Leadership development is a hot topic among the heads of larger financial advisory firms right now. Founders in their late 50s, 60s and early 70s know they owe it to their clients and to their teams to leave their businesses in good hands when they eventually step away. And, bear markets often present good learning opportunities.
But at a recent presentation about next-generation leadership for firms with over $1 billion of assets under management, one participant asked me a question that reframed the matter. “In what ways have we, as leaders, failed?”
It was a pertinent, great question because future leaders are learning right now by observing current leaders. These next-gen advisors are soaking up and learning to copy both the pros and cons of their bosses’ approaches to leadership in changing economic times. Thus, the best thing today’s leaders can do to prepare their successors is to strengthen their own leadership.
And that gets back to the question about the ways in which leaders fail. By failure, I’m not referring to an inability to launch and sustain a firm. I’m talking about the inability to reach the company’s full growth potential. So, let’s look at the top area in which leaders fail—or, to put a positive spin on it, the top area in which they need to improve. That area is interpersonal skills.
We’re not talking about emotional intelligence, which is another popular topic within the industry. This deficit in interpersonal skills doesn’t have to do with empathy and the emotional components of leadership. It’s something different, something most of our industry’s founding generation has never been trained in.
Our founders worked hard to start their businesses, figuring it out and learning from mistakes along the way. As their firms grew, some founders worked out how to build up other leaders, and others ran into problems developing ones. But the majority of founders haven’t had the time or interest to develop several key interpersonal skills. In many cases, they aren’t aware there’s work that needs to be done. And when their businesses are growing, they’re even less likely to seek out interpersonal training. So here are the four areas within the interpersonal realm where we’ve seen firms running into the biggest problems over the years:
Differentiation. This refers to the ability to think independently before making decisions. By far the most common and costly mistake we see leaders make is allowing themselves to be influenced by others so they’re not able to make decisions independently.
Each business has unique characteristics, and obviously no one knows a business better than its founder. However, we often see leaders seeking to get into consensus with other leaders—often folks from study groups—before making decisions. Similarly, they’re often influenced by benchmarking studies, which reflect the consensus of a cross-section of different kinds of firms. This is a little like recommending a career to your child based on the most popular careers in the United States rather than on their abilities and interests.
Leaders must come to the decision-making table knowing where they stand. Can other leaders’ input help them form opinions? Of course. Can benchmarks? Yes. But when a leader can be easily influenced in their decision-making, it’s usually bad for their business. A lack of independent thinking often results in a consensus that makes everyone feel heard rather than a strong, clear and effective commitment to move the business forward.
Stress management. Every workplace has stress, and it can be productive or counterproductive. Too much or too little leads to declines in productivity, not to mention the impact on employees’ mental health and work satisfaction. Maintaining an optimal amount of stress, on the other hand, helps organizations sustain high levels of performance and productivity. The key is keeping that stress level within the right range.
Unfortunately, most firms veer in and out of that range. Usually, that’s because the leader is not staying in the zone themselves, piling on too much work, and/or not enough. An organization’s people take their cues from the behavior of their leaders. If a leader is driving himself to an unsustainable degree, skipping lunch and so on, others are likely to as well. This isn’t good for a firm in the long term. The best leaders know how to manage their own stress to keep their organization at an optimal level of performance.
In recent months, firms have experienced a major stressor in the form of the bear market. Falling revenues during periods like these can prompt very different reactions from leaders based on how they manage stress. Some have taken the bear market as an opportunity to gain future cash flows, while others have reacted to it as pain that must be eliminated immediately by cutting expenses.
But stressors come and go. The leaders who will win the future are those who understand that bear markets are always followed by bull markets and are exploring how to invest in their organizations today to earn greater cash flows in the future. These leaders understand how to manage stress to their firms’ benefit.
Navigating conflict. Too often, leaders who need to address conflict head-on instead avoid facing up to it. Most leaders want the people working in their organization to be happy. But when we place the happiness of others above the long-term success of our organization, we often fall into a leadership avoidance cycle. Great leaders don’t avoid making hard decisions because they want to be liked.
Toxic positivity. Our culture asks us to believe that positivity is something we all should strive for: The message we receive is that if you aren't being upbeat, regardless of the circumstances, then there's probably something wrong with you. But the best leaders don’t try to paint everything as a positive.
If our business experience was purely a succession of positive events—if our firms grew continually and never ran into problems—we would eventually become complacent. Negative things do happen, and they have to be acknowledged so our people can address them and move on. Accepting and learning from both highs and lows is a more authentic and productive approach than expecting positivity even when it’s not warranted. You have to be an optimist to lead a business, of course. But a leader who seeks to help when things go negative is far more powerful than one who insists on unwavering positivity.
It can be difficult for leaders to face the issue of interpersonal capabilities. Most are more comfortable looking at hard numbers and doing the work of running the business. But setting the stage for helping an organization to meet its growth potential often requires us to step out of our comfort zone. And doing the work to strengthen interpersonal capabilities is a great investment.
Angie Herbers is the founder and CEO of Herbers & Co., a consultancy firm for financial advisors.