ACHIEVERS MINDSET

CHAPTER 5

Chapter 5

BUSINESS: MINDSET AND LEADERSHIP

ENRON AND THE TALENT MINDSET

In 2001 came the announcement that shocked the corporate world. Enron—the corporate poster child, the company of the future—had gone belly-up. What happened? How did such spectacular promise turn into such a spectacular disaster? Was it incompetence? Was it corruption?

It was mindset. According to Malcolm Gladwell, writing in The New Yorker, American corporations had become obsessed with talent. Indeed, the gurus at McKinsey & Company, the premier management consulting firm in the country, were insisting that corporate success today requires the “talent mindset.” Just as there are naturals in sports, they maintained, there are naturals in business. Just as sports teams write huge checks to sign outsized talent, so, too, should corporations spare no expense in recruiting talent, for this is the secret weapon, the key to beating the competition.

As Gladwell writes, “This ‘talent mindset’ is the new orthodoxy of American management.” It created the blueprint for the Enron culture—and sowed the seeds of its demise.

Enron recruited big talent, mostly people with fancy degrees, which is not in itself so bad. It paid them big money, which is not that terrible. But by putting complete faith in talent, Enron did a fatal thing: It created a culture that worshiped talent, thereby forcing its employees to look and act extraordinarily talented. Basically, it forced them into the fixed mindset. And we know a lot about that. We know from our studies that people with the fixed mindset do not admit and correct their deficiencies.

Remember the study where we interviewed students from the University of Hong Kong, where everything is in English? Students with the fixed mindset were so worried about appearing deficient that they refused to take a course that would improve their English. They did not live in a psychological world where they could take this risk.

And remember how we put students into a fixed mindset by praising their intelligence—much as Enron had done with its star employees? Later, after some hard problems, we asked the students to write a letter to someone in another school describing their experience in our study. When we read their letters, we were shocked: Almost 40 percent of them had lied about their scores—always in the upward direction. The fixed mindset had made a flaw intolerable.

Gladwell concludes that when people live in an environment that esteems them for their innate talent, they have grave difficulty when their image is threatened: “They will not take the remedial course. They will not stand up to investors and the public and admit that they were wrong. They’d sooner lie.” Obviously, a company that cannot self-correct cannot thrive.

If Enron was done in by its fixed mindset, does it follow that companies that thrive have a growth mindset? Let’s see.

ORGANIZATIONS THAT GROW

Jim Collins set out to discover what made some companies move from being good to being great. What was it that allowed them to make the leap to greatness —and stay there—while other, comparable companies just held steady at good?

To answer this question, he and his research team embarked on a five-year study. They selected eleven companies whose stock returns had skyrocketed relative to other companies in their industry, and who had maintained this edge for at least fifteen years. They matched each company to another one in the same industry that had similar resources, but did not make the leap. He also studied a third group of companies: ones that had made a leap from good to great but did not sustain it.

What distinguished the thriving companies from the others? There were several important factors, as Collins reports in his book, Good to Great, but one that was absolutely key was the type of leader who in every case led the company into greatness. These were not the larger-than-life, charismatic types who oozed ego and self-proclaimed talent. They were self-effacing people who constantly asked questions and had the ability to confront the most brutal answers—that is, to look failures in the face, even their own, while maintaining faith that they would succeed in the end.

Does this sound familiar? Collins wonders why his effective leaders have these particular qualities. And why these qualities go together the way they do. And how these leaders came to acquire them. But we know. They have the growth mindset. They believe in human development. And these are the hallmarks:

They’re not constantly trying to prove they’re better than others. For example, they don’t highlight the pecking order with themselves at the top, they don’t claim credit for other people’s contributions, and they don’t undermine others to feel powerful.

Instead, they are constantly trying to improve. They surround themselves with the most able people they can find, they look squarely at their own mistakes and deficiencies, and they ask frankly what skills they and the company will need in the future. And because of this, they can move forward with confidence that’s grounded in the facts, not built on fantasies about their talent.

