Sunday, November 14, 2010
Asian and American Leadership Styles: How Are They Unique?
Source: Harvard Business
Business leadership is at the core of Asian economic development, says HBS professor D. Quinn Mills. As he explained recently in Kuala Lumpur, the American and Asian leadership styles, while very different, also share important similarities.
Editor's Note: Political connections and family control are more common in Asian businesses than in the United States. In addition, says HBS professor D. Quinn Mills, American CEOs tend to use one of five leadership styles: directive, participative, empowering, charismatic, or celebrity. Which styles have Asian business leaders adopted already, and which styles are likely to be most successful in the future?
In a talk in Kuala Lumpur on June 15 at the invitation of The Star/BizWeek publication and the Harvard Club of Malaysia, Mills explained the differences and similarities between American and Asian leadership. Below is the transcript of his talk, "Leadership Styles in the United States: How Different are They from Asia?"
The rapid economic development of Asia in recent decades is one of the most important events in history. This development continues today and there is every reason to anticipate that it will continue indefinitely unless derailed by possible but unlikely international conflicts. At the core of Asian economic development is its business leadership—managers and entrepreneurs who sustain and create Asian companies. Do they exhibit the same leadership styles as top executives in the West?
There are important differences. Are differences attributable to different cultures or to different stages of corporate development?
But first, what are we talking about?
Roles in organizations involve more than just leadership. It is useful, but not yet common in our literature and discussion of business, to distinguish among leadership, management, and administration. They are in fact very different; each is valuable and has its place. Briefly, leadership is about a vision of the future and the ability to energize others to pursue it. Management is about getting results and doing so efficiently so that a financial profit or surplus is created. Administration is about rules and procedures and whether or not they are being followed. These distinctions are very important to clear communications among us about how organizations are run—when they are not made, we become very confused, as is much of the discussion around our topic.
Briefly, running an organization effectively involves:
Our focus today is on leadership: how an executive sets direction and energizes his organization to pursue the direction. This is appropriate because managerial techniques are being spread fast by imitation, adoption, and MBA education. Administrative techniques were generalized around the world decades ago. So what is much different now is leadership.
Family and political connections
Cultural differences are important, but primarily as a matter of emphasis. For example, family leadership of business enterprises, including large companies, occurs in very similar ways in both [regions], but is more common in Asia.
Li Ka-shing [of the Hong Kong-based Hutchison Whampoa and Cheung Kong holding group], for example, runs his companies closely and is planning to pass the leadership of his firms to his two sons. Similarly, the heads of some of America's largest firms, both publicly held and private, are the scions of the families that founded the firms.
There is less freedom of action for executives and boards in America than in Asia.
But more common in America are firms that are run by professional managers who are replaced by other professional managers, either as a consequence of retirement or of replacement by the board of directors of the firm. The better companies have sophisticated programs for developing executives within the firm, and ordinarily choose a next chief executive officer from among them. American CEOs average about thirty years with their firms and own less than 4 percent of its shares. There is a small number of firms, which get a great deal of publicity and so seem more numerous than they are, that hire CEOs directly from the outside, with no previous experience with the firm. These CEOs are driven by a need to excel in a competitive environment (they want to win), and they insist that money is less important to them than professional achievement; but it's hard to credit that given the enormous inflation of top executive compensation packages in America in the last decade.
Many American firms, especially most of the large ones, are more dependent on capital markets for their capital (equity and debt) and so pay much more attention to Wall Street than is yet common in Asia. Wall Street has strong expectations about the behavior and performance of executives and about succession. There is less freedom of action for executives and boards in America than in Asia.
In Asia, succession usually is passed on to the siblings. In Li's case, he is handing it to his two sons, while Jack Welch developed a talent machine to groom CEOs for General Electric.
To a significant degree, large American firms are at a later stage of development than many Asian firms—they have passed from founders' family leadership to professional management and to capital obtained from the capital markets (rather than obtained from government—directly or indirectly—or from family fortunes). In this transition they have adopted particular styles of leadership responsive to boards (often led by outside directors) and to Wall Street.
