Lehman’s Problem? Too Much Alignment

Lehman Brothers had one of the strongest cultures of collaboration on Wall Street, right up until its collapse. This was deliberate on the part of Dick Fuld, who took over when American Express spun off the firm in 1994. The bank was getting a second chance after its previous implosion, when AmEx acquired the firm in the first place, because the partners couldn’t agree on a direction for the firm. Fuld set out to build a culture where partners would be agreeable and loyal, to the point they would enact Fuld’s vision together, embracing it as their own.

In the end, it seems that Lehman’s management team became too agreeable — and too loyal, content to follow even when they knew better. In the months and years leading up to the most recent financial crisis, dissent wasn’t an option even for those insiders who had seen a trunk or a tusk (looming distress signals) but were afraid or insufficiently informed to identify the elephant in the room. In Fuld’s view, you were with him or against him, and nobody wanted to be against him. Of course, if you were with him, and if you made it into the top ranks, he took care of you, and you and your family became very wealthy.

To be fair, all of the banks behaved irresponsibly; virtually every risk management team and board of directors across Wall Street couldn’t or wouldn’t speak up forcefully enough to change the disastrous course of events. (Regular citizens, too, lost their minds.) But Lehman’s fall was a particularly high-stakes flop.

The problem is that a lack of discord looks like harmony, even happiness, which in turn suppresses constructive conflict further. And note that research from consultancy eePulse, which counsels companies on how to improve employee satisfaction, shows that the single greatest predictor of poor performance in a business group is a happy workforce. Energy levels are just too low.

Management teams might take pride in a smoothly-run machine, only to end up blindsided when reality doesn’t mesh with their harmonious view of events. The challenge is finding a level of discord that raises legitimate concerns, without overwhelming workers.

Brain research backs this up. Dr. Paul Rosch, president of the American Institute of Stress, has demonstrated that individual performance improves as stress increases — but only to a point. Past that point, performance declines precipitously, and if subjected to distress for extended periods of time, people get sick. But within an acceptable range of competition and tension, more of the brain is firing, more pathways are stimulated, and more creative centers are engaged.

Good leaders know how to identify the right range of competition and tension. But too many still put their energies into wrongheaded fights, or choose the right battles and then go about it all wrong. One example of a wrong fight, fought wrong: GM continued to push gas guzzlers despite obvious shifts in the market; its hierarchical structure was incapable of change. (Something Peter Drucker predicted decades ago.) A right fight fought wrong — Carly Fiorina pushing the Compaq deal while at HP.

For a classic example of a right fight, fought right, look at the process Jack Welch conducted in identifying his successor. Each of the three finalists — Bob Nardelli, Jim McNerney, and Jeff Immelt — was impressive in his own right, making it a truly difficult choice. So Welch launched a competition among the three men in which each would lead a major cross-company initiative and train his own replacement, while at the same time continuing to run his own show. He declared that there would be no dirty politics. Inevitably, tensions rose from the executive suite on down, but it was an open and clean fight, playing out over six months, complete with new alliances, speculation, and angling for position.

Was it a fair fight? Not necessarily to the three men, who had different strengths and weaknesses, and only one would come out on top (though the other two quickly got other offers). But in the real world of business, there are winners and losers. It’s not fair; it’s just life. Was it a good use of company resources? Definitely. GE needed the best possible successor to Welch — and the company got terrific work out of the three as they competed for the job. Was there a better way to do it? I’d argue that GE’s approach was more efficient and a better predictor of success than the traditional exhaustive round of interviews.

In short, Welch started a right fight about succession. He consciously raised tensions and he created rules of the game to mitigate the consequences of those tensions. It was a high-stakes decision, worth a right fight.

The concept of constructive conflict is not a new one. Nor is complacency a new problem. The Titanic crew was so confident that the ship was unsinkable and the operation so smoothly run, the team ignored danger signs. But especially now, when we are facing unprecedented change, too many leaders instinctively seek alignment as an end in itself, rather than as a precondition for the real work of leadership — which is to use all of our capacity, including healthy conflict and competition, to create winning, sustainable results. If only the leadership and Board of Directors at Lehman’s (or elsewhere on Wall Street, for that matter) had had the guts to rock the boat.

Saj-Nicole Joni is the founder and CEO of Cambridge International Group Ltd.