Collins reports that Alan Wurtzel, the CEO of the giant electronics chain Circuit City, held debates in his boardroom. Rather than simply trying to impress his board of directors, he used them to learn. With his executive team as well, he questioned, debated, prodded until he slowly gained a clearer picture of where the company was and where it needed to go. “ They used to call me the prosecutor, because I would hone in on a question,” Wurtzel told Collins. “You know, like a bulldog. I wouldn’t let go until I understood. Why, why, why?”

Wurtzel considered himself a “plow horse,” a hardworking, no-nonsense normal kind of guy, but he took a company that was close to bankruptcy and over the next fifteen years turned it into one that delivered the highest total return to its stockholders of any firm on the New York Stock Exchange.

A STUDY OF MINDSET AND MANAGEMENT DECISIONS

Robert Wood and Albert Bandura did a fascinating study with graduate students in business, many of whom had management experience. In their study, they created Enron-type managers and Wurtzel-type managers by putting people into different mindsets.

Wood and Bandura gave these budding business leaders a complex management task in which they had to run a simulated organization, a furniture company. In this computerized task, they had to place employees in the right jobs and decide how best to guide and motivate these workers. To discover the best ways, they had to keep revising their decisions based on the feedback they got about employee productivity.

The researchers divided the business students into two groups. One group was given a fixed mindset. They were told that the task measured their basic, underlying capabilities. The higher their capacity, the better their performance. The other group was given a growth mindset. They were told that management skills were developed through practice and that the task would give them an opportunity to cultivate these skills.

The task was hard because students were given high production standards to meet, and—especially in their early attempts—they fell short. As at Enron, those with the fixed mindset did not profit from their mistakes.

But those with the growth mindset kept on learning. Not worried about measuring—or protecting—their fixed abilities, they looked directly at their mistakes, used the feedback, and altered their strategies accordingly. They became better and better at understanding how to deploy and motivate their workers, and their productivity kept pace. In fact, they ended up way more productive than those with the fixed mindset. What’s more, throughout this rather grueling task, they maintained a healthy sense of confidence. They operated like Alan Wurtzel.

LEADERSHIP AND THE FIXED MINDSET

In contrast to Alan Wurtzel, the leaders of Collins’s comparison companies had every symptom of the fixed mindset writ large.

Fixed-mindset leaders, like fixed-mindset people in general, live in a world where some people are superior and some are inferior. They must repeatedly affirm that they are superior, and the company is simply a platform for this.

Collins’s comparison leaders were typically concerned with their “reputation for personal greatness”—so much so that they often set the company up to fail when their regime ended. As Collins puts it, “After all, what better testament to your own personal greatness than that the place falls apart after you leave?”

In more than two-thirds of these leaders, the researchers saw a “gargantuan personal ego” that either hastened the demise of the company or kept it secondrate. Once such leader was Lee Iacocca, head of Chrysler, who achieved a miraculous turnaround for his company, then spent so much time grooming his fame that in the second half of his tenure, the company plunged back into mediocrity.

Many of these comparison companies operated on what Collins calls a “genius with a thousand helpers” model. Instead of building an extraordinary management team like the good-to-great companies, they operated on the fixedmindset premise that great geniuses do not need great teams. They just need little helpers to carry out their brilliant ideas.

Don’t forget that these great geniuses don’t want great teams, either. Fixedmindset people want to be the only big fish so that when they compare themselves to those around them, they can feel a cut above the rest. In not one autobiography of a fixed-mindset CEO did I read much about mentoring or employee development programs. In every growth-mindset autobiography, there was deep concern with personnel development and extensive discussion of it.

Finally, as with Enron, the geniuses refused to look at their deficiencies. Says Collins: The good-to-great Kroger grocery chain looked bravely at the danger signs in the 1970s—signs that the old-fashioned grocery store was becoming extinct. Meanwhile, its counterpart, A&P, once the largest retailing organization in the world, shut its eyes. For example, when A&P opened a new kind of store, a superstore, and it seemed to be more successful than the old kind, they closed it down. It was not what they wanted to hear. In contrast, Kroger eliminated or changed every single store that did not fit the new superstore model and by the end of the 1990s it had become the number one grocery chain in the country.