It is possible, but not certain, that Asian firms will follow this evolutionary path. The political connections so important for top business leaders in Asia, whether in democracies or one-party states, are not unknown but are much less important in America. It is a characteristic of Asian top executives that they have such connections that are important to their businesses. In America, the chief executive officers of very large firms often have virtually no direct connections to top politicians—the government is treated at arm's length and business is done by business people. There are, of course, exceptions, and deep political involvement is still a route to business success in America, but it is much less common than in Asia.
Leadership styles in America
Leadership styles are more varied in America today than in Asia. In America there are five:
The first four reflect how an executive deals with subordinates in the company; the final one is directed at people outside the firm.
Directive leadership is well known in America, but is declining in frequency. It stresses the direction given by executives to others in the firms. The leader is very much in charge. This style is very common in Asia.
Participative leadership, which involves close teamwork with others, is more common in Europe, where it is sometimes required by law (as in northern Europe, especially Germany) than in America. It is also common in a variant colored by national cultural norms, [as] in Japan.
Empowering leadership is relatively new, and stresses delegation of responsibility to subordinates. American companies that operate with largely autonomous divisions employ this style of leadership. A few younger Asian business leaders now espouse this style (for example, the CEO of Banyan Tree Resorts).
At the core of empowering leadership is the ability to energize the people in a company. Jack Welch commented, "You may be a great manager, but unless you can energize other people, you are of no value to General Electric as a leader." Energizing others is the core of the new leadership in America.
Adaptability is ... less common and less valued in Asia and Europe. It will be needed everywhere soon enough.
Charismatic leadership is the leader who looks like a leader. People follow such a leader because of who he is, not because of good management or even business success; nor because [the people] are offered participation, partnership, or empowerment. Human magnetism is the thing, and it is very different in different national cultures. What looks like a charismatic leader to Americans may appear to be something very different to people from other societies.
Celebrity leadership is very different. It looks outside the company to the impact on others—customers and investors. The CEO becomes a star and is sought after by the media like a screen star. Ordinarily it requires good looks, a dramatic style, and an ability to deal effectively with the media. It is in a bit of a slump in the United States right now due to the corporate financial reporting scandals, which have focused attention on CEOs with the ability to get things done right in the company; but celebrity leadership will make a recovery. Boards looking for top executives to revitalize a firm look for superstars; they seek outgoing personalities.
Corporate governance in the West means oversight from regulators, boards of directors, even institutional shareholders. While Asia now has most of these institutions, they are ordinarily not as well established and not as significant in the minds of top executives. Asia is bedeviled by official corruption that reaches far into business. America has less of this, but has in its place considerable financial reporting fraud. Both are very dangerous to the economic success of the nations involved. Graft tends to destroy an economy first by undermining the trust that is required for transactions to occur, and by distorting the economic calculus that underlies sensible business decisions. As it continues, graft destroys the national political entity. Long-established graft is a way of life that is very hard to root out. Politicians promise to eliminate it, but are unable or unwilling to do so.
The role models available for business leadership in the different regions of the world are significant. In America, with its longstanding experience with professional business leadership, the most readily available role model for the head of a company is the corporate CEO. In China and Chinese-related businesses it is the head of the family. In France it remains the military general. In Japan it is the consensus builder. In Germany today it is the coalition builder.
There are nine key qualities that research shows people seek in a successful leader:
The emotionalism that goes with passion is more common in America than elsewhere. Europeans see it as a sort of business evangelicalism and are very suspicious of it. Decisiveness is common to effective executives in all countries: In this regard European and Japanese chief executives are the most consensus-oriented, and Chinese and American top executives are more likely to make decisions personally and with their own accountability.
Conviction is common to all.
Integrity is a complex characteristic very much determined by national cultures. What is honest in one society is not in another, and vice versa.
Adaptability is a pronounced characteristic of American leadership generally. It is less common and less valued in Asia and Europe. It will be needed everywhere soon enough.
Emotional toughness is common to all top executives; Americans spend more time trying not to show it.
Deep political involvement is still a route to business success in America, but it is much less common than in Asia.
Emotional resonance, the ability to grasp what motivates others and appeal effectively to it, is most important in the United States and Europe at this point in time. It will become more important in Asia as living standards improve, knowledge workers become more important, professional management gets greater demand, and CEOs have to compete for managerial talent.
