Judging leadership is not a science

Profits, Prophets, Coaches and Kings: (When) Do Leaders Make A Difference?, Jared Diamond, Allen Lane, £25

When Jack Welch took charge as chief executive of General Electric Company on 1 April 1981, GE’s shares sold for $3.50 (adjusted for subsequent splits). When he retired on 7 September 2001, the price was $197. Year after year, earnings per share rose in lockstep with analysts’ forecasts. Famed for selling off or shutting down any business that was not number one or two in its market, the executive known as ‘Neutron Jack’ engineered a 4,000 per cent increase in the company’s stock market value over the two decades of his tenure, making General Electric the most valuable corporation in the world. Welch was hailed as the manager of the century.

Little noticed at the time, Welch’s remarkable track record of steadily increasing profits was achieved not by selling more washing machines and jet engines, but by lending money to manufacturers that bought GE’s products, small businesses in need of financing, even cash-strapped homebuyers desperate to find a mortgage. When financial crisis struck in 2008, General Electric proved more fragile than anyone had imagined. Bad loans drilled a hole in its balance sheet. Only a US government bailout averted the collapse of the company Jack Welch had led.

Jack Welch isn’t mentioned in Jared Diamond’s new book, Profits, Prophets, Coaches and Kings. That omission is telling, for reasons that I will come to in due course.

Diamond, an American academic famed for writing prize-winning histories of the role of the environment in human development, suggests that leadership is a response to need. There were no leaders in the days of hunter-gatherers, he tells us, but they became necessary as populations grew and people could no longer resolve disagreements at a community meeting. In complex societies, we can’t live without them. Diamond identifies leaders in four fields identified in his title – business, religion, sports and government – and points out the characteristics that he believes made them successful.

Leadership, in Diamond’s view, isn’t something that can be learned in business school. ‘Some situations provide leaders with much more opportunity to make impactful decisions – much more discretion – than do other situations that severely constrain a leader,’ he writes. An important consideration: ‘a would-be leader may or may not be able to foresee or choose the most suitable time to lead’.

Timing may not be everything in exercising leadership, but it matters a great deal. Botswana prospered while other African countries foundered, he contends, in good part because diamonds were discovered there one year after Seretse Khama became the newly independent nation’s first president in 1966; had the British colonisers hung on a year longer, they might have taken control of the precious gemstones and rendered Khama a less successful president. Charles de Gaulle succeeded as a political leader, according to Diamond, because of the considerable powers he was granted when he ascended to France’s presidency amid a national crisis in 1958; once political life became more normal and his leadership was subject to challenge, he resigned the job.

Charisma, he asserts, is neither a necessary nor a sufficient condition for a leader to be successful. He points to religious leaders such as Joseph Smith, founder of the Mormon church in America in the 1830s; while Smith drew many converts to the church, the denomination’s success, Diamond contends, can be attributed to a leader who was less charismatic but better at building an organisation, Brigham Young. Outstanding leaders, he says, exhibit courage, tenacity and attention to detail.

Diamond taught at the University of California in Los Angeles for 59 years, and he has a particular affinity for John Wooden, the university’s basketball coach from 1948 to 1975. Wooden’s teams won 10 men’s college basketball championships, including a remarkable seven in a row. Wooden’s intense attention to detail and careful assessment of the strengths and weaknesses of each individual player were important, Diamond says, but ‘The most unique feature contributing to Wooden’s success as a basketball coach was that basketball for him was part of a broad philosophy of life’ which his players absorbed.

Diamond’s bottom line is that successful leaders can best be identified not by recounting their achievements in biographies, but by using natural experiments to compare the performance of leaders facing similar challenges.

Natural experiments are studies in which the subjects can be divided into groups by factors not under the control of researchers. They have become widely used in economics. One example, cited by Diamond, contravened the conventional wisdom that a higher minimum wage discourages hiring by comparing employment at fast-food restaurants in New Jersey, which raised its minimum wage, with employment in nearby areas of Pennsylvania, which did not. In the leadership realm, he cites studies showing that European kings from royal families with recent inbreeding were less successful in increasing their country’s territory and population than kings with less inbreeding in their ancestral lines.

Diamond seems fascinated by natural experiments, which he considers ‘rigorous’ and unaffected by researchers’ subjective opinions. He is convinced that the technique, supported by increased computing power and greater data, will make it possible to determine when a leader has made a major difference.

Count me as sceptical. While natural experiments may discover a statistical relationship between a leader’s actions and a particular outcome, they don’t tell us how to evaluate that outcome.

Consider Jack Welch. A natural experiment evaluating Welch’s reign at General Electric, drawing on data through 2001, may have identified him as the greatest business leader ever. The same experiment, conducted a decade later and examining General Electric’s performance in the years after Welch’s retirement, as well as those while he was chief executive, would probably find that his short-sighted leadership and focus on quarterly earnings directly led to the company’s near-collapse.

Which is the appropriate subject of study? Do we focus on Winston Churchill’s success as a wartime prime minister between 1940 and 1945, or his disastrous second term as prime minister between 1951 and 1955? Do we praise Lyndon Johnson for his leadership on civil rights, or vilify him for causing hundreds of thousands, if not millions, of deaths by expanding the US war in Vietnam? The answers to these questions about leadership are inherently subjective. Natural experiments will not help resolve them.

Profits, Prophets, Coaches and Kings mostly delivers anecdotes about leaders that shed little light on leadership. Diamond warns readers early on that ‘This book is NOT another book about how to be an effective leader.’ Unfortunately, it is also not a helpful guide to evaluating leadership.