The ideal leader

How great leaders lead?

Apart from being good communicators, good leaders lead by providing clarity and pointing you to the right direction under uncertainty, especially during crisis.

If the leaders don’t know the direction, how can they lead?

They are also accountable for the decisions. If they lead us to the wrong direction with no consequences, where is the accountability?

These are important questions.

We can explore some of the attributes of an ideal leader from different aspects to find potential answers to the important questions.

Inverted pyramid

We usually think of leaders at the top of a pyramid who have all the control and power. However, leaders don’t necessary have all the answers.

The right way to think about leadership could be to flip the top-down model.

You should invert the pyramid and envision yourself as the guy at the bottom. You are there to enable all the work being done. That’s my mental image of what I’m here to do at Spotify.

Daniel Ek, founder of Spotify, as documented in Hidden Genius: The secret ways of thinking that power the world’s most successful people

Robert Greenleaf, who popularised the term servant leadership, believed that organisations are at their most effective when leaders encourage collaboration, trust, foresight, listening and empowerment.

Servant leadership inverts the pyramid. Leaders are here to serve the people. Customers and employees rank above the leaders.

From economic perspective, those with bigger pay check and bigger responsibility should produce more for the company by enabling the people who actually performing the work to be as productive as possible to generate the most value for the company. Productivity is accumulative and rewards should be proportional to the value created in order for the economics system to function well.

Strong supports the poor.

Great leaders are the strongest persons who stay low and humble to serve and support the people.

Good moral character

2500 years ago, Confucius suggested that if the emperor has moral perfection, his rule will be peaceful and benevolent. Natural disasters and conflict are the result of straying from the ancient teachings. He believed in the importance of education which leads to more virtuous behaviours, such as respect, altruism, and humility.

If the world isn’t following the Way, rewards go to precisely the wrong people. Cheaters prosper. The shameless get famous, instead of infamous. In a world gone awry, Confucius looks at any of us who have found wealth or made a name for ourselves and asks, This world is working for you? This one? If the world is out of joint and you find yourself living large, it’s probably because you, too, are out of joint. If the society you live in has lost the Way, you can choose only these options: leading your life well or trying to make it go well.

Extracted from Life Worth Living: A Guide to What Matters Most

The main idea of Confucianism is the importance of having a good moral character, which can then affect the world around that person through the idea of “cosmic harmony.”

History suggests that all prosocial institutions age and eventually collapse at the hands of self-interest… That is, although it may take long time, individuals and coalitions eventually figure out how to beat or manipulate the system to their own ends, and these techniques spread and slowly corrode any prosocial effects.

Joe Henrich, anthropologist, extracted from The Geek Way: The Radical Mindset that Drives Extraordinary Results

A nation is great not by its size alone. It is the will, the cohesion, the stamina, the discipline of its people and the quality of their leaders which ensure it an honourable place in history.

Extracted from The Wit and Wisdom of Lee Kuan Yew

Nations rise and fall. We are the problems. Great leaders lead by example and people follow great leaders with strong ethics. This can prevent disasters.

Skin in the game

If you are the owner of a business where you have your own capital at risk, your attitude towards running the business will be vastly different than those who merely work for you.

The outcome will be totally different than when you don’t put a cent in the business as you won’t allow your business to fail. You will do everything to make it a success. Failure is not an option. This is the importance of skin-in-the-game.

What is Skin in the Game? The phrase is often mistaken for one-sided incentives: the promise of a bonus will make someone work harder for you. For the central attribute is symmetry: the balancing of incentives and disincentives, people should also penalized if something for which they are responsible goes wrong and hurts others: he or she who wants a share of the benefits needs to also share some of the risks.

Nassim Nicholas Taleb, author of Skin in the Game: Hidden Asymmetries in Daily Life

In ancient times, the architect need to stand underneath the newly constructed bridge to show confident that it is safe for others to use. If the bridge is poorly built, the architect’s life will be first in danger.

Here is a recent example of skin-in-the-game where Temasek cuts its senior management compensation after failed FTX investment.

Great leaders have something to lose if their decisions are wrong to hold them accountable to ensure skin-in-the-game. This eliminates irresponsible behaviour that creates risk for others.

Leaders with skin-in-the-game are leaders we can trust.

Bad news first

Warren Buffett, the greatest capital allocator in the world, prioritises the bad news. He wants the CEOs of the companies owned by Berkshire Hathaway to report any bad news to him immediately. He can get to the good news later.

Lose money for the firm and I will be understanding. Lose one shred of reputation for the firm and I will be ruthless.

Warren Buffett, as documented in University of Berkshire Hathaway: 30 Years of Lessons Learned from Warren Buffett & Charlie Munger at the Annual Shareholders Meeting

A small crack can lead to a bigger problem that can sink the ship. Problems when left unattended tend to compound. Buffett understands this, in this case, negative compounding effect, more than anyone else in the world. In order to become the greatest investor in the world, he can’t afford to be deluded and live in denial.

Actions have to be taken right away to correct the bad situations. This reduces risk in the system.

When we see the reality as it is, it is easier to make the right decisions.

Our experience has been that the manager of an already high-cost operation frequently is uncommonly resourceful in finding new ways to add overhead, while the manager of a tightly run operation usually continues to find additional methods to curtail costs, even when his costs are already well below those of his competitors.

Extracted from Tap Dancing to Work: Warren Buffett on Practically Everything, 1966-2013

This is easier said than done. Normal people would like to show off good news in order to claim credit for bigger bonus. The downside of reporting only good news is that human is creative and can always present any situation in the best possible light by covering up the bad side. In financial world, most statements are fiction. This can fool those inexperienced amateurs but not seasoned investors like Buffett.

It is more comfortable to live in denial than to deal with reality. It is painful to deal with loss as documented in Thinking, Fast and Slow by Daniel Kahneman, world-famous psychologist whose prospect theory deemed to be so influential to economics and government policy making that he won the Nobel Prize in Economics.

Great leaders with strong mind deal with reality all the times. Running a successful business is not for those with weak mind. We can’t take loss personally because the market does not discriminate.

What the wise man does in the beginning, the fool does in the end.

Howard Marks, author of Mastering The Market Cycle: Getting the Odds on Your Side

Final thought

We need to check against ourselves and our leaders if they hold up to the above qualities. If not, we have work to do.

It’s not about working harder. It’s about working the system.

Evan Spiegel, founder of Snap, extracted from The Unfair Advantage: How You Already Have What It Takes to Succeed

We all have tendency of misbehaving by natural instinct.

In a nutshell, ideal leaders are the leaders who can actually lead. They are strong persons with strong mind who stay grounded and care about others.

Hard times create strong men. Strong men create good times. Good times create weak men. And, weak men create hard times.

G. Michael Hopf, author of Those Who Remain

We need more ideal leaders, the destiny of humanity depends on them. You could be one of them if you want to.

Be the change you want to see in the world.

Mahatma Gandhi