CEOs and the Big Ego

How did CEO and gargantuan ego become synonymous? If it’s the more selfeffacing growth-minded people who are the true shepherds of industry, why are so many companies out looking for larger-than-life leaders—even when these leaders may in the end be more committed to themselves than to the company?

Blame Iacocca. According to James Surowiecki, writing in Slate, Iacocca’s rise to prominence was a turning point for American business. Before him, the days of tycoons and moguls seemed long past. In the public’s mind, CEO meant “a buttoned-down organization man, well-treated and well-paid, but essentially bland and characterless.” With Iacocca, all of that changed. Business journalists began dubbing executives “the next J. P. Morgan” or “the next Henry Ford.” And fixed-mindset executives started vying for those labels.

Surowiecki even traces the recent corporate scandals to this change, for as the trend continued, CEOs became superheroes. But the people who preen their egos and look for the next self-image boost are not the same people who foster longterm corporate health.

Maybe Iacocca is just a charismatic guy who, like rock and roll, is being blamed for the demise of civilization. Is that fair? Let’s look at him more closely. And let’s look at some other fixed-mindset CEOs: Albert Dunlap of Scott Paper and Sunbeam; Jerry Levin and Steve Case of AOL Time Warner; and Kenneth Lay and Jeffrey Skilling of Enron.

You’ll see they all start with the belief that some people are superior; they all have the need to prove and display their superiority; they all use their subordinates to feed this need, rather than fostering the development of their workers; and they all end by sacrificing their companies to this need. The fixed mindset helps us understand where gargantuan egos come from, how they operate, and why they become self-defeating.

FIXED-MINDSET LEADERS IN ACTION

Iacocca: I’m a Hero

Warren Bennis, the leadership guru, studied the world’s greatest corporate leaders. These great leaders said they didn’t set out to be leaders. They’d had no interest in proving themselves. They just did what they loved—with tremendous drive and enthusiasm—and it led where it led.

Iacocca wasn’t like that. Yes, he loved the car business, but more than anything he yearned to be a muckamuck at Ford. He craved the approval of Henry Ford II and the royal trappings of office. These were the things he could measure himself by, the things that would prove he was somebody. I use the term royal with good reason. Iacocca tells us the Glass House, Ford corporate headquarters, was a palace and Henry Ford was the king. What’s more, “If Henry was king, I was the crown prince.” “ I was His Majesty’s special protégé.” “ All of us…lived the good life in the royal court. We were part of something beyond first class—royal class….White coated waiters were on call throughout the day, and we all ate lunch together in the executive dining room… Dover sole was flown over from England on a daily basis.”

Iacocca achieved great things at Ford, like nurturing and promoting the Ford Mustang, and he dreamed of succeeding Henry Ford as the CEO of the company. But Henry Ford had other ideas and, much to Iacocca’s shock and rage, he eventually forced Iacocca out. It’s interesting that Iacocca was shocked and that he harbored an enduring rage against Henry Ford. After all, he had seen Henry Ford fire top people, and he, Iacocca, had used the ax quite liberally on others. He knew the corporate game. Yet his fixed mindset clouded his vision: “ I had always clung to the idea that I was different, that somehow I was smarter or luckier than the rest. I didn’t think it would ever happen to me.” (Italics added.)

His belief in his inherent superiority had blinded him. Now the other side of the fixed mindset kicked in. He wondered whether Henry Ford had detected a flaw in him. Maybe he wasn’t superior after all. And that’s why he couldn’t let go. Years later, his second wife told him to get over it. “ You don’t realize what a favor Henry Ford did for you. Getting fired from Ford brought you to greatness. You’re richer, more famous and more influential because of Henry Ford. Thank him.” Shortly thereafter, he divorced her.

