Filtered or unfiltered?

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Want Change? Pick the Right Kind of Leader

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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You want change. What kind of leader can actually deliver it?

This is a perennial question for the boards of corporations and other organizations in need of a turnaround. In the U.S. and other places where people are dissatisfied with the direction their nation is headed, it’s now also become a pressing matter for voters.

What should those who want change look for in a potential leader? Read Joshua Rothman’s dissection of the “leadership industry” in the Feb. 29 New Yorker, and you might be inclined to answer, “Lots of things that contradict one another.” I’m going to soldier on anyway, because researchers have made a few discoveries that deserve attention, even if they don’t add up to a consistent story.

Insiders are usually better. One of the most striking findings of Jim Collins’s famous research on companies that went from “Good to Great” was that hardly any of them had brought in outsiders as chief executive officers.  Mild-mannered but strong-willed insiders were the norm. A more recent study by finance scholars James S. Ang and Gregory Leo Nagel found that “internally promoted CEOs are associated with at least 25.4% greater total financial performance than external hires,” and that insiders outperformed outsiders even during restructurings and turnarounds. Part of this is probably because boards usually don’t have enough information about outsiders to make good choices, and often select charismatic charlatans  instead of the quiet-but-tough types that Collins identified as most effective. Insiders may also know more about how to make change happen at an organization than outsiders possibly could.

There are varying degrees of insiderness. Corporations and countries have their differences. Nations generally can’t hire true outsiders -- people who live in other countries -- as leaders.  In “Indispensable: When Leaders Really Matter,” a 2012 book  that’s gotten renewed attention, Gautam Mukunda of Harvard Business School looked at U.S. presidents and divided them into “filtered” leaders who had risen through the political ranks and “unfiltered” ones with relatively little political experience. He found that the presidents with the biggest positive impact tended to fit the unfiltered profile, as did the biggest flops. It’s a little like the financial concept of risk: The greater the range of potential outcomes, the greater the potential reward.

You need the right kind of risk-taker. In his new book “Originals: How Non-Conformists Move the World,” Adam Grant of the Wharton School of the University of Pennsylvania presents evidence that successful entrepreneurs are more risk-averse and no less desirous of social approval than the population at large. In Grant’s telling, entrepreneurs and others who “move the world” tend not be former teacher’s pets or child prodigies -- they think different, as it were, and they do take risks -- but they’re seldom wild-eyed rebels, either. Along with big ideas, they have patience, the skills to get things accomplished and often a back-up plan.

Combine these three broad observations about leadership together and you get … Abraham Lincoln. No joke: Collins, Mukunda and Grant each cite the 16th president as the epitome (or at least an epitome) of what they’re talking about. Collins describes him as a humble but resolute leader “who never let his ego get in the way of his primary ambition for the larger cause of an enduring great nation.” Mukunda cites him as the ultimate “unfiltered” leader who made substantially different decisions while in office than his more conventional rival for the Republican nomination (and later secretary of state), William Henry Seward, would have. Grant emphasizes that Lincoln took bold steps despite an aversion to conflict and extreme desire to please others. “Taking on controversy wasn’t programmed into his DNA,” Grant writes, “it was an act of conscious will.”

Where does this leave us in pondering the current political scene? The New Yorker’s Rothman has this to say about the implications of Mukunda’s work:

If Mukunda is right, you should think about the context in which you find yourself when you choose a leader. The question isn’t whether a dark-horse candidate will make a good leader (who can know?) but whether times are bad enough to justify gambling on a dark-horse candidate. Some version of this idea may drive the behavior of outsider candidates. Donald Trump and Bernie Sanders don’t spend much time talking about their qualifications; instead, they tell us, energetically, that times are very, very bad.

Mukunda himself has weighed in on Trump, arguing that while he definitely meets the unfiltered standard -- which isn’t necessarily a bad thing -- he also displays several warning signs (managerial incompetence, extreme ideologies, personality disorders and unearned advantages) of being a disastrous choice.

I’m not going to make any presidential endorsements, or un-endorsements. But I do think that if you throw Collins’s and Grant’s observations into the mix with Mukunda’s, it gets at least a little harder to make the case that an outsider rebel is most likely to fix whatever you think ails the country.

  1. To be precise, only one of the 11 companies Collins identified as going from “good to great” had hired an outsider CEO. Of the 17 comparison companies that hadn’t performed as well, 10 had hired an outsider CEO.

  2. This is a major theme of Rakesh Khurana’s “Searching for a Corporate Savior: The Irrational Quest for Charismatic CEOs.”

  3. Yes, there are many historical exceptions, most the result of conquest and royal succession, but I don’t think they really apply to current circumstances. Canadian Mark Carney did get hired as head of the Bank of England, but that’s pretty different from getting hired as prime minister.

  4. Disclosure: I used to be editorial director of the Harvard Business Review Press, which published the book. I’m pretty sure I was at the meeting where we decided to publish it, and I’m pretty sure I supported the decision.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor responsible for this story:
Zara Kessler at zkessler@bloomberg.net