There are many ways in which populist outrage can be appropriately expressed. Retroactively deploying the power to tax in an arbitrary manner should not be one of them, writes Rita McGrath
Posted on Dynamic Strategies: March 26, 2009 3:35 PM
Thomas L. Friedman penned an opinion piece recently in the New York Times that captures the unease many of us feel about the populist feeding frenzy over a situation now with idiom status: "the AIG bonuses." Everybody, from the President on down, expressed outrage and disgust. More dangerously, the elected officials in whom we place our trust, as Friedman points out, seemed more than ready to throw time-honored principles of good government and sound democratic rule overboard in a frantic rush to appear more "one of the people" than the next guy. Among the poorly thought through proposals are a tax of 90% which would be applied retroactively to the bonuses, which not only fails to meet basic standards of fairness but opens the door to massive unintended consequences. Such behavior doesn't much fit with the President's inaugural message to "leave childish things behind." Temper tantrums do not make for sound public policy.
Daniel Webster, in the formative years of our nation, famously said, "the power to tax is the power to destroy"—an idea which has informed legal opinion for over 200 years. There are many ways in which populist outrage can be appropriately expressed. Retroactively deploying the power to tax in an arbitrary manner should not be one of them. When tempers are high and emotions are running at fever-pitch, it's easy to get carried away. Emotional responses can color decisions we make in our personal lives, often to our subsequent regret. They can color decisions we make at work. But altering the institutional framework we count on to establish the basic rules of business behavior on the basis of emotional responses is not good policymaking, and it's even worse leadership.
Let's think about emotion in the context of leadership under uncertainty. At Columbia Business School, we teach executives that symbols (such as a big bonus amidst a bailout, or corporate jets ferrying executives to ask for handouts) have meaning beyond their inherent substance (building on work that was originally published by Don Hambrick: Hambrick, D. C. & Cannella, A. A., Jr. 1989. Strategy Implementation As Substance And Selling. The Academy of Management Executive, 3(4): 278). Here's the problem: when faced with a symbolic, emotional challenge, the knee-jerk response of most red-blooded managers is to counter the issue with substance, with the facts. So in the case of AIG, we are told that the bonuses were contractual obligations, that they were essential to keep the talent necessary to wind down complex positions. And, even that without them the government bailout funds would be permanently lost because the company would not be able to function.
Here's the problem: when you are facing a symbolic challenge, the facts do not matter. Executives seem to either forget this or are reluctant to approach emotional issues with emotion. To counter a symbolic problem, you have to take on the meaning inherent in the symbolism, and to understand why the issue is triggering such an emotional backlash. You'll never succeed arguing substance when the real problem is a problem of emotional meaning. You need an emotional response that defuses the characteristics of the mess and meets the public where it lives. You need to show empathy and have a sense of where the wounded parties are coming from. Most of all, as a leader, you need to frame the issues in ways that further your agenda.
If you consider the truly great leaders throughout history, they have ways of re-framing the issues that acknowledge emotions but put them in a greater context. Consider a literary example, the "friends, Romans, Countrymen" speech written by Shakespeare, who describes the eulogy given by Mark Antony at Caesar's funeral. Caesar had been murdered in something of a populist rebellion himself (now that really is going much too far, despite undignified recent calls to murder bankers). Antony is facing an angry group, convinced that Caesar got what he deserved. In his eulogy, he tackles, point by point, the heated emotions raised by Caesar's ambitious behavior by providing evidence that his ambition had created many benefits for the very people listening, and that there were occasions when Caesar had turned down opportunities for his own advancement or even commiserated with the weak by weeping—imagery that calls into question the portrait of raw ambition provided to justify the assassination. Consider the conclusion of the speech, an appeal to common ground and former good feelings, and the speakers' emotional commitment:
I speak not to disprove what Brutus spoke,
But here I am to speak what I do know.
You all did love him once, not without cause:
What cause withholds you then to mourn for him?
O judgment! thou art fled to brutish beasts,
And men have lost their reason.... Bear with me;
My heart is in the coffin there with Caesar,
And I must pause till it come back to me.
Note Antony's call for judgment and reason, and the introduction of perspective ("you all did love him once, not without cause"). Now, I'm hardly one to try to hold our business and political leaders up to Shakespearean standards of oratory. But the basic message—that you'll never address a symbolic issue by focusing just on the facts—was true in ancient times and continues to be true today.
Leaving aside the question of whether the bonuses were a good idea or not, it's pretty clear they were a symbolic Chernobyl. So what could we do about the bonus discussion after it became a crisis in and of itself? First, as Friedman points out, it's important to put it in perspective. Sure, the bonuses represented a lot of money—but with a few simple visuals, one could show that they are a rounding error in the great scheme of the financial crisis. If it were me, I'd be talking in percentages rather than dollars, as in "The total bonus pool represents less than one thousandth of a percent (or whatever the number is) of the money going to AIG to keep our financial system healthy." Next, personalize the situation. Not everybody getting a bonus was earning millions—there were plenty of nice, middle-of-the-road, everyday Joe- and Jane-type people, I suspect, who are working very hard under conditions heartbreaking for one loyal to a storied firm, trying to accomplish nothing more than the best for their employer and their shareholders. Without naming names of bonus recipients, why not introduce the American people to the single parents, new college grads, bookkeepers, accountants, receptionists, and actuaries that are representative of the broad sweep of AIG employees? It's easy to be mad at nameless masters of the universe. It's a lot harder if the picture represents someone you can relate to. Incidentally, if I were advising Wall Street types, I would tell them to just stop all this talk about keeping "the best and the brightest" and how we need to retain those people. Nobody who has lost half the value of their retirement accounts wants to hear it, and it just isn't believable right now. Focus instead on how a hardworking team needs to pull together to combat a dreadful situation and bring the best skills of everyone available to bear, so that the public that has put its resources into this company can be made whole.
Finally, I would try to focus the discourse on simple teaching points and how what AIG is trying to do fits in. Sort of, "you wouldn't buy a car with a transmission that wasn't working...well, investors won't buy a financial institution whose basic guts are not reliable, and we're trying to fix that." Now I'm not a great communicator or a speechwriter, but reframing the debate along these lines has a chance to defuse some of the hysteria.
I'm also quite taken with some of Friedman's suggestions to use moments such as these as teaching opportunities, in which Obama and his team can to some extent rise above the fray. Goodness knows, we could all use leadership that reminds us that we can accomplish great things, even in the midst of great travails.
Have any of you seen examples in which great leadership at the right moment defused a potential symbolic time bomb? We'd love to hear it.