Banks need reliable leaders, not egotists

The disappearance of Lukas Mühlemann from Credit Suisse, Leonhard Fischer from Dresdner Kleinwort Wasserstein and Michael Carpenter's change of job at Salomon Smith Barney suggests it is dangerous to be at the helm during a downturn. There is speculation, too, about the future of Bill Harrison at JP Morgan Chase.

Eliminating leaders is cathartic. Replacing an old face has all the advantages of buying new clothes - it is an opportunity to break from the past, for reinvigoration, a chance to wear something that fits the occasion. But a new leader can often do little to change underlying realities.

Rakesh Khurana, an assistant professor of organisational behaviour at Harvard Business School, says in an article in the Harvard Business Review that organisations have unrealistic expectations when they replace senior staff.

Businesses wrongly assume that bringing in a charismatic, white knight leader from outside will overcome danger.

"By linking performance to individual leadership, boards oversimplify reality in hopes of finding easy answers," he says.

Khurana believes that executive search firms are responsible for the myth of charismatic white knights. Headhunters' pay is directly related to the number and remuneration of external leaders they place. They have a vested interest in propagating the idea of dynamic and costly outside hires. Instead, Khurana says it is better to grow leaders in-house. There are some recent examples of banks that have done this.

Carpenter was replaced by Charles Prince, a 20-year Salomon Smith Barney veteran. At Credit Suisse, John Mack, an archetypal outsider who joined the firm last year, is sharing the top role with Oswald Gruebel. Apart from a short period of retirement, Gruebel has been with the bank since 1985.

But succession planning will probably be more thorough in future, wherever the new leader comes from.

Manfred Kets De Vries, professor of management and leadership at France's Insead business school, says that ad hoc apprenticeships used to be the favoured method of preparing banking leaders. Not any more: "During the past five years, banks' approach to leadership training has become increasingly systematic," he says.

This is particularly so at Goldman Sachs. The bank set up a training committee to tackle succession planning as long ago as 1996.

Ben Cannon, vice-president of leadership training at Goldman Sachs in Europe, says the committee was founded because the firm realised that its managing directors, however technically strong and naturally charismatic, lacked formal training in how to manage large groups of people.

As well as coaching and mentoring programmes, Goldman offers three leadership development courses. About 70% of training comes on the job, while 20% is in the form of mentoring and 10% comes from leadership courses, says Cannon.

Pine Street is the best known of Goldman's leadership programmes. Begun in New York in 2000 and named after the street that housed the firm's headquarters for more than 100 years, it was first used for training managing directors.

Cannon says that Pine Street is now also open to high-potential vice-presidents and middle to senior managers from client companies. The programme teaches desirable behaviour based on business principles.

Goldman Sachs' leaders are encouraged to debate freely, decide swiftly and commit, promote meritocracy and foster teamwork between different business areas.

As a result of the programme, senior positions are almost always filled with insiders.

Graham Ward, global head of leadership and diversity for the equities division, says: "In the past, we rarely brought in experienced people to run desks or business units for two reasons - they are unlikely to be in cultural harmony with the organisation, and vertical integration, in general, tends to unsettle internal aspiring leaders."

De Vries says Goldman Sachs' emphasis on succession planning and co-leadership - most divisions have two heads - has helped to alert the bank to the dangers of egotistical leaders with grandiose ideas of their own importance.

In extreme cases, such leaders are known to psychologists as narcissists, after the ancient Greek who so much liked looking at his reflection in a pool of water that he fell in and drowned.

Narcissistic leaders have numerous failings, including ultra-competitiveness, boastfulness and intolerance of others. De Vries says that the high pay and superstar status of some bankers can lead them to be narcissistic.

Confident outsiders are particularly susceptible. "Charismatic leaders reject the limits to their scope and authority. They rebel against all checks on their power and dismiss the rules and norms that apply to others," says Khurana.

Even worse, he says that superstar saviours have a tendency to turn into black holes that suck the energy and purpose out of organisations.

Banks who fail to consider internal candidates when replacing senior staff have been warned.