So the king who had defined him as competent and worthy now rejected him as flawed. With ferocious energy, Iacocca applied himself to the monumental task of saving face and, in the process, Chrysler Motors. Chrysler, the once thriving Ford rival, was on the brink of death, but Iacocca as its new CEO acted quickly to hire the right people, bring out new models, and lobby the government for bailout loans. Just a few years after his humiliating exit from Ford, he was able to write a triumphant autobiography and in it declare, “Today, I’m a hero.”

Within a short time, however, Chrysler was in trouble again. Iacocca’s fixed mindset would not stay put. He needed to prove his greatness—to himself, to Henry Ford, to the world—on a larger and larger scale. He spent his company time on things that would enhance his public image, and he spent the company’s money on things that would impress Wall Street and hike up Chrysler’s stock prices. But he did this instead of investing in new car designs or manufacturing improvements that would keep the company profitable in the long run.

He also looked to history, to how he would be judged and remembered. But he did not address this concern by building the company. Quite the contrary.

According to one of his biographers, he worried that his underlings might get credit for successful new designs, so he balked at approving them. He worried, as Chrysler faltered, that his underlings might be seen as the new saviors, so he tried to get rid of them. He worried that he would be written out of Chrysler history, so he desperately hung on as CEO long after he had lost his effectiveness.

Iacocca had a golden opportunity to make a difference, to leave a great legacy. The American auto industry was facing its biggest challenge ever. Japanese imports were taking over the American market. It was simple: They looked better and they ran better. Iacocca’s own people had done a detailed study of Honda, and made excellent suggestions to him.

But rather than taking up the challenge and delivering better cars, Iacocca, mired in his fixed mindset, delivered blame and excuses. He went on the rampage, spewing angry diatribes against the Japanese and demanding that the American government impose tariffs and quotas that would stop them. In an editorial against Iacocca, The New York Times scolded, “The solution lies in making better cars in this country, not in angrier excuses about Japan.”

Nor was Iacocca growing as a leader of his workforce. In fact, he was shrinking into the insulated, petty, and punitive tyrant he had accused Henry Ford of being. Not only was he firing people who were critical of him, he’d done little to reward the workers who had sacrificed so much to save the company. Even when the money was rolling in, he seemed to have little interest in sharing it with them. Their pay remained low and their working conditions remained poor. Yet even when Chrysler was in trouble again, he maintained a regal lifestyle. Two million dollars were spent renovating his corporate suite at the Waldorf in New York.

Finally, while there was still time to save Chrysler, the board of directors eased Iacocca out. They gave him a grand pension, showered him with stock options, and continued many of his corporate perks. But he was beside himself with rage, especially since his successor seemed to be managing the company quite nicely. So in a bid to regain the throne, he joined a hostile takeover attempt, one that placed the future of Chrysler at risk. It failed. But for many, the suspicion that he put his ego before the welfare of the company was confirmed.

Iacocca lived the fixed mindset. Although he started out loving the car business and having breakthrough ideas, his need to prove his superiority started to dominate, eventually killing his enjoyment and stifling his creativity. As time went on and he became less and less responsive to challenges from competitors, he resorted to the key weapons of the fixed mindset—blame, excuses, and the stifling of critics and rivals.

And as is so often the case with the fixed mindset, because of these very things, Iacocca lost the validation he craved.

When students fail tests or athletes lose games, it tells them that they’ve dropped the ball. But the power that CEOs wield allows them to create a world that caters night and day to their need for validation. It allows them to surround themselves only with the good news of their perfection and the company’s success, no matter what the warning signs may be. This, as you may recall, is CEO disease and a peril of the fixed mindset.

You know, lately I’ve wondered whether Iacocca has recuperated from CEO disease. He’s raising money (and giving a lot of his own) for innovative diabetes research. He’s working for the development of environment-friendly vehicles. Maybe, released from the task of trying to prove himself, he’s now going for things he deeply values.