3 Stocks That Will Help You Retire Rich" -- it's absolutely free.
Check back at Fool.com on Wednesday, May 23 for Alyce Lomax's next column on environmental, social, and governance issues.
At the time this article was published Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of Microsoft. Motley Fool newsletter services have recommended buying shares of Microsoft, Goldman Sachs, Kimberly-Clark, and Schwab, as well as creating a bull call spread position in Microsoft. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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