Is the Tough-Minded Boss the Winner? -- by Professor Bill White (McC61)

I read about a study by a recruiting firm which focused on top executives hired by private-equity companies—the buyout firms. It turned out that the ones who were the toughest managers—those who were the most demanding—were also the most successful. They didn’t rate as high on evaluations in terms of building teams, achieving consensus, and developing people, but they stood out as exemplary leaders in private equity. Does this tell us something about CEOs and other top leaders in general?

I won’t dispute the validity of the survey, but when it comes to applying those findings more broadly to corporate leaders, I beg to differ. The first thing to understand here is that the survey was situational: buyout firms, which tend to have an extremely short-term orientation.

In the private equity environment, you have to show results quickly for the investors because the money to be made is not in buying companies and operating them, but in buying an organization, getting it into shape quickly, and selling it. This means slashing where you have to and rarely looking at anything long-term. This type of business environment requires a certain type of leader, one who can be tough-minded and demanding and make the necessary cuts without thinking much about the longer-term team. Those who are on board with the private equity firm most likely have the same orientation, and those who are not won’t stick around for very long.

Private equity, however, is only a very small part of the overall business world. Most corporate operating environments, at least in my experience, value leadership that promotes collaboration, builds teams, develops talent, and challenges and rewards people who make the most contribution. The “slash-and-burn” mentality may be valued in extreme turnaround situations but not in most companies that are looking to grow through innovation and new ideas.

What we can infer from the results of that survey is that there is a place for this type of tough manager. Corporate leaders in private equity would need to have a certain personality to do this and be very comfortable with themselves. They have to take the position that long-term development of the company or the team is not paramount; getting the company in shape quickly to sell is the top priority.

Another insight we can take away from the survey is that the private equity model of the tough-minded manager not only works at the CEO-level, but also among younger managers. There may be times and situations where this type of style would be needed for a period of time. It may be a turnaround of a division or a product line that is suffering serious losses or “bleeding red ink,” as they say. Managers may have to take that tough, short-term approach to make the unemotional decisions. Then when operations return to normal, they can revert to a more nurturing, team-building style. However, most managers are not able to operate effectively in both of these styles.

The point I’d like to emphasize here is that what works best in private equity is a style that may not be valued everywhere. Although there may be times when the tough, unemotional decisions need to be made, it’s usually in the short-term. Over the long haul, the tough-minded boss will not flourish everywhere. When it comes to the corporate world, my money is on the team-builder every time.

Questions? Bill@FromDayOne.com

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Your Extraordinary Career features proven success strategies and advice for recent graduates and young professionals from William J. White, who draws upon a successful corporate career, including as Chairman and CEO of a New York Stock Exchange-traded company. Bill is now Professor at the McCormick School of Engineering and Applied Science at Northwestern University, and author of the career book for young professionals, From Day One: CEO Advice to Launch an Extraordinary Career.

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Posted October 31, 2008.