Self-knowledge is important in avoiding the sort of over-reach so common in America; it is less common a virtue in America than in Asia, and is a strength of the Asian executive.
Humility is a very uncommon trait in the American CEO. It is sometimes found in Asia. It is often a trait of the most effective leaders, as it was in the best-respected of all American political leaders, Abraham Lincoln. Once, when the Civil War was not going well for the Union side, a high-ranking general suggested that the nation needed to get rid of Lincoln and have a dictatorship instead. The comment came to Lincoln's ears. Lincoln promoted the general to the top command in the army anyway and told him, "I am appointing you to command despite, not because, of what you said. Bring us victories, and I'll risk the dictatorship."
What's next for Asia
The "New Asian Leader"? There are three prototypes:
1) Li Ka-shing of Hutchison Whampoa-Cheung Kong: old Chinese leadership in transition like Li Ka-shing. Rags-to-riches in one generation; handing over his business empire to his two sons who are Western-trained. There are many such examples in Asia. Li Ka-shing is in different areas of business—telecommunications, security, and high-end IT—and is very interested in becoming a contractor in the emerging homeland security construct in America. With Li Ka-shing, the threat to success is his reliance on an international concern to be a significant contractor in the establishment of the U.S. homeland security hierarchy. Li's personal story is an amazing tale of success. After the death of his father, Li—at age twelve—went to work in a plastics factory. Within a decade he started his own plastics company, which he later leveraged into a real estate and investment concern. It then was an early entrant into China's telecom and IT wave of the early 1990s, and became a market leader.
Li is a man who seeks to establish a positive legacy. He created a foundation in 1980 to help young Chinese students have the educational and other opportunities he had to make for himself at age twelve. He also started his own university, Shantou University, in 1981, with a similar purpose.
2) William and Victor Fung of Li & Fung: old traditional Chinese family-owned companies now run by the third generation of the family, Western- and highly-educated, who use Western technology extensively to face globalization and succeed. Very much Western-centric in approach yet Asian in practice, the Fungs of Li & Fung have mastered techniques of getting maximum efficiency out of the supply chain, taking raw materials and making low-cost, high-demand consumer goods, particularly clothing, much more cheaply than in the United States.
What the Fungs have accomplished is similar to what Japanese automakers accomplished a generation ago. By strictly adhering to principles of quality control—principles that were espoused by American business consultant Edward Deming—Nissan and Toyota made cheaper, better cars than the Americans did, eventually causing the big three U.S. automakers to follow suit. William and Victor Fung are interested in being business consultants, teaching others how to do what they've done. Both men are Harvard-educated and have a desire to be open and forthcoming about their business model.
As Asian companies seek access to world capital markets, they will move toward professional managers who will employ leadership styles more akin to those now used in the United States.
The main threats with Li & Fung are these: driving down labor costs, and concerns about relying on suppliers who potentially abuse the human rights of workers or pay less than a standard living wage. Victor and William Fung are the new type of Asian leaders—will they soon be the only type?
3) New Economy business leaders. Information technology and the Internet are bringing out a high-tech type of leadership that is common in America's high-tech sector. Entrepreneurial, innovative, hard-driving, very flexible, ambitious, optimistic, visionary in the technology and business aspects, they will play a good, but not dominant role. N. R. Narayana Murthy of India's Infosys and Stan Shih of Acer are good examples. They have adopted an almost entirely Western style of leadership and are succeeding in Asia.
What is the conclusion? Styles of leadership are currently different between Asia and America. Culture colors the way things are done, but less so what is done. The differences in styles most markedly reflect the stage of development of the economies and companies of Asia. As Asian companies seek access to world capital markets, they will move toward professional managers who will employ leadership styles more akin to those now used in the United States.
As Asian companies rely more on professional employees of all sorts, and as professional services become more important in Asian economies, the less autocratic and more participative and even empowered style of leadership will emerge. Asian leadership will come to more resemble that of the West. But significant cultural differences will remain—economic and geopolitical rivalries within Asia and between Asian countries and the West will continue and perhaps grow. Economies will retain characteristic national features. Convergence in a leadership style does not guarantee likeness of results nor even peace. We will continue to have to work for economic progress and peace; it will not come